Introduction to the Country
Hold a true friend with both hands. Nigerian proverb
Approximately 150 million (Nigeria is the most populous country in Africa and the eighth most populous country in the world)
Presidential System of democracy with elected President from a (2007) national election. Nigeria is a federation of 36 states in a federal system, each with limited authority and its own Houses of Assembly. Education, employment and infrastructure are conducted concurrently at a state level and Federal level, but tax, energy, land and defence laws remain within the remit of the Federal Government.
Based on customary law and English common law with Sharia law applying to certain states in the northern region.
Nigeria is one of Africas leading producers of petroleum, and there are significant other mineral resources, including large deposits of iron ore, tin, coal, bauxite, and other solid minerals. The country is richly endowed with natural gas. There is a mixed economy, with private enterprises coexisting with public corporations. Nigeria is classified as an emerging market with its stock exchange (the Nigerian Stock Exchange), being the second largest in Africa.
Finance and Tax matters
(a) Financial assistance
(i) Does the concept of financial assistance exist
CAMA gives a company, for the purpose of borrowing money for executing its business, all the powers of a natural person of full capacity. This includes power to charge its undertaking or assets as security for any debt, liability or obligation of the company or any third party. However, it is illegal for a company or any of its subsidiaries to grant financial assistance directly or indirectly for the acquisition of its shares before or at the same time as the acquisition takes place. Furthermore, where a person has acquired shares in a company and any liability has been incurred thereby for the purpose of the acquisition, it would be unlawful for the company to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability so incurred in the acquisition of its shares.
A company is however permitted under the CAMA to acquire its own shares or the shares of its holding company for the purpose of:
- settling or compromising a debt or claim asserted by or against the company; or
- eliminating fractional shares; or
- fulfilling the terms of a non assignable agreement under which the company has an option or is obliged to purchase shares owned by an officer or any employee of the company; or
- satisfying the claim of a dissenting shareholder; or
- complying with a court order.
(b) Lending restrictions/banking monopolies
(i) Any restrictions applicable to the importation of capital by lenders?
There are no restrictions on the institutions that may lend money to a project company and foreign banks may lend capital to the project company, except that the loan/capital may only be imported into Nigeria through an authorized dealer (a bank licensed in Nigeria for the importation of capital) and the foreign investor/lender would be required to obtain evidence of capital importation Certificate of Capital Importation (CCI) issued by the relevant authorized dealer within twenty-four hours of importation.
(ii) Requirement for the lenders/security agent to be registered in the jurisdiction?
The lender to a project company need not be an institution registered in Nigeria; however, the transaction documents underlying any loan transaction would be required to be stamped with the Nigerian Stamp Duties office if they are brought into Nigeria and where the security for the loan is situate in Nigeria, the Security Trustee is usually required to be a Nigerian Company for the purposes of enforcement of the security.
(iii) Can foreign lenders lend into the jurisdiction?
Yes; Foreign lenders can lend to Nigerian entities in Nigeria.
(c) Restrictions relating to repatriation of dividends
(i) Are there any restrictions relating to repatriating dividends?
No. NIPA and FEMMA guarantee the foreign investor unconditional transferability of capital, dividends and profits after payments of appropriate taxes. The certificate of capital importation which is issued upon importation of capital evidences the imported capital for the stated purpose and discloses on its face the date of importation, the conversion rate and the Naira equivalent; it also facilitates unconditional transferability and repatriation of funds with regards to both earnings (including dividends) and capital.
(i) Are there any restrictions on the convertibility of the jurisdictions currency?
There are no restrictions on the convertibility of the capital or proceeds thereof into the Naira. The investor may subscribe to shares or invest funds in a Nigerian company in any convertible currency. He may also maintain a domiciliary account and transfer the lodgements therein in any convertible currency. The funds must however be imported through an authorised dealer.
(e) Interest payments
(i) Are there any restrictions on the payment and compounding of interest? If so, does this also affect both local and foreign lenders?
Parties to lending transactions are free to agree on the terms of the facility, including the compounding of interests; this right accrues to both local and foreign lenders.
