Posted by By Ayodele Aminu and Chika Amanze-Nwachuku on
The Central Bank of Nigeria (CBN) has threatened to slam appropriate sanctions, including prosecution by the Economic and Financial Crimes Commission (EFCC) on bank chairmen whose institutions fail to seek the apex bank's approval before stripping or converting their assets.
The Central Bank of Nigeria (CBN) has threatened to slam appropriate sanctions, including prosecution by the Economic and Financial Crimes Commission (EFCC) on bank chairmen whose institutions fail to seek the apex bank's approval before stripping or converting their assets.
The Investments and Securi-ties Tribunal (IST) has also said it is fully prepared to exercise its juridical powers in resolving disputes which are likely to occur in the course of bank consolidation for the purpose of meeting the N25 billion capital base.
The apex bank, which had earlier read a riot act to both the Managing Directors and Chairmen of banks last August gave this warning specifically to the chairmen through a circular dated June 28, 2005 and signed by its Director of Banking Supervision, Mr. Ignatius Imala.
Asset stripping in banking parlance refers to the sale of a company's assets like land and property to pay off its debts. Some banks, especially those that believe that they would not have a future after the expected consolidation are believed to have commenced the sale of such assets. This means that the any bank that acquires such a bank would be paying more than the actual cost since most of the assets would have been disposed.
â??Further to our circular referenced BSD/10/2004, dated August 23, 2004, on â??Need for the Preservation of Banksâ?? Assets,â??, it has become necessary to draw your attention to the observed disregard of the instructions contained in the said circular by some banks.
â??Your attention is further drawn to the provision of Section 20(2)(f) of Banks and Other Financial Institutions Act (BOFIA) and the relevant sections of the Economic and Financial Crimes Commission and Failed Banks Acts. You are accordingly reminded to always seek the CBN approval in writing before any disposals, sales and transfers of any of the bankâ??s assets.
â??The CBN will hold you liable for appropriate sanctions, including prosecution under the Economic and Financial Crimes Commission (EFCC) Acts, 2004 as well as the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act, 1994, for any contravention of these provisions during and after the on-going consolidation exercise,â?? the CBN stated in the circular addressed to chairmen of all banks in the country.
The IST has, however, promised to resolve all disputes in the course of consolidation.
Presenting a paper, titled, "