Abstract
This paper analyzes the provisions of the Nigerian Companies and Allied Matters Act 2004 which, against the grain of general law rules on decrystallisation of floating charge, provides that a crystallised floating charge can decrystallise or refloat where the creditor withdraws from possession after the debtor has commenced payment or if the receiver, with consent of the creditor, is withdrawn. The analysis is relevant because the provision has dire implications for business sustainability since parties engage in debt transaction to sustain the going concern basis of their businesses. Bearing in mind that uncertainty pervades the boundaries between fixed and floating charge, the paper asks what is the priority status of a decrystallised floating charge as against a floating charge created prior to refloatation; and what is the relationship between the decrystallised floating charge and a fixed charge that predated the decrystallisation on the one hand and a fixed charge created post refloatation on the other hand. Using the case law and existing literature the paper showed that the statutory provision for decrystallisation of floating charge not only failed to clarify the general law rules on decrystallisation of floating charge, but it has cast a veil of uncertainty over the rights of parties to a debt transaction secured by floating charge. Since the provision can impact on the health of businesses, it behoves on the parties to be proactive in crafting debts contracts creating an interest secured by floating charge.
Highlights
When a company borrows money and creates an interest to secure the repayment, it grants or appropriates a right over its property, assets, or undertakings to the creditor
Using the case law and existing literature the paper showed that the statutory provision for decrystallisation of floating charge failed to clarify the general law rules on decrystallisation of floating charge, but it has cast a veil of uncertainty over the rights of parties to a debt transaction secured by floating charge
This paper is structured in five parts: part one looked at charges generally; part two treated the types of charges capable of being created under Companies and Allied Matters Act (CAMA); part three looks at crystallisation of floating charges; part four considered the statutory decrystallisation of floating charge and part five concluding the paper considers the implications of statutory decrystallisation for business sustainability
Summary
When a company borrows money and creates an interest to secure the repayment, it grants or appropriates a right (legal or equitable) over its property, assets, or undertakings to the creditor. The paper sets out to consider the questions which the provision for decrystallisation of floating charge under Nigerian Companies legislation has thrown up. They are that the law failed to (a) protect adequately the interest of the chargor (debtor) who has commenced repayment prior to the withdrawal of the chargee from possession; (b) state what will be the priority status of the decrystallised floating charge (identified as deemed floating charge) as against a floating charge created before the charge crystallised; and (c) determine the relationship between the fixed equitable charge (identified as contingent specific charge) and as-created fixed charge that predated the decrystallisation and one which was created post refloatation. This paper is structured in five parts: part one looked at charges generally; part two treated the types of charges capable of being created under CAMA; part three looks at crystallisation of floating charges; part four considered the statutory decrystallisation of floating charge and part five concluding the paper considers the implications of statutory decrystallisation for business sustainability
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