Legal Alert – February 2016- Litigation, Arbitration, Conciliation, Mediation Compared

Introduction

Disputes and disagreements between people are sometime inevitable. For any business concern, having in place well documented Agreements, with an efficient and cost-effective dispute resolution mechanism enshrined, is absolutely essential; particularly as not all disputes can be amicably resolved by the parties themselves.

Litigation or Arbitration?

Historically, most business disputes in the past were resolved by litigation. And most of the time, litigation is an expensive, time consuming dispute resolution mechanism. It is typically hostilely adversarial, with rigid court procedures and rules. Also, during litigation, business secrets and confidences will have to be disclosed to avoid liability or secure a favourable judgement.

Businesses over-time recognised the above-mentioned inimical nature of litigation to smooth enterprise. Arbitration therefore came to assuage the problems associated with litigation.

Essence of Arbitration

Arbitration is a more modern, more cost-effective, more private manner of resolving disagreements. Under the Arbitration process, the parties to a dispute voluntarily pre-agree to submit any dispute that may arise from their transaction to an Independent Arbitration Panel, which Panel may consist of a person or persons, or a body, or some other kind of Tribunal, to hear and deliver a final decision regarding the dispute.

Parties to an Arbitration process are also permitted to pre-agree to the set of rules and procedures that will regulate the Arbitration Proceedings.

Like all contracts, an Arbitration Proceeding and the outcome, which is in the form of an Award or judgement, have a limitation period. So too can the parties to an Arbitration Agreement enter into a new Agreement in the future waiving or amending the Arbitration provision, or its rules, venue, qualifications of the Arbitrator, etc.

An Arbitration Award or decision is usually enforced by a Court of Law where any party to it does not willingly comply with the Arbitration Award.

Setting Aside an Arbitration Award

Any party to an Arbitration Proceeding, who is dissatisfied with the decision of an Arbitration Panel, has a right to apply to a High Court for the decision or Award of the Arbitration Panel to be set aside.

Some of the common grounds for setting aside an Arbitration Award include that the Arbitration Agreement is not valid under Nigerian Law; the Arbitration Award is against Public Policy in Nigeria; the Award contains decisions on matters which are beyond the scope of the dispute submitted to the Arbitration Panel; the composition of the Arbitration Panel or the Proceedings themselves are not in accordance with the Agreement of the Parties or the Nigerian Arbitration and Conciliation Act; a Party or Parties to a Arbitration Proceedings was/were not accorded fair hearing; the Arbitrator does not have the Qualifications pre-agreed by the Parties; there are justified doubts of the Arbitrator’s impartiality or independence; the Arbitrator misconducted himself by not complying with the terms of the Arbitration Agreement; the Arbitration Award was improperly procured; etc.

What is Conciliation?

Conciliation is another legal form of resolving disputes in a less adversarial or hostile, and private manner. Under this medium, the parties to a dispute agree to resolve their dispute through a neutral independent person known as the Conciliator. Unlike Litigation and Arbitration, the appointed independent and neutral Conciliator examines the statements of the Parties setting out the nature of the dispute, hears the parties, after which he submits to the Parties the Terms of Settlement for the parties to approve by consensus.

If the Parties do not approve the Conciliator’s recommended Terms of Settlement, they will be entitled to refer their dispute to Arbitration, where their Agreement provides for Arbitration; or institute a court action for a Court of Law to resolve the dispute.

Mediation

Mediation is a much more informal method of resolving disputes. Unlike Litigation, Arbitration or Conciliation, a Mediator applies unbinding communication techniques, to guide the disputing parties to arrive at a common ground from which an amicable settlement is consummated.

Also, unlike Litigation, Arbitration or Conciliation, a Mediator has no enforcement authority. He instead relies solely on persuading the parties to reach an amicable settlement of their dispute. And where the Mediator cannot amicably settle the dispute, the Parties are entitled to resort to Arbitration or Litigation.

