From Dysfunction To Recovery: Deploying Corporate Governance Architecture To Rescue Distressed Companies Under Administration In Nigeria

THE PROBLEM NO ONE IS TALKING ABOUT

When a Nigerian company descends into distress, the instinctive response of lawyers, bankers, and financial advisers is to focus on the balance sheet, to renegotiate debt, restructure credit facilities, and manage the competing claims of secured and unsecured creditors. These interventions are undoubtedly necessary. They are however, not sufficient. In the overwhelming majority of Nigerian corporate failures encountered by this writer in the course of acting as a court-appointed administrator, the narrative behind the numbers is strikingly the same: a board that did not function effectively, management that operated without supervision, internal controls that were paid lip service, and decisions of enormous commercial consequence that were taken by individuals accountable to no one.

Corporate governance failure, not sudden commodity price shocks, unfavourable exchange rate movements, or even predatory competition, is the primary underlying cause of corporate distress in Nigeria. Financial difficulties are the symptom while governance deficit is the disease. Yet, insolvency and restructuring practice in Nigeria has, for the most part, continued to treat the symptom while leaving the disease entirely unaddressed.

This article argues for a fundamental shift in the practice of corporate administration in Nigeria. It contends that the court-appointed administrator, armed with transformative powers conferred under the Companies and Allied Matters Act 2020 (‘CAMA 2020'), is uniquely positioned not merely to stabilise a distressed company's finances but to rebuild the institutional architecture and governance framework, that must underpin any lasting recovery. A company whose debts have been restructured but whose governance framework remains flawed, has not truly been rescued; it has been set up for a second fall.

UNDERSTANDING ADMINISTRATION UNDER CAMA 2020

The administration regime introduced by CAMA 2020 is the most significant development in Nigerian corporate rescue framework. It provides for the appointment by the Federal High Court of an administrator, an officer of the court, to take control of a distressed company and pursue defined statutory objectives in a prescribed order of priority : first, to rescue the company as a going concern ; second, to achieve a better result for creditors as a whole than would be obtained under a liquidation process and third, where neither of those objectives is achievable, to realise assets for distribution to secured or preferential creditors.¹

It is important to note that the administration framework under CAMA 2020 does not apply to commercial banks and other deposit-taking financial institutions, which are subject to a distinct regulatory and resolution regime under sector-specific legislation. The administration procedure is instead directed at the broader category of Nigerian companies engaged in commercial, industrial, and service activities. Accordingly, the governance reform mandate advanced in this article is intended to operate within the context of these entities.

Upon appointment, the administrator assumes control of the company's affairs, and the powers of its directors are suspended.² Acting as the company's agent, the administrator may exercise any power that could ordinarily be exercised by the company or its directors. This broad grant of authority is not accidental ; it reflects a legislative design intended to ensure that the administration process is genuinely transformative rather than merely palliative.³ As observed in the English case of Bristol Airport plc v Powdrill,⁴ so long as an order of administration is in force, the affairs, business and property of a company are to be managed by the administrator appointed by the court, and that for this purpose, the administrator is given very wide powers to carry on the business of the company.

Most importantly, CAMA 2020 also provides for a statutory moratorium upon the appointment of an administrator. During this period, no winding-up resolution may be passed,⁵ no enforcement of security may proceed,⁶ and no legal process may be commenced or continued against the company except with the consent of the administrator or leave of the court.⁷ In the English case of Re Atlantic Computer Systems plc,⁸ Nicholls LJ affirmed that the moratorium must be construed purposively, to give the administrator the breathing space necessary to develop and implement a coherent rescue strategy.

The moratorium is therefore more than a mere procedural shield ; it serves as an institutional precondition for governance reform, creating the stability within which meaningful structural change becomes possible.

THE GOVERNANCE DEFICIT: WHY NIGERIAN COMPANIES FAIL

The relationship between governance failure and corporate distress is not a matter of conjecture. It is supported by a substantial body of empirical research and the practical experience of practitioners who have conducted forensic examinations of distressed Nigerian companies. In his landmark study of companies undergoing financial restructuring, Stuart C. Gilson found that board composition and management entrenchment were significant predictors of both the severity of distress and the prospects of a successful corporate rescue. Gilson's work emphasises the importance of a well-structured board of directors, and the potential impact of management tenure on the effectiveness of restructuring efforts. Gilson posits that companies with captured boards and unchecked management consistently fared worse than those with stronger governance structures.⁹

In the Nigerian context, the governance failures that most commonly precede corporate distress follow a recognisable pattern. The first, and perhaps most prevalent, is the concentration of authority in a single dominant figure ; a founder-entrepreneur or controlling shareholder who simultaneously occupies executive, board, and ownership positions. In such circumstances, the notion of board oversight becomes an illusion. Strategic decisions of enormous consequence are made without challenge, independent assessment of risk, and without the procedural safeguards that corporate governance structures are designed to provid.

The second recurring failure is the breakdown of financial controls. Companies that enter administration often exhibit not merely weak accounting systems but a deeper erosion of financial discipline. This frequently manifests in the deliberate suppression of unfavourable financial information, the manipulation of reported results to satisfy lenders or investors, and the failure of internal and external audit processes to detect or disclose material misstatements. During the forensic investigations that typically accompany administration proceedings, related-party transactions, loans to connected persons, payments to shareholder-controlled entities, and asset transfers at below-market value, frequently emerge.

Collectively, these practices reveal a pattern of value extraction that leaves the company financially hollow. The third failure, closely related to the second, is the absence of effective risk governance. Companies in distress have almost invariably assumed significant contractual, financial, or operational obligations without any structured process for assessing the risks involved.

There is often no risk committee, no escalation protocol, and no management information system capable of providing the board with timely intelligence about the company's evolving risk profile. Consequently, when market conditions tighten or a key contract collapses, the company lacks institutional capacity to respond.

The Cadbury Committee's foundational definition of corporate governance as 'the system by which companies are directed and controlled'¹⁰ illuminates precisely what is absent from these failing enterprises : not just weaknesses within the system, but the absence of any coherent structure of direction and control. Similarly, the Organisation for Economic Co-operation and Development (OECD) Principles of Corporate Governance identify transparent disclosure, board accountability, and the protection of stakeholder rights as the cornerstones of effective governance.¹¹ In many Nigerian companies that ultimately require administration, all three cornerstones are missing.

Footnotes

1. Section 444 CAMA 2020

2. Section 501 CAMA 2020

3. Powers of an Administrator, Tenth Schedule, CAMA 2020

4. Bristol Airport Plc v Powdrill [1990] 2 All ER, CA, 496 (Browne - Wilkinson VC

9. Stuart Gilson, 'Bankruptcy, Boards, Banks, and Blockholders : Evidence on Changes in Corporate Ownership and Control when Firms Default' (1990) 27 Journal of Financial Economics 355, 362.

10. Adrian Cadbury, Report of the Committee on the Financial Aspects of Corporate Governance (Gee Publishing 1992) 14, para 2. 11. OECD, G20/OECD Principles of Corporate Governance (OECD Publishing 2023) 9.

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