(i) Are there any withholding tax issues in relation to interest payments and fees to foreign lenders or payments received under any agreements?
Under the Companies Income Tax Act, interest on a loan due from a Nigerian company to a foreign lender is subject to withholding tax of 10% of the interest income. This however does not apply to payment or remittances for the principal. Tax withheld on interest or dividends represents the final tax liability when paid in respect of non-residents.
(ii) List of double taxation treaties.
Nigeria is a party to double taxation arrangements with the following countries: United Kingdom, Belgium, Ghana, Sierra Leone, Gambia, New Zealand, Sweden, Denmark, Norway, the United States, the Netherlands, Canada and Romania.
(iii) Lender risks in respect of tax liabilities/tax domiciliation as a result of providing debt and/or taking/enforcing security interests
Lenders to an IPP should be advised that at present, any power produced under an IPP would be sold to the PHCN under a PPA and not by tariff directly to end users, hence, the income receivable under such project financing would rely mainly on the ability of PHCN to meet its obligation under such PPA.
(iv) Can loan repayment / enforcement proceeds be treated negatively from a tax perspective for the lenders?
Repayment/enforcement proceedings would not be treated negatively from a tax perspective for the lenders. Please note however that a claim for repayment or enforcement of loan will be void against a liquidator for any amount above the value for which stamp duties was paid.
(g) Stamping costs
(i) Details of stamp duty costs
Stamp duties are payable on project documentation on an ad valorem basis, depending on the value of the transaction concerned, and must be paid within 30 days after a security document is first executed, or after it has been first received in Nigeria if it was first executed at any place outside Nigeria Traditionally, a set of comprehensive security documents covering a loan transaction, would be stamped as one batch.
Whilst failure to stamp such documentation would not render the transaction void, such instruments will be inadmissible in court for purposes of enforcement of the security.
The security documents must also be registered in the project companys corporate file with the Corporate Affairs Commission (CAC) within 90 days of its creation, failing which the charge created shall be void against the liquidator and any creditor of the company. Registration fee is 1% of the secured amount.
Security, Enforcement and Insolvency
(a) Overview of security regime
(i) Can a security interest be obtained over a companys assets, e.g.:
The liabilities of a company may be secured against its book debts, inventory, company shares, equipment, insurance and over the rights and receivables of a project company under any contract by pledges, charges, liens etc. Security could be by way of legal or equitable mortgages, fixed and floating equitable charges are available over the present and future assets of a project company. A security interest taken over the assets of a project company is required to be stamped at the Stamp Duties Office and registered in the project companys corporate file at the CAC.
(ii) Can shares of a project company validly be pledged and enforced under an English law share charge?
Under CAMA, the shares of a company are transferable property of the company and a charge or security may be created by the company over its property, including such shares. Therefore nothing prevents a company from creating a valid and enforceable charge over its shares.
(iii) Can a company grant a security interest in order to secure its obligations (i) as a borrower under a credit facility, and (ii) as a guarantor of the obligations of other borrowers and/or guarantors of obligations under a credit facility?
Under CAMA, a company may grant a security interest in order to secure its obligations as a borrower under a loan agreement or as a guarantor.
(iv) If the borrowings to be secured are under a revolving credit facility, are there any special priority or other concerns?
Borrowers may draw down and repay loan amounts intermittently throughout the term of a loan facility.
(v) Can the relevant security interests be granted to a security agent or trustee on behalf of the lenders from time to time?
Nigerian laws recognize the concept of a security trustee, appointed under a security trust deed to hold any security in trust for a syndicate of lenders, in which the composition of the lenders can change by transfers, assignments or novation.
(vi) Please indicate the claims that would have priority over the relevant security interests.
Under CAMA, creditors are prioritized by the registration of any security in their favour and secured creditors have priority over unsecured creditors.
Secured creditors would have priority over unsecured creditors. Further, a fixed charge would have priority over a previous or subsequent floating charge. Where a charge is created over an asset which is already subject to a similar (i.e legal or equitable) charge, the prior charge will have priority if the subsequent creditor had prior knowledge of the charge over the asset. Further, a legal mortgage would, at all times, take priority over an equitable mortgage.
