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Published online by Cambridge University Press: 03 August 2020
In a bid to improve financial inclusion and access to affordable debt finance by micro, small and medium enterprises (MSMEs), Nigeria's Secured Transactions in Movable Assets Act (STMA) was enacted on 31 May 2017 to regulate the creation, perfection and realization of security interests in movable assets. This article critically examines certain provisions of the STMA, including the potential issues that may arise due to the dual registration system now available under the act and that hitherto existing under the Companies and Allied Matters Act, as well as the implications of the STMA on traditional pledge transactions. It concludes that, while the STMA is an impressive attempt at enabling MSMEs to leverage their assets into capital for investment and expansion, it fails to procure a harmonized legal framework for secured transactions in personal property or to facilitate their effective use as collateral to improve access to credit by businesses in Nigeria.
Lecturer, Faculty of Law, University of Lagos, Nigeria.
1 IO Smith Nigerian Law of Secured Credit (2001, Ecowatch Publications (Nigeria)) at 1.
2 UN General Assembly, 56th session, supp no 17 (A/56/17), para 351.
3 As of 2018, a joint survey undertaken by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) and the National Bureau of Statistics placed the number of MSMEs in the country at around 37 million. See Y Kolawole “SMEDAN advocates database for MSMEs” (7 June 2018) Vanguard (Lagos), available at: <https://www.vanguardngr.com/2018/06/smedan-advocates-database-msmes-empowers-100-smes-osun/> (last accessed 1 June 2020).
4 A Alvarez de la Campa “Increasing access to credit through reforming secured transactions in the MENA region” (2011, World Bank policy research working paper 5613) at 13, available at: <https://pdfs.semanticscholar.org/2886/d40935507dd968e4ce91ecd793612cfc1dad.pdf> (last accessed 14 June 2020).
5 H Fleisig et al “Reforming collateral laws to expand access to finance” (2006) World Bank Report at 7–8.
6 Otabor-Olubor, I “Reforming the law of secured transactions: Bridging the gap between the company charge and CBN regulations security interests” (2017) 17/1 Journal of Corporate Law Studies 43CrossRefGoogle Scholar.
7 “A look at Nigeria's credit economy” Proshare (18 June 2018), available at: <https://www.proshareng.com/news/Credit%20Services%20&%20Registry/A-Look-atNigeria%E2%80%99s-Credit-Economy/40404> (last accessed 1 June 2020).
8 Also known as the Collateral Registry Act.
9 Otabor-Olubor “Reforming the law”, above at note 6 at 65. Although there also existed the Bills of Sale Act and other laws in certain states, they were significantly outdated, with cumbersome registration requirements.
10 Although the CBN Regulations on Registration of Security Interests in Movable Property by Banks and other Financial Institutions had established a collateral registry for movable assets, these regulations were unable to obtain the desired impact, as they lacked legislative backing for effective enforcement and were limited in their scope of application.
11 Secured Transactions, Collateral Registries and Movable Asset-Based Financing (2019, World Bank Group knowledge guide) at 3, available at: <http://documents.worldbank.org/curated/pt/193261570112901451/pdf/Secured-Transactions-Collateral-Registries-and-Movable-Asset-Based-Financing.pdf> (last accessed 14 June 2020).
12 As of 2017, it was estimated that MSMEs contributed about 47% of real GDP with an almost inexhaustible growth capacity.
13 Collateral Registry Regulations, art 1(3).
14 For example, they completely excluded company charges from the scope of application and only applied to transactions involving banks and other financial institutions.
15 STMA, sec 1.
16 Id, sec 2(1)(a).
17 Defined under id, sec 63 as “the person granting a facility on the back of a security interest created under [the] Act”.
18 Defined under ibid as “a person to whom credit is extended with a financial obligation to repay under a Security Agreement”.
19 Defined under ibid as “a person that has rights in the collateral, and includes a grantor of any type of security interest in the form of a charge, chattel, mortgage, pledge or lien in movable property”.
20 Id, sec 2(1)(b).
21 Id, sec 63.
22 This is generally covered by the Land Use Act and other relevant state legislation regulating the creation, perfection and realization of security interests in real property.
23 STMA, sec 2(2). It is noteworthy that such transactions are carried out by the Nigerian Ship Registration Office within the Nigerian Maritime Administration and Safety Agency and the Nigerian Civil Aviation Authority respectively. Furthermore, they do not generally accord with the pool of collateral assets readily available to MSMEs.
