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The shareholders of the three nationalized banks have found themselves on the horns of a dilemma as they are about to lose their investments said to be in the region of N83 billion.

After receiving the nationalized banks and injecting about N679 billion last week, Managing Director of the Assets Management Corporation of Nigeria (AMCON), Mustafa Chike-Obi, had fired that the shareholders had lost 100% of their investments long time ago and therefore have nothing to contest for.

However, the Director General of the Securities and Exchange Commission (SEC), Ms Arunma Oteh, offered a soothing balm, saying that the shareholders still have their investments intact, technically speaking.

But the question everybody is asking now is: Have the shareholders lost all or do they still have something to salvage? What is the position of the law on this matter?

A Lagos based legal practitioner, Mr Victor Opara, is of the view that the shareholders of the nationalized banks cannot be said to have lost out on everything. He posited that the 'Central Bank cannot say the shareholders of these banks have no more stake in them because they revoked their licences for as long as the same organization are still existing.

I have not seen the legal framework (BOFIA) that gave the regulators the powers to do what they did, but I should believe that the whole idea is aimed at enhancing the value of the institutions and returns to shareholders. But even in doing so, I believe they ought to carry shareholders of the banks along to achieve a seamless transaction'.

But for Mazi Okechukwu Unegbu, the Managing Director of Maxifund Investment Limited and a former President of the Chartered Institute of Bankers of Nigeria (CIBN), the regulators have not acted beyond the limits of their statutory powers. He explained the legality or otherwise of the action of CBN and NDIC, noting that if the shareholders funds were actually eroded, it means there were no more shareholders.

' I do not see any illegality in the action even as a lawyer. There is CBN Act and there is NDIC Act. In NDIC Act, there are resolution options. The CBN, based on its own Act, has withdrawn their licences and handed the banks over to the NDIC to do whatever they care to do, either to support them or liquidate them'.

But Sir Sunny Nwosu, National Cordinator of Independent Shareholders' Association of Nigeria (ISAN), has vowed that the action of the regulators would not go unchallenged but added that the shareholder group was taking its time to ensure that its action was properly targeted.

He said 'Within the statutory period, we shall look at the necessary laws, study them, and decide on a line of action to take. We don't wish to take an action without understanding the implications. This is not an issue for CBN alone. NDIC, SEC, the Ministry of Finance and, of course, the Presidency are all involved. But, I can tell you, this action cannot go unchallenged.

'You cannot set up an institution to take over another without recourse to the owners and without coming up with an adequate compensation to those displaced. It is not done', Nwosu stated.

Some analysts are worried that CBN, NDIC and AMCON action in nationalizing the banks without recourse to shareholders does not have a place in law. According to them, the Corporate Affairs Commission (CAC) requires, under the Companies and Allied Matters Act (CAMA), that before any company or business will commence operation, it must be incorporated or registered as the case may be.

Deriving from this, Section 3 of Banks and other Financial Institutions Act (BOFIA) 1991, as amended, stated in subsection (1) 'Any person desiring to undertake banking business in Nigeria shall apply in writing to the Governor (of CBN or his deputy) for the grant of a licence and shall accompany the application with the following: (a) a feasibility report of the proposed bank (b) a draft of the Memorandum and Articles of Association of the proposed bank and their particulars; (c) a list of the shareholders, directors and principal officers of the proposed bank and their particulars; (d) the prescribed application fee (e) such other information, documents and reports as the bank may, from time to time specify.'

The shareholders of the proposed bank are required by law to deposit with the bank (CBN) a sum equal to the minimum paid up capital after they have provided all such information, documents and report required by CBN. Between 1991 and April 2003, 36 banking licences were revoked by the CBN in compliance with Sections 12 and 36 of Banks and other Financial Institutions Act (BOFIA) 1991, as amended, and the banks were handed over to the Nigeria Deposit Insurance Corporation (NDIC) for liquidation as provided in Section 38 of BOFIA.

The Corporation is empowered to provide financial and technical assistance to failing or distressed banks in the interest of depositors. The financial assistance can take the form of loans, guarantee for loan taken by the bank or acceptance of accommodation bills. On the other hand, the technical assistance may take the following forms: take-over of management and control of the bank; change in management; and/or assisted merger with another viable institution.

In the case of liquidating a bank, the 1998 amendment of BOFIA merely provides that the NDIC (as a provisional liquidator) shall file a petition for winding up of a bank at the Federal High Court (FHC) if the licence is revoked by CBN pursuant to the provisions of Section 36 of BOFIA.

In a paper presented during the regional seminar on 'comparative experiences in confronting banking sector problems in the sub-Sahara African region' in 2003, Dr. Shamsudeen Usman, then the CBN deputy governor, Financial Sector Surveillance (FSS) explained the implication of section 38. According to him, the implication is that the NDIC does not take over a bank and commence the liquidation process simply because its licence is revoked by CBN. 'The NDIC first has to file a winding up petition at the FHC, which has created an opportunity for various parties opposed to such winding up to challenge the matter in court,' he said.