Upon the winding up of a company, the payment of any accrued wages of employees of the company is to take priority over the settlement of all creditors of the company, (secured and unsecured).
(vii) Is there a public security registry?
The CAC maintains a Register of Charges which contains the details of any charge created over the assets of a company registered in Nigeria. Every company is required to notify the CAC of the creation of any such charge over its assets within 90 days of such security being created. The register may be viewed by any interested person on the payment of requisite search fees. Further, where the security involves land, the same is also required to be registered at the Land or Titles Registry in the area where the subject land is located.
There is however no register or other records for unsecured guarantees, indemnities or suretyships given by a company without any attaching fixed or floating property.
(viii) Formalities in respect of security creation:
(A) Statutory perfection requirements;
Securities created over any assets of a project company would be stamped at the Stamp Duties Office and the stamp duty must be paid within 30 days after a security document is first executed, or after it has been first received in Nigeria if it was first executed at any place outside Nigeria. The security must thereafter be registered in such companys corporate records at the CAC within 90 days and a registration fee of 1% paid. Further, where the security involves the transfer of interest in land in an urban area, the consent of the Governor of the State in which the land is located is required to be obtained.
(B) Any other formalities
CAMA permits the directors of a company to exercise the borrowing powers of the company, subject to any borrowing limit prescribed in the Articles of association of the company. Where such a limit is provided, the directors may not borrow beyond the limit without the approval of the shareholders. Any credit obtained is subject to the formalities set out in (vii) (A) above.
(C) Steps for perfection and length of time taken
Any security created in respect of the assets of a company is required to be entered in the companys register of charges with the CAC and the relevant instruments stamped by the Federal Inland Revenue Service. Further, the company is required by CAMA to maintain a register of debenture holders. Where the security involves a transfer of an interest in land, the consent of the Governor of the state in which the land is located is also required to be obtained prior to such transfer.
(D) Any significant financial costs or significant time delays required to create and perfect the relevant security interest?
Securities created over any assets of a project company would be stamped at the Stamp Duties Office and the stamp duty (0.75% of the secured sum) must be paid within 30 days after a security document is first executed, or after it has been first received in Nigeria if it was first executed at any place outside Nigeria.
The security must thereafter be registered in such companys corporate records at the CAC within 90 days and a registration fee of 1% paid. The stamping and registration of the security document could be concluded in less than two weeks.
(b) Insolvency and enforcement regime
(i) Is there a court or similar register that can be searched in respect of proceedings and insolvency actions ?
The registry of the High Court may be searched for the purposes of discovering any pending or concluded insolvency proceedings in respect of any company.
(ii) Summary of the different options for an insolvency related process
The following options are open to an insolvent company:
(A) an arrangement or compromise with its creditors to accepts less for the full liquidation of their creditor interest; or to accept shares in the company in partial or full settlement of their interests; or
(B) an arrangement or compromise with its shareholders to give up a proportion of their ordinary shares or dividends for the benefit of the creditors of the company;
(C) sale of all its assets of the company and go into voluntary liquidation of the company; or
(D) merger with or be acquired by another company; or
(iii) Are summary or expedited proceedings available?
A company may apply to the court for accelerated hearings under the relevant rules of Nigerian Courts of Record.
(iv) Are any governmental or other consents required in connection with:
(A) the enforcement of a security interest in shares;
(I) Generally, CAMA does not require the consent of any Governmental authority to effect any enforcement of security in the shares of a company. However, the articles of association of the company may provide for some restrictions to the transfer of the shares of the company.
(II) Where the enforcement of the security would involve a merger or takeover of the company, the approval of the Securities and Exchange Commission would be required. This would however not be required where the shares are to be acquired by the creditor as realisation of its credit facility to a private company.
(III) Further, the transfer of interest in shares arising from the enforcement of any security interest in shares would require the filing with the CAC of the relevant instrument of transfer and the consequent amendment of the companys corporate records with the CAC to reflect the current shareholding.
(IV) Specifically, a power generation, distribution or trading company to which a license has been granted by NERC will require the consent of NERC before the security of interest in its shares may be realised.