24 Id, sec 7(1).
25 Id, sec 7(2).
26 Defined under id, sec 63 as “the prescribed forms on which information is provided to effect a registration under [the] Act or any regulation made [t]hereunder”.
27 Id, sec 8(1).
28 Id, sec 23.
29 Reflected in the maxim Qui prior est tempore est jure. See Cave v Cave (1880) 15 Ch D 639; Dughum v Andzenge (2007) All FWLR (pt 385) 499 at 526; Olumide and Others v Ajayi (1997) 8 NWLR (pt 517) 433; and Nwosu v Nwosu (2012) 8 NWLR (pt 1301) 1.
30 Cap C20, Laws of the Federation of Nigeria (LFN) 2004.
31 CAMA, sec 178(1).
32 STMA, sec 2(3).
33 See Adukoyi v Gaaje (1942) WACA at 198.
34 See Briggs v CLORSN (2005) 12 NWLR (pt 938) 59 at 100–03; Animashaun v Olojo (1990) 6 NWLR (156) 111 at 114; and Edoso v Zaccala (2006) All FWLR (pt 306) 881 at 887.
35 (2008) LPELR-8332 (CA) at 35–36, paras D–F.
36 CAMA, sec 178.
37 See Adukoyi v Gaaje, above at note 33.
38 (2001) LPELR-1072 (SC) at 38, paras F–G.
39 See generally GO Esangbedo “The Secured Transactions in Movable Assets Act, company charges and funding micro, small and medium enterprises under Nigerian law” (2018, MPhil thesis, Keble College, Oxford University) at 73–75, available at: <https://ora.ox.ac.uk/objects/uuid:55e2fec9-406e-4ab3-87e8-102e618c7cb1/download_file?file_format=pdf&safe_filename=Final%2BThesis%2B%25281%2529.pdf&type_of_work=Thesis> (last accessed 1 June 2020).
40 Form CAC8 is the registration form used to register charges created by companies over their assets.
41 See generally Duggan, A “A PPSA registration primer” (2011) 35/3 Melbourne University Law Review 865Google Scholar, available at: <http://www5.austlii.edu.au/au/journals/MelbULawRw/2011/30.html> (last accessed 1 June 2020).
42 Cap S6 LFN 2004.
43 Smith Nigerian Law of Secured Credit, above at note 1 at 176.
44 See generally, Ihunwo v Ihunwo and Others (2013) 8 NWLR (pt 1357) 150; Okoro v Nwachukwu (2007) 4 NWLR (pt 1024); and Udemba v Nwabueze (2016) LPELR-41314 (CA).
45 Donald v Suckling (1886) LR B 585; Bowen LJ in Ex parte Hubbard 17 QBD 698.
46 These include the duties to take reasonable and proper care of the security, protect / preserve it from any form of damage or loss, and account for any profit received or that could have been received while in one's possession. See Co-operative Supply Association Ltd v Intercontra Ltd (1969) NCLR 61; Kendle v Melson (1998) CLR 46; and White v City of London Brewery (1889) 42 Ch D 237.
47 See Esangbedo “The Secured Transactions in Movable Assets Act”, above at note 39 at 56.
48 Olanlege v Afro Contractor (Nigeria) Ltd (1996) 7 NWLR (pt 458) 29.
49 This is done by the use of “shall”, which the courts have construed as a word of command, denoting a mandatory obligation or requirement. See Aladetan v Ogunyemi and Others (2010) LPELR-3699 (CA); Onochie v Odogwu (2006) LPELR-2689 (SC); Amokeodo v Inspector-General of Police and Two Others (1999) 6 NWLR (pt 607) 467; Kalamu v Gunrim (2003) 16 NWLR (pt 847) 517; and Kalamu v Gunrim (2003) 16 NWLR (pt 847) 517.
50 STMA, sec 5. In respect of para (f), it may be inferred that, if there is no existing agreement by the parties to submit to arbitration, this provision can be omitted from the security agreement.
51 (2009) LPELR-1245 (SC) per Mohammed JSC at 21–23, paras C–G. See also Pan Bisbilder (Nigeria) Ltd v FBN Ltd (2000) 1 NWLR (pt 642) 684; Solanke v Abed and Another (1962) NRNLR 92 (1962) 1 SCNLR 371; and P Kasumu and Others v Baba-Egbe 14 WACA 444.