Section 33 of BOFIA, 1991, as amended, vested on the CBN powers over failing banks. It provides as follows: 'where a bank informs the CBN that (a) it is likely to become unable to meet its obligations under this Decree (Act); or (b) it is about to suspend payment to any extent ;(c) it is insolvent; or (d) where, after an examination under Section 32 of this Act or otherwise however, the Bank (CBN) is satisfied that the bank is in a grave situation as regards the matter referred to in Section 32 (1) of this Decree (Act), the governor may by order in writing exercise any one or more powers, specified in subsection (2) of this section…' The powers exercisable in subsection (2) according to BOFIA, among others includes to prohibit the banks from extending any further credit facility, remove directors, appoint any person to advise the bank. Appoint any person as director of the bank etcetera.

Analysts have raised several questions from this part of BOFIA: One. Did any of the three banks inform CBN that it is likely to become unable to meet its obligations under this Decree (Act)? Judging from Usman's interpretation, after CBN revoked the licences of the three banks, have the shareholders or other interested parties opposed to the nationalization of the banks been given opportunity to make representations?

However, if after taking the steps stipulated in Section 33 or other appropriate measures, the state of the affairs of the bank concerned does not improve, the CBN may as provided in section 34 (BOFID as amended) Decree number 38 of 1998 turn over the control and management of such bank to the Nigeria Deposit Insurance Corporation (NDIC) on such terms and conditions as the bank may stipulate. In the event that the bank over which the NDIC has assumed control cannot be rehabilitated, the corporation may recommend to the CBN other resolution measures.

Revocation of licence
The BOFIA 1991 as amended, vests on the governor of the CBN with the approval of the President, the power to revoke any licence granted under the Act, the following circumstances: Section 12 (a)-(e), (a) 'if a bank ceases to carry on in Nigeria the type of banking business for which the licence was issued for any continuous period of six months or for any period of 12 months(b) goes into liquidation or is wound up or otherwise dissolved (c) fails to fulfill or comply with any condition subject to which the licence was granted (d) has insufficient assets to meet its liabilities.'

Experts have argued that in the case of recently nationalized banks, the banks did not fall into the circumstances described in a, b, and c. Others believe the last provision bothering on insufficient assets to meet assets and liabilities is more important than others put together. They cited Section 9 of BOFIA which states that failure of a bank to comply with the paid-up share capital determined by the CBN shall be a ground for revocation of any licence issued pursuant to the provisions of this Act or any other Act repealed by it.

Cases for/against shareholders
Explaining the position of shareholders of the nationalized banks, Managing Director of the Assets Management Corporation of Nigeria (AMCON) Mustafa Chike-Obi said shareholders lost their investment long time ago and therefore have nothing to contest for.

He advised that rather than going on wasting their money pursuing cases of dead banks in court, they should rather come forward, if they are interested, have the money and meet CBN's criteria for core investors and the banks would be sold to them. 'Yes, they can have the banks,' he stated. By this, Chike-Obi wants them to stop claiming that they were not given the chance to recapitalize the banks. AMCON, according to him, is the owner of the bridge banks and is willing to sell to anybody in the country who is willing and qualified to own a bank.

In the same way, Managing Director of the Nigeria Deposit Insurance Corporation (NDIC) Alhaji Umaru Ibrahim said the bridge bank option to resolving banking crisis is within the law of Nigeria. 'We are encouraged by the provision of the bridge bank option in the law governing the country, to resolve the problems in the banking industry. The essence of establishing a bridge bank is to provide for continuity, essentially in banking service and to protect depositors. It is an arrangement which ensures that no depositor loses his money,' Ibrahim defended.

Supporting Nwosu, a Lagos-based legal practitioner, Mr Victor Opara, argued that the shareholders have the right to contest the voiding of their stake in the institutions.

According to him, ethically and legally speaking, the shareholders are the owners of the banks and because of the critical roles they are playing as the engines of growth in the economy, a bank's stakeholders must always be carried along any time issues bordering on the existence of the institutions are being discussed.

According to him, the shareholders constitute the parliament of any limited liability company and must therefore be consulted when major decisions affecting their existence are discussed. This, he pointed out, does not undermine the authority of the Central Bank to regulate banks and to ensure that public confidence is maintained in the organizations at all times. He said: ''Basically, the Central Bank cannot say the shareholders of these banks have no more stake in them because they revoked their licences for as long as the same organization are still existing.'