(B) the enforcement of a security interest in other assets; or
There are no consents required for the enforcement of security interests in other assets of the company. Depending on the terms of the security interest, the security becomes enforceable immediately the debt falls due.
(C) the enforcement of a guarantee (sovereign or otherwise)?
The same conditions apply as in the enforcement of security interest in other assets of the company as stated above.
(v) Do lenders inherit all environmental liabilities when they become owner of the shares upon enforcement (or at any other time)?
Subject to the concept of lifting the corporate veil, the project company, as a separate legal entity, is responsible for its liabilities at any time; thus a change in the owners of the company will not shift this liability.
There are however certain provisions of the law which stipulate that where a company is liable for fraud or any other other crime, the officers/directors of the company at the time of the crime shall be jointly or solely liable and may be proceeded against personally.
(vi) Can security interests be enforced by both private sale and public auction, and is it necessary to appoint a court or other official to carry out the enforcement?
A secured creditor can effect the enforcement of the security by both private sale and public auction, subject to the exercise of the right of sale in good faith. Unless upon the order of a court of competent jurisdiction, or where the enforcement involves the liquidation or winding up of the company, it is not required that a liquidator or receiver be appointed to effect the enforcement.
Corporate, Insurance and Employment matters
(a) Corporate vehicle
(i) Project company incorporation:
(A) Type of corporate vehicle
The EPSRA does not require any specific type of vehicle through which power projects may be executed as it provides that such an independent power producer could be an individual, a company, a partnership or any other association of individuals whether incorporated or not.
We however note as a matter of practice and from our experience that a limited liability company is mostly utilized from of corporate vehicle in Nigeria for businesses of this nature.
(B) Issues relating to thin capitalisation
There are no stipulated capital requirements for independent power producers in Nigeria. However, where such an independent power producer is intended to be a company registered under the Companies and Allied Matters Act, Chapter C20, Laws of the Federation of Nigeria (CAMA), it is important to note that a company is required to have a minimum of N10,000 (ten thousand Naira) authorised share capital in the case of a private company or N500,000 (five hundred thousand Naira) in the case of a public company. Furthermore, companies with foreign participation are required to have a minimum of N10,000,000 (ten million Naira) authorised share capital.
Additionally, the NERC requires applicants for any form of electricity-related licence to furnish evidence of its funding arrangements and capital base as part of the consideration for the grant of the requisite license.
(C) Requirement to have indigenous shareholdings
(I) Thin capitalisation requirements
(II) Can a limited liability company be established?
(III) Is it possible to use a foreign company or a branch of a foreign company to act as project company?
There is no requirement under CAMA or EPSRA that Nigerian nationals must hold a proportion of the shareholding of the entity applying for a generation license. Indeed, pursuant to the Nigerian Investment Promotion Commission Act, Cap. N17, Laws of the Federation of Nigeria, 2004 (NIPC Act), a hundred per cent foreign ownership of a Nigerian company is permitted. However, a foreign company intending to engage in power projects or indeed any business in Nigeria must incorporate a local company or acquire shares in a locally incorporated entity through which it may engage in such projects.
Please note, however, that in view of the current local content policy (which is in the process of being legislated upon) of the Government which is presently predominant in the oil and gas industry, it may be forward-looking for any foreign investor in major projects such as power projects to ensure a level of local shareholding in its local subsidiary.
Further to the incorporation of a company under CAMA, such local subsidiary or entity will also be required to obtain the requisite foreign investment approvals from the Nigerian Investment Promotion Commission as a result of the foreign shareholding in the company.
(D) Estimated timescale for incorporation in the country. Are there any specific fees or other costs payable to governmental authorities in respect of incorporation?
The incorporation process involves an initial step of ascertaining the availability for registration of the chosen name of the company.
The estimated time frame for the incorporation of a company is usually 4 (four) weeks from the receipt of confirmation of the availability of the desired name from the Corporate Affairs Commission (CAC).
There is however an expedited âOne-Dayâ incorporation procedure which attracts an additional payment at the CAC. The estimated timeline for incorporation where such an expedited procedure is adopted is about 2 (two) weeks.