Disclaimer

This is a free educational material, which does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek, from qualified Legal Practitioners, professional legal counselling to their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore ONLY be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Authorship is explicitly acknowledged, and our Disclaimer Notice is prominently displayed.

Legal Alert – January 2016 -Taxation of Education Institutions

It is a commonly held public opinion that Educational Institutions are not liable to pay, suffer or bear any form of tax on their profits or income.

The decision of the Tax Appeal Tribunal (“TAT”) in Ikeja, Lagos in 2014, in the matter of the American International School of Lagos v. Federal Inland Revenue Service is sometime relied upon as the legal basis for the view that Educational Institutions are not liable to pay any Tax on their profits and or income.

An examination of the TAT’s above decision is necessary to verify the credence of the Public’s Opinion that Educational Institutions income and or profits are not liable to bear any tax obligation.

The TAT Judgment – The American International School of Lagos v. Federal Inland Revenue Service

The contention of the Educational Institution in this case was that it is exempted from paying Companies Income Tax (“CIT”), and Tertiary Education Tax (“TET”), on the grounds that it is an educational institution, Incorporated Limited by Guarantee, engaged solely in educational activities of a public character.

The defence of the Respondent Tax Authority in this case was that the fees charged by the Appellant Educational Institution were not affordable by many Nigerians. The Respondent therefore contended that the Appellant Educational Institution did not qualify as an Educational Institution of a Public Character under Section 23 (1) (c) of the Companies Income Tax Act (as amended).

The final decision of the Tax Appeal Tribunal (“TAT”) in this case was that as the Appellant is a not-for-profit registered company, Limited by Guarantee, with no evidence that its profits or other income were distributed among the Appellant Educational Institution’s Directors or Guarantors, the Appellant is exempted from Companies Income Tax and Tertiary Education Tax obligations. The Appeal Tax Tribunal also held that, the Respondent Tax Authority’s contention that the School Fees charged by the Appellant Educational Institution is only affordable to a select-few, and therefore not of a general public nature or character, was discountenanced as the Tax Authority did not tender any evidence in support of this allegation.

The Tax Appeal Tribunal accordingly ordered the Respondent Tax Authority to issue to the Appellant Educational Institution the necessary Tax Clearance Exemption Certificate.

TAT Judgment – Ratio Decidendi and Obiter Dictum

The legal basis for the Tax Appeal Tribunal decision in the above matter was that because the Appellant Educational Institution was a Not-For-Profit registered Company Limited by Guarantee, whose profits cannot be distributed among the Appellant’s Directors or Guarantors, the Appellant Educational Institution is exempted from corporate tax.

Apparently, the decision of the TAT, in the above referenced case, would have been different if the Appellant Educational Institution was not a Company Limited by Guarantee, with no share capital, whose income, profits or assets are not distributable or transferable among the persons who control the Company, either directly or indirectly.

An Educational Institution that is not Limited by Guarantee or registered as a non-governmental charitable organisation, under Sections 26 and 370 of the Companies and Allied Matters Act respectively will find it very difficult to claim tax exemption under Section 23 (1) (c) of the Companies Income Tax Act. The TAT Passing remarks, which is what Lawyers call Obiter Dictum, that it is not strange that Educational Institutions generated their income from the educational services that they provide, did not form the legal basis for the bottom-line decision of the TAT.

Conclusion

Existing Laws already require all registered legal entities, including tax exempted Limited Liability by Guarantee Companies, and Registered Trustees also known as NGOs, to file at the end of each financial year an Annual Return to which must be annexed a Certified Income Statement containing the particulars of its indebtedness and landed properties held, mortgages and charges, etc. Unfortunately, the enforcement of these statutory requirements by the Tax and Corporate Affairs Commission authorities remains very poor.

Subject to when the existing statutes are amended, some regulatory Guidelines on how the assets, income and the remuneration of the officers who control a tax-exempted entity in Nigeria are administered, is urgently required in order for there to be a fair playing field between tax exempted entities and entities that do not enjoy Tax exemption.

Disclaimer

This is a free educational material which does not serve as a source of solicitation, advertisement or the offering of legal services or advice. No client/Attorney relationship is therefore created. Readers are strongly advised to always seek, from qualified Legal Practitioners, professional legal counselling to their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore only be reproduced or re-distributed for only non-profit educational purposes under the strict condition that our Authorship is explicitly acknowledged, and our Disclaimer Notice is prominently displayed.

Legal Alert – December 2015 – Taxation of Interim Dividend

Introduction – What is a Dividend? What is an Interim Dividend?

Dividend is customarily a portion of the after-tax profits of a company, which is distributed among the Shareholders of a company, in the proportion of the Shares that the Shareholders hold in such a company, as a return on their investment in that company.

In practice, Dividend is usually declared and paid at the end of a company’s financial year. The Companies & Allied Matters Act (“CAMA”) however allows the Directors of a company to recommend to its Shareholders the payment of an Interim Dividend, out of the distributable profits of the company, for the financial year in which such distributable profits were made by the company.

Taxation of Interim Dividend

All the profits of a company, accruing in, derived from, brought into or received in Nigeria are liable to bear a Companies Income Tax, at a tax rate of thirty per cent (30%) of the distributable profits of the company.

As already mentioned above, the taxes on the profits of a company are paid to the tax authority in the following financial year, for the previous financial year in which the said profits were made. The Companies Income Tax Act (as amended) (“CITA”) however recognises that a company can declare an Interim Dividend before the end of the financial year in which the distributable profits were made by such a company.

The Nigerian Federal Tax Authority, which is the Federal Inland Revenue Service (“FIRS”), have not before now being insistent on the advance tax arising from an Interim Dividend been paid before the Interim Dividend can be distributed to the Shareholders of a company. This old regulatory attitude has now changed.

In compliance with the provisions of CITA, companies that declare an Interim Dividend must before paying such Interim Dividend to their Shareholders, do the following; firstly, furnish to FIRS the details of the profits from which the Interim Dividend is been declared; with the particulars of the Shareholders and the proportion of their Shareholding in the company declaring the Interim Dividend.

Following from the last paragraph above, the second obligation on the company declaring an Interim Dividend is that such a company must remit to FIRS the advance tax on the Interim Dividend – which is at the corporate tax rate of 30% of the declared profits – before the Interim Dividend can be paid to the company’s Shareholders.

Interim Dividend Tax – An Advance Tax

The advance tax paid on an Interim Dividend however only constitutes a deposit against the final Corporate Tax for the company declaring the Interim Dividend, at the end of the financial year that the distributable profits were declared and paid.

When Not to Pay an Interim Dividend?

A company cannot declare and pay an Interim Dividend from or out of its working capital.

A company cannot also declare and pay an Interim Dividend if there are reasonable grounds for believing that the company is or would after the Interim Dividend is paid, become unable to pay its debts, or fail to remain a going business concern.

Conclusion

Arising from the enforcement of the collection of advance tax on Interim Dividend income is the new reality that tax payers must proactively continue to increase their tax compliance levels, as a sensible way to minimise their tax risks. This is especially as governments would continue to aggressively expand the tax base and tax collection, in order to mitigate governments’ losses arising from the continuing dwindling in crude oil prices.

Disclaimer

This is a free educational material which does not serve as a source of solicitation, advertisement or the offering of legal services or advice. No client/Attorney relationship is therefore created. Readers are strongly advised to always seek, from qualified Legal Practitioners, professional legal counselling to their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore only be reproduced or re-distributed for only non-profit educational purposes under the strict condition that our Authorship is explicitly acknowledged, and our Disclaimer Notice is prominently displayed.

Legal Alert – November 2015 – Casual “Contract” Employees

Introduction

The combined reading of the provisions of the Labour Act, the Employee’s Compensation Act 2011, the Pension Reforms Act 2014, the Trade Unions Act 1973, the Industrial Training Fund (Amendment) Act 2011, and other similar legislations on labour or employment Law, describes a worker or employee as any person who is employed in the public or the private sector of the economy, to carry out some function relating to the employer’s business, whether on a temporary or causal or ad-hoc basis, for a period of not less than thirty (30) days.

The Contract of Employment could be oral or in writing; express or implied; continuous or part-time.

A global unrelenting economic recession, with its associated uncertainties, has led to the continuing surge in unemployment; and where employment is available, such employment is more of a casual and sometime undocumented nature. This is because many Employers of labour are under the business “perception” that the expenditure for casual undocumented employees is cheaper than those for documented and permanent employees. Is this business “perception” supported by the existing Labour Laws and Regulations?

Employment Contracts

The Labour Act for example requires that casual or part-time employees, whose employment contracts are for a fixed term, or for a variable term, must like confirmed employees, also be given written employment contracts which enumerate the tenure or duration of the employment, the nature of work, the hours of work and overtime, the rate of wages with the regularity of the payment of such wages, the appropriate notice required to terminate the employment contract, etc.

The Labour Act also reiterates the old Common Law principle which makes employers indirectly or vicariously liable for all their employees’ misfeasance or wrongdoing undertaken in the course of their employment, whether such employees are on full-time or part-time employment.

All employment contracts will be terminated either by the expiration of the term of the employment contract, or the death of either the employee or the employer, or by written notice of termination as contracted.

Other Statutory Rights of Casual Employees

In addition to casual employees having legal rights to be given written contracts of employments, to enjoy breaktime, have regularity in the payment of their wages and take maternity leave, all employees in Nigeria, including casual employees, are also entitled to earn the minimum wage as guaranteed under the National Minimum Wage (Amendment) Act 2011. The National Minimum Wage in Nigeria is N18,000 (Eighteen Thousand Naira) per month.

Under the Pension Reforms Act 2014, all employees, whether on full-time or part-time employment, are entitled to enjoy the benefits of the Contributory Pension Scheme. In addition to Pension benefits, the estate of a deceased employee is also entitled to enjoy the benefits which accrue from the mandatory Group Life Insurance Policy, which the Pension Reform Act 2014 requires all employers to take out on behalf of all their employees.

Casual employees, like their full-time counter-parts, are also entitled, on their own free volition, to join one Trade Union of their choice.

Conclusion

The inability of the government to formulate, drive and enforce policies which create more jobs in the private sector of the economy, with a weak and fragmented Labour Union infrastructure, has led to continuing job losses and more casual unsecured employment remaining the norm, in contrast to full-time permanent employment which prospers the economy.

Also, an educational curriculum without an entrepreneurial youths mindset will not promote permanent secured employment as employers present day business needs are not matched by the employees’ theoretical curriculum and mindset.

Disclaimer Notice

This is a free educational material which does not serve as a source of solicitation, advertisement or the offering of legal services or advice. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek professional legal counselling to their specific situations from qualified Legal Practitioners.

Intellectual Property Protected

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore only be reproduced or re-distributed for only non-profit educational purposes with the strict condition that our Authorship is explicitly acknowledged, and our Disclaimer Notice is prominently displayed.

INTRODUCTION

Antitrust, which is also known in some jurisdictions as Competition Regulations, is generally perceived as a technical subject that is not easily understood. In developing countries, there is a paucity of Antitrust Legislation designed to protect the Consumer, promote free trade and commerce, and prevent unwholesome and unethical trade practices.

Antitrust or Competition Laws and Regulations are generally designed to promote and protect a transparent and competitive market from unjust and unfair business practices. Thus, Antitrust Laws and Regulations achieve most of their objectives by discouraging and preventing price or rate fixing, price discrimination, price gouging, restrictive exclusive contracts, abuse of a dominant market position, predatory pricing practices, conspiratorial pricing between some competitors against other competitors, hoarding, institutionalised boycotting of a competitor, supplier or equipment vendor, etc.

Antitrust and Anti-Competitive practices substantially stifle and inhibit healthy competition to the detriment of the Consumer and the larger economy.