52 See Adeoye v State (1999) LPELR-134 (SC); Adefulu and Others v Okulaja and Others (1996) LPELR-90 (SC); Animashawun v Osuma and Others (1972) LPELR-493 (SC); and Consolidated Business Support Services Limited v Access Bank of Nigeria and Others (2012) LPELR-8396 (CA).
53 STMA, sec 6(1)(a) and (b).
54 Id, sec 6(1)(c).
55 Agomo, CK Modern Nigeria Law of Insurance (2nd ed, 2013, Concept Publications) at 43Google Scholar. A person is essentially said to have an insurable interest in the subject matter if he will benefit from its existence or be prejudiced by its destruction. See also Lucena v Crawford (1806) Bos & PNR 269 at 306.
56 B Harnett and JV Thornton “Insurable interest in property insurance: A socio-economic re-evaluation of a legal concept” (1948) Columbia Law Review 1162 in Agomo, id at 56.
57 March v Piggot (1771) 2 Burr 2862.
58 Ezejiofor, G, Okonkwo, C and Ilegbune, C Nigerian Business Law (1982, Sweet & Maxwell) at 343Google Scholar, cited in Esangbedo “The Secured Transactions in Movable Assets Act”, above at note 39 at 82–83.
59 See generally, Esangbedo, id at 83.
60 Oguntade JCA in Law Union and Rock Insurance of Nigeria Ltd v Onuoha (1998) 6 NWLR (pt 555) at 576 stated to the effect that a court called upon to determine whether or not a particular claimant has an insurable interest in the property concerned will need to consider the issue of whether the destruction or diminution in value of the property would result in loss to the claimant.
61 No-one can give that which he does not own. See Omiyale v Macauley (2009) 7 NWLR (pt 1141) 597; Ibrahim v Osunde (2009) 6 NWLR (pt 1137) 382; Ashiru v Olukoya (2006) 11 NWLR (pt 990) 11.
62 See Ibrahim v Osunde, ibid; and Ashiru v Olukoya, ibid.
63 CAMA, sec 179.
64 STMA, sec 10(1)–(3).
65 See id, sec 11.
66 SMEDAN, a statutory agency, was established by the SMEDAN (Establishment) Act 2003, inter alia to initiate and articulate ideas for small and medium scale industries policy, promote and facilitate development programmes, instruments and support services to accelerate the development, modernization, networking and linkage of small and medium scale industries, providing and promoting strategic linkages within small and medium scale industries etc. See SMEDAN (Establishment) Act, sec 8.
67 CAMA, sec 7(1)(b).
68 See generally, I Otabor-Olubor “A critical appraisal of secured transactions over personal property in Nigeria: Legal problems and a proposal for reform” ( 2017, thesis submitted in partial fulfilment of the requirements of Nottingham Trent University for the degree of doctor of philosophy) at 185, available at: <http://irep.ntu.ac.uk/id/eprint/31955/1/IYARE%20OTABOR-OLUBOR%20Thesis%202017.pdf> (last accessed 14 June 2020).
69 Cap S8 LFN 2004.
70 Stamp Duties Act, sec 22(4).
71 Federal Inland Revenue Service “Integrated stamp duty services”, available at: <https://stampduty.gov.ng/stamp_duty_charges> (last accessed 1 June 2020).
72 STMA, sec 54.
73 Companies Regs 2012, sched 3 requires companies to pay about 0.01% (for private companies) and 0.02% (for public companies) of the monetary value of the security interest to CAC to register any security interests created over their assets.
74 (1979) 3 LFN at 213.
75 STMA, sec 39(1).
76 Id, sec 39(5).
77 Id, sec 40(1) and (3).
78 Id, sec 40(3)(b).
79 Id, sec 40(5) and (6). This assistance can be inferred under the provisions of sec 4 of the Police Act, cap P19 LFN 2004, which requires the police to perform duties set out in the Police Act or any other act (the STMA being one example), and imposes general duties on the police to preserve law and order and protect life and property.
80 Defined under STMA, sec 63 as “a certificate issued by the [NCR] confirming the registration number, date and time of a registration”.
81 Esangbedo “The Secured Transactions in Movable Assets Act”, above at note 39 at 84.