Bankruptcy practice in the absence of long-term corporate financing: The Nigerian case

Abstract

Evidences contained in this paper show that there is a serious dearth of long-term corporate finances in Nigeria. The paper draws out clearly the fact that there are many deficiencies in the legal instruments governing bankruptcy practices in the country, and that it is these deficiencies which joined to erode confidence in the financial system. Its conclusion, among others, is that the near lack of long-term investment capital in Nigeria may therefore be owing to the gaps in the bankruptcy and collateral laws, and that even the recent banking consolidation was formulated and implemented without any attempt to equally close these gaps. The paper suggests that the present banking industry in the country would only succeed in playing an efficient intermediation role in the economy if the bankruptcy regulation were reformed as well in order to make adequate provisions for corporate liquidation, workout and reorganisation, as part of its debt resolution options; in addition, it is necessary to incorporate provisions that ensure the equitable allocation of risks in cases of liquidation and the protection of the value of an insolvent in cases of liquidation or reorganisation. These, the paper recognises, are the ingredients of efficiency bankruptcy regulations in countries with exemplary debt markets.