He argued that if the AMCON's takeover is intended to enhance return to shareholders and improve the quality of service of the affected institutions, then it is a welcome development, but if the whole idea is to emasculate the stake of shareholders, then it may be right for them to go to court to seek redress. But for the Managing Director of Proshare Limited, Mr Olufemi Awoyemi, it is only the Central Bank Governor, Mallam Sanusi Lamido Sanusi, who can tell Nigerians why he is reversing himself on the issue of recapitalization of banks fixed for September 30, 2011, stressing that his decision to fast forward the programme could have affected some ongoing discussions between the banks and their prospective merger partners.

Awoyemi said he was at a loss explaining the development to international investors with whom his company has dealings as it merely leaves them with the impression that their investments in the country are unsecured since the authorities could nationalize them overnight without bordering about shareholders. In his opinion, if an institution like Spring Bank is adjudged to have failed, it then means that the CBN itself that has been running it since 2006 should be held responsible.

His contention was based on the fact that right from the controversy that threw Mr Mike Chukwu out of the bank, to the present time, only CBN-appointed board and management have been running the institution.

According to him, this simply suggests that CBN does not have answer for the distress in the banking industry. He stated that, from 2007 to date, Spring Bank has increased its losses from N22 billion to N92 billion while under CBN management and supervision, raising queries over the essence of its intervention. Registrar/Chief Executive of Institute of Capital Market Registrars (ICMR), Dr. Walker Ogogo, is however of the view that shareholders have lost out.

'I have gone through the rules, and I wonder if the shareholders can do anything in this circumstance of nationalisation. It is like liquidation, in which case, the interest of shareholders comes last. The liquidating authorities have to settle depositors first; and if anything remains then shareholders might get something. 'It will not be in their interest to go to court because the law empowers CBN and NDIC to withdraw licence and liquidate any bank. But this is not liquidation; nationalisation is a better option that can rescue depositors.

'However, if the CBN is working together with SEC, they may work out something for shareholders at the end of the day. That is why shareholders should rather engage the regulators on a dialogue.

'Let shareholders dialogue with SEC, CBN and NDIC so that they may salvage something out of the situation. If they choose to go to court, they may lose out completely. My advice to the SEC is that they should maintain sincerity of purpose, remain transparent and ensure good corporate governance', Ogogo stated.

Unegbu's view comes in handy here. According to him, there was no illegality in the action but added that Illegality could have been established if shareholders' funds were not eroded and the regulators decided to nationalise the banks.That is where we can establish a case of illegality', said the lawyer-cum-stockbroker. As to whether there is anything shareholders can get out of the situation, he lamented that there is nothing.

He added: 'However, what they can do is if they are resolute, they can institute an action against CBN for lax supervision. The CBN is empowered to supervise those banks. And if they failed in its duty, the onus is upon the shareholders to prove it. They have to establish that the CBN did not supervise the banks properly and that is why the managers decided to destroy the banks.

'They can also come up with action for damages against those managers. Since their assets have been lost and their shares lost, it means there are some bad action taken by those managers. So the shareholders can sue them. I am worried that those who were there are still recommended to work with NDIC. They are not supposed to remain because if they knew what they were doing, they couldn't have frittered away the money given to them to bring the banks back to life.'

As to whether the nationalised banks have been registered by the Corporate Affairs Commission (CAC), Unegbu explained that it must be one of the first things the regulators must have done. He explained that there is automatic registration in which the applicant is expected to pay much more than in normal circumstance.

'I think that must be one of the first things they did. You can have a one-day registration, automatic registration but they have to pay about N50, 000 or more. There is a provision for that in the CAC'.

He expressed worry over the regulators' decision to have the managers of the failed banks remain as consultants. 'I am very much surprised that the failed banks managers are still there. I cannot make any sense out of that decision to have them work with the NDIC.

'The CBN gave the managers lifeline to bring back the banks to life but instead of doing bank management, they decided to do something else. For instance, the case of Bank PHB where the management, shortly after they came in decided to go on holiday instead of settling down to do the job. It means that they did not appreciate the need for them to be on ground,' Unegbu stated.

He has this piece of advice for the regulators. 'Those who have appointed managers of the nationalised banks should know whom they have appointed and be able to monitor their performance. The idea of leaving them to themselves alone is not quite good.

The operators that have been appointed, there is no point for them to start competing with politicians for the attention. All they need to do is to sit down and understand what they are required to do. They should look at some of the files, look at some of the board trainings, and some of the things done by the previous board. They should be able to say where they are coming from and where they are going.

'Even though it reflects new banks, but the fact is that they are carrying the same assets and liabilities. They should be able to look at it all and start clearing the stable, and make sure that people have confidence in those banks. There is a total loss of confidence, so they should be working towards restoring the confidence of depositors. This is the simple thing they must do. Of course I am talking from experience, because as an ex-chief executive of a bank, I have done such a thing in the past.'