The Case for Amendment of Section 665 Cama 2020 and for Unenforceability of Ipso Facto Clauses in Nigeria

Abstract

Until recently, Nigeria did not have a robust Corporate Insolvency law regime. Fortunately, efforts were made recently to broaden the country’s Insolvency law with the enactment of the Companies and Allied Matters Act, 2020 (“CAMA 2020”). CAMA 2020 is essentially an amendment of the Companies and Allied Matters Act, 1990 (“CAMA 1990”) and is designed to update Nigeria’s Corporate and Insolvency law in conformance with global best practices. How well the Insolvency law provisions introduced by CAMA 2020 align with global best practices and whether they go far enough in addressing current insolvency problems in Nigeria remain to be seen. However, there is no denying the fact that the Insolvency provisions in CAMA 2020 are a significant upgrade of the rudimentary insolvency rules contained in CAMA 1990. One of the novel insolvency rules introduced in Nigeria by CAMA 2020 is contained in section 665 of the Act. Section 665(2) forbids a supplier of certain essential supplies (namely: water, gas, electricity and communication services) from making the provision of such essential supplies conditional on payment of outstanding charges owed the supplier by an insolvent company. The prohibition applies only where an insolvent company owes the supplier charges on supplies made to the insolvent company before the insolvent company entered administration or before it went into liquidation or before a voluntary arrangement took effect with respect to the said company or before a provisional liquidator was appointed (“pre-insolvency debt”). Section 665(2)(a) however permits a supplier of the above-mentioned essential supplies to make it a condition for the supply of the above-mentioned utility services to an insolvent company that the officeholder personally guarantees the payment for the supply of the above-mentioned utility services . As I will explain in greater depth in paragraph 2.1 of this paper, Section 665 is designed to prevent creditors who provide essential goods and services to insolvent companies from undermining efforts to restore insolvent companies to profitable trading. It is also designed to prevent creditors who provide essential goods and services to insolvent companies from jumping ahead of the queue to get paid by the insolvent before other creditors in breach of the law. I will argue in this paper that section 665 is deficient and may well be incapable of achieving its intended objectives. I will further contend that there ought to be a provision in CAMA 2020 that renders ipso facto clauses unenforceable. I will also make the case that the narrow scope of section 665 and the lack of a provision in CAMA 2020 which would make ipso facto clauses unenforceable are not in sync with modern trends in corporate insolvency law in other common law jurisdictions like the U.K, Australia, Canada, Singapore and the U.S