There are fees payable to the relevant governmental authorities involved in the incorporation process, namely the Stamp Duties Office and the Corporate Affairs Commission, which are largely determined by the share capital of the company. There are also fees payable in respect of the obtention of the requisite foreign investment approvals.
(b) General corporate issues
(i) Is a private company free to lend and/or issue guarantees?
Yes, subject to the provisions of its memorandum and articles of association.
(ii) Are there any restrictions on dividend distribution?
A company is prohibited from declaring dividends if there is reasonable grounds for believing that the company is or would be unable, after payment of the dividend, to pay its liabilities as they fall due.
(i) Mandatory insurance: are there any insurances which the project company or the Project is required to have by law (or regulations or similar)?
Neither the EPSRA nor the regulations made pursuant thereto require any mandatory insurance for power projects or the project companies. However, the project company would, under the Insurance Act, be required to take and maintain three particular insurance policies: (i) Motor Vehicle Insurance; (ii) Insurance of a Building under Construction; and (iii) Insurance in protection of interests of the beneficiaries.
(ii) Is there any minimum requirement to place the insurance with local insurers or any other similar restrictions? If so, can reinsurance be lawfully placed internationally?
The Insurance Act requires a prospective insured to place the insurance with a local insurer. Such Nigerian insurance company may then reinsure such property or liability overseas but only where the Nigerian insurance industry lacks the capacity to retain the risk.
(iii) Are there any restrictions in respect of granting security rights over the insurances or reinsurances?
There are no restrictions on the creation of security over insurance or reinsurance policies.
(i) Legislative/regulatory issues: is there any legislation or regulation impacting on foreign employees, in particular the conditions relating to work and residence permits? Please give an indication of the process and costs in relation to obtaining work and residence permits.
Yes, there is legislation which regulates foreign employees in Nigeria.
Specifically, the Immigration Act requires any non-Nigerian who wishes to take up employment- in Nigeria to obtain a permit issued by the Ministry of Internal Affairs.
Where the project company wishes to employ expatriates it will be required to obtain expatriate quota position approvals which are usually required in respect of managerial and technical positions. Please note however, that except for the position of the managing director, the project companyâs application would only be considered where there are no qualified personnel in Nigeria to hold the positions for which expatriate quota approvals are sought, or where such personnel exist but are not available in sufficient number.
The employment of expatriate staff in Nigeria is used as a tool to ensure technology transfer and therefore, quota applications are generally required to be supported by a detailed training programme for Nigerian staff, and a management succession schedule; and two Nigerians are required to understudy each expatriate employed.
The statutory fees for the processing of the expatriate quota application form is N25,000; but where the project company applies for the expatriate quota jointly with its business permit application, it will not be required to make this payment. The official fee for obtaining a managing or technical directorâs quota position, which position could be permanent until reviewed (p.u.r.), is $10,000, whilst all other quota positions attract an official fee of N10,000 for each application. Please note that the p.u.r quota is usually not granted to first time applications. Where the application is approved, the applicant is to pay a further sum of N10,000 for the collection of the quota position. The project company will also be required to apply for the residence permit of each of the expatriates for whom the expatriate quota is sought.
Any official of the project company employed under an expatriate quota position will be deemed to be resident in Nigeria and therefore subject to Nigerian personal income tax law.
(ii) Foreign restrictions: are there any restrictions that apply to foreign employees and foreign contractors/subcontractors and if so what do they need to do in order to comply with local legislation?
See our response to paragraph 1.5(c) (i) above. Please note that the Government is currently implementing a Local Content Policy which advocates preference for indigenous manpower, goods, materials and companies in employment and the award of contracts, especially in the energy sector. It would thus be forward-looking for a project company to source its manpower and raw materials locally and utilise Nigerian companies for its ancillary services except in the absence of qualified local capacity.
(a) Land registry: is there a land registry (or similar) in the country that can be searched to confirm whether a project company has granted of any mortgage, charge, option assignment, lien or other encumbrance over the whole or part of the properties or assets of a company?