BRIEF HISTORY OF ANTITRUST AND COMPETITION LAWS

After the civil war in the United States of America, and its adoption of the free market enterprise policy without an overbearing Government interference in the market, the Sherman Act of 1890 was enacted to curb and criminalise any restraint to free trade and commerce, especially by conspiratorial and monopolistic corporations.

In the United Kingdom (“UK”), the United Kingdom Monopolies and Restrictive Trade Practices Act 1969, metamorphosed into the Competition Act 1998, the Enterprise Act 2002 and then the Enterprise and Regulatory Reform Act, 2013 which established the Competition and Markets Authority. In spite of these legislations, Competition regulations in the United Kingdom have continued to follow the European Union robust jurisprudence on this subject.

Again, the underlying objective of all Antitrust and Competition Laws and Regulations remain the protection of the Consumer with minimum Government interference in the market.

HISTORY OF ANTITRUST AND COMPETITION LAWS IN NIGERIA

Post independence from Colonial Rule, the major sectors of the Nigerian economy – power supply, telecommunications, aviation, petroleum, railway, radio, television, etc were nationalised with monopolistic structures, sole ownership and control residing in the hands of the Government. Unfortunately, these Government monopolies reportedly promoted large scale corruption and inefficiencies which inhibited growth to the detriment of the entire Nigerian economy.

The liberalisation and privatisation of some sectors of the Nigerian economy, especially the telecommunications and broadcasting sectors, starting from the 1990s, ushered in some competition from the private sector against previous public monopolies. The legislations which liberalised some aspects of the Nigerian economy also tried to introduce some minimal Antitrust and Consumer Protection Regulations.

ANTITRUST AND COMPETITION LAWS AND REGULATIONS IN NIGERIA

There is no Legislation or Regulation that is dedicated solely to Antitrust or Competition issues in Nigeria. None of the numerous Bills before the National Assembly on the subject have been passed into Law. In different Legislations however, there are some Antitrust or Competition provisions, with the most far-reaching of these Antitrust Provisions currently being in the Nigerian Communications Act. The latter will be considered in the second part to this short-paper.

Parts II, VI and VII, Sections 26, 80-82 of the Electric Power Sector Reform Act, 2005 has Statutory provisions which seek to provide guidelines regarding consumer service and protection, license performance, with competition and market power provisions. The Nigerian Electricity Regulatory Commission (“NERC”) is expressly required to, on a continuous basis, monitor the Nigerian Electricity market for the potentials that exist to drive additional Competition and the Tariff Regulations in the best interest of the market.

In the Aviation industry, Section 30(4) (i) of the Civil Aviation Act, 2006 authorises the Nigerian Civil Aviation Authority to investigate any case or cases of unfair or deceptive trade practices or methods of competition, including the prices of airline tickets. Where an infringement is found, the Nigerian Civil Aviation Authority is authorised to require the offending party to desist from such antitrust or anti-competition practice.

For capital market transactions, which are mainly publicly quoted and Government quoted securities, the Investment and Securities Act, 2007 has provisions which require the Securities and Exchange Commission (“SEC”) to prohibit market rigging and manipulation, insider rigging and all other forms of unfair and fraudulent trade practices in the Nigerian Stock Market. Where a business practice prevents or lessens competition, SEC is authorised to in the interest of the public, among other things, undertake a Court sanctioned break-up of the infringing company into separate entities, in such a way that its operations do not cause a substantial restraint on competition.

In the liberalised Broadcasting Industry, the National Broadcasting Commission (“NBC”) is the body charged under the National Broadcasting Commission Act to regulate and control all the kinds of broadcasting businesses in Nigeria – i.e. Radio, Television, Cable Television Services, Direct Satellite Broadcast, etc. This is whether such broadcasting business is privately or government owned. Through its licensing regime, NBC seeks to uphold the principles of equity and fairness, with an aberration for unfair and unethical trade practices in the broadcasting industry.

To protect Consumers of stable and essential items, like sugar, salt, milk, flour, matches, petroleum products, motor vehicles, motorcycles and bicycles’ with their spare parts (“Controlled Commodities”), the Price Control Act empowers the Price Control Board to fix the Controlled Price range for these mentioned essential items. It is a criminal offence for any person to sell any of the listed Controlled Commodities above their approved controlled price. Hoarding of Controlled Commodities is also a criminal offence which on conviction carries fines and terms of imprisonment, seizure of the concerned goods, sealing of the premises from where the offence is carried on, etc.

CONCLUSION

Antitrust will only thrive and achieve its objectives if the Consumers are aware of their rights and are willing to make some effort and sacrifice to enforce them. The Regulators must also become more proactive, and not remain docile, in the performance of their statutory duties.

DISCLAIMER NOTICE

This is a free educational material which is not intended to serve as a source of solicitation, advertisement or offering any legal advice. No Client/Attorney relationship is therefore created by this material. Readers are strongly advised to always seek professional legal advice to their specific situations from qualified Legal Practitioners. Questions, comments, observations, suggestions, new ideas, contributions, etc. are always welcomed. You can also visit our website http://www.oseroghoassociates.com for more legal materials.

INTELLECTUAL PROPERTY PROTECTED.

This material is protected by International Intellectual Property Laws and Regulations. This material can only be re-distributed for non-profit educational purposes only on the strict condition that our authorship is acknowledged, and the Disclaimer Notice is prominently displayed.

Legal Alert – September 2015 – Defamation in Business

General Introduction

Every Individual has a right to free speech. This right is an inalienable Fundamental Human Right guaranteed under the Constitution.

The right to free speech in a civilised society is however subject to the right of others not to have their reputation tarnished or injured in the course of the exercise of their right to freedom of expression. Thus, the Supreme Court has held in many cases that every person has the right to the protection of their good name, reputation and the estimation in which they are held by other members of the society.

Based on the above legal position, any person who utters, publishes, broadcasts or communicates anything to a third party, which communication is injurious to the good name, character or reputation of another person, commits the tort of Defamation.

Defamation and Business

Competition is second nature to business. And in the course of business competition, some statements, comments, representation, innuendos, etc can be made about a competitor or some other business stakeholder, which comments, statements or representation are defamatory in Law and can form the basis for a legal action from which compensatory damages, a retraction, public apology, etc may be awarded by a Court of Law.

As a Business Owner, you must be mindful of the risks that defamation can bring to your business when competing in the market place.

What is Defamation under the Law?

Defamation is the making of false, malicious, derogatory and harmful statements, comments or representations, either in public or in private, in print or orally, about another person’s business practices and character, financial situation, morals or reputation. Usually, such false statements lower the reputation of a person in the eyes of right-thinking members of the society.

However, no matter how despicable or heinous a defamatory statement or representation is, the offended person must prove to a Court of Law that the defamatory statement was communicated to a third person or persons other than the person or entity of whom the defamatory statements were made.

Comparison – Libel and Slander

Libel, which is the more common form of defamation that ends up in Court, is usually in a written and permanent form; while Slander is/are defamatory comments that are spoken and transient in nature.

As Libel is in a written form, minimum proof of actual damage is required provided that the publication of the Libel to a third person is established or proved. In the case of Slander, proof of actual publication and damage resulting from the publication must be provided before a Court of Law can award damages for the libel.

Award of Damages for Corporate Defamation

Just as a human being can be defamed in character, a Corporation or limited liability company can be ruined by false defamatory allegations. However, damages for defamation are only awarded to a Corporation for possible loss in its earnings and goodwill arising from the defamatory statements. Defamatory damages are never awarded for a Corporation’s hurt feelings as a Corporation is not a natural person or human being.

Conclusion

The need for a trading Company or Corporation to protect its most valuable asset, which is its business reputation, cannot be over-emphasised. Every Corporation has a trading character, which if defamed could adversely affect its existence.

Corporations should therefore seek reliefs from Courts of Law for any defamatory comments or representations targeted against their reputation and goodwill.

DISCLAIMER NOTICE

This is a free educational material which is not intended to serve as a source of solicitation, advertisement or offering any legal advice. No Client/Attorney relationship is therefore created by this material. Readers are strongly advised to always seek professional legal advice to their specific situations from qualified Legal Practitioners. Questions, comments, observations, suggestions, new ideas, contributions, etc. are always welcomed. You can also visit our website http://www.oseroghoassociates.com for more legal materials.

INTELLECTUAL PROPERTY PROTECTED.

This material is protected by International Intellectual Property Laws and Regulations. This material can only be re-distributed for non-profit educational purposes only on the strict condition that our authorship is acknowledged, and the Disclaimer Notice is prominently displayed.

Legal Alert – August 2015 – Common Lending Security Documents

Introduction

Short-term credit facilities are for the most part not available to fund otherwise mostly mid to long-term industry financing requirements. With poor basic infrastructure and a weak but developing credit bureau regime, many lending institutions are only willingly to lend to Borrowers who have strong tangible collateral assets which secures credit.

The most tangible Collateral is usually one in the form of a registered title to land. Others are the earnings projections of the Borrower, and the Personal Guarantees of the owners of the Borrower entity.

The most common Lending Security Documents are:

  1. Mortgages
  2. Debentures
  3. Personal Guarantees

The most common taxes applicable to the above Lending Security Documents are:-

  1. Stamp Duties
  2. Capital Gains Tax
  3. Property Tax or Land Use Charge in some States
  4. Value Added Tax (“VAT”)

Mortgages

A Mortgage is a legally binding agreement between a Lender/Mortgagee and a Borrower/Mortgagor, where the Borrower temporarily leaves in the custody of the Lender, the title or ownership documents to the Borrower’s landed property, as Collateral or security for the Borrower repaying the loaned amount, in accordance with the terms and conditions stated in the Mortgage Agreement.

Where the Borrower is a registered limited liability company or corporation, the Mortgage Agreement must be registered at the Corporate Affairs Commission within ninety (90) days of the Mortgage Agreement coming into effect.

Debentures

For registered limited liability companies, a Debenture is another mode of securing a loan or credit facility. Unlike a Mortgage however, a Debenture is procured based on the business reputation and the future earnings projections of the company or corporation concerned.

And like a Mortgage, a Debenture will be null and void if it is not registered at the Corporate Affairs Commission within ninety (90) days of the Debenture Agreement coming into effect.

Personal Guarantees

A Personal Guarantee is usually an ancillary, continuing written assurance, to a Mortgage and or a Debenture Agreement wherein the Guarantor undertakes to repay a loan should the Principal Borrower fail to do so.

A Personal Guarantee will only be extinguished where the Borrower repays the loan or credit, or the Guarantor repays the loan personally.

Other Lending Security Documents

  1. Shares of Quoted Companies
  2. Insurance Policies

Enforcement of Lending Instruments

The most common enforcement procedure for Mortgages and Debentures is an application to a Court of Law for the sale of the collateral with which the credit facility was obtained. Prior notice must however be given before any power of sale in the event of a default can be exercised.

The second common enforcement option open to a Lender is the appointment of a Receiver/Manager to take over the secured assets until the debt is repaid or the assets sold to repay the debt.

In the case of a Personal Guarantee, the primary debtor’s default in repaying the loan automatically triggers the Guarantor becoming personally liable to repay the debt.

DISCLAIMER NOTICE

This is a free educational material which is not intended to serve as a source of solicitation, advertisement or offering any legal advice. No Client/Attorney relationship is therefore created by this material. Readers are strongly advised to always seek professional legal advice to their specific situations from qualified Legal Practitioners. Questions, comments, observations, suggestions, new ideas, contributions, etc. are always welcomed. You can also visit our website www.oseroghoassociates.com for more legal materials.

INTELLECTUAL PROPERTY PROTECTED.

This material is protected by International Intellectual Property Laws and Regulations. This material can only be re-distributed for non-profit educational purposes only on the strict condition that our authorship is acknowledged, and the Disclaimer Notice is prominently displayed.

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