Yes, there is a land registry in each of the States of Nigeria bearing the legal and proprietary (including details of all charges and encumbrances) records of the land in such State. Land located in non-urban areas may also be registered in the relevant local government area. Thus, where a project company has granted a charge or assignment over its landed property, such is required to be registered with the lands or local government registry where it may be accessed by a third party upon a formal search.
(b) Landlordâs rights: please indicate whether there are any rights which accrue to the landlord (or the government or any other bodies) that may override the terms of a land lease or threaten the rights of a project company particularly any right of repossession or acquisition.
By virtue of the Land Use Act, all land within the urban areas of Nigeria is vested in the Governor of the relevant state on behalf of the people of the state. The Govenor is empowered to grant certificates of occupancy (C of O) to qualified persons who apply for the same; in this regard, the Governor of each state is the headlessor of the land in the state, while every title holder is in law, a sublessor. The Governor may also revoke the C of O in the interest of the public or upon violation by the grantee of the terms and conditions of the grant.
Under the EPSRA, where NERC issues a license to an applicant, the applicant may apply to NERC for a declaration that a particular property is required for purposes of the licensed activity. Where such a declaration is made, the President may direct that the land is required for overriding public interest and further direct the Governor of the state concerned to revoke any existing C of O in favour of the licensee who is required to pay adequate compensation to the previous holder of such C of O.
(c) Direct agreement: are you aware as to whether a direct agreement in respect of a lease has been previously been provided to lenders on other transactions?
Whilst we note that the EPSRA creates a unique procedure for the acquisition of land for power projects (as described in 1.6(b) above), the procedure only recognises the transfer of interest in land to the project company and does not envisage a direct agreement for between the Government, the project company and its lenders.
(d) Forfeiture rights: do relief from forfeiture rights exist and would the lenders be entitled to rely on such rights?
The grant of the C of O creates proprietary interest in favour of the grantee which right is constitutionally protected and may not be expropriated by Government without the payment of adequate compensation. Furthermore, the grant of a C of O may only be revoked on the grounds of an overriding public interest or the granteeâs violation of the terms of the grant.
(e) Is there any additional legislation governing property rights?
Governors consent would be required to perfect a mortgage or sale of land. Capital Gains Tax is also payable on an alienation of interest in land.
(f) Are there any formalities with which lenders need to comply when enforcing security over land?
Where the claims in respect of landed security have become due, enforcement of a legal mortgage by foreclosure would be required to be effected by application to court for an order (nisi and absolute) , and such court order will obviate the need for the consent of the Governor to the transfer/assignment of title to the relevant land; while enforcement by exercise of a right of sale or by exercise of a right to appoint a receiver, do not require any formality beyond the terms of the partiesâ agreement.
International law and arbitration
(a) Supra-national treaties
(i) List all Bilateral Investment Treaties to which the country is party.
Nigeria has Bilateral Investment Treaties for the reciprocal promotion of investments with France (1991), Egypt (2000), Turkey (1996), Netherlands, United Kingdom (1991), Spain (2002), Switzerland (2000), Germany (2000), Finland (2005) and the Republic of Korea (1997).
(ii) Is the country a signatory to the Energy Charter Treaty?
Nigeria is not yet a signatory to the Energy Charter Treaty, although it became an observer to the Energy Charter Conference on June 26, 2003.
(i) Requirements and restrictions applicable to the choice of arbitration roles and place of arbitration
For a dispute or difference to be referable to arbitration, the Arbitration and Conciliation Act (ACA), Chapter A18, Laws of the Federation of Nigeria 2004, requires that the agreement to submit the dispute/difference to arbitration must be in writing or contained in another document whose arbitration clause was brought to the notice of both parties. The parties are free to choose the seat of the arbitration and the governing law of the arbitration.
(ii) Are foreign arbitral awards / decisions are enforceable in the country (i.e. is the country a party to the New York Convention on the Recognition of Foreign Arbitral Awards (the âConventionâ)?
Pursuant to the ACA, foreign arbitral awards are enforceable by Nigerian courts. The courts may however refuse to enforce a foreign arbitral award where it finds that the subject-matter of the dispute is not capable of settlement by arbitration under the laws of Nigeria, or that the recognition or enforcement of the award is contrary to Nigerian public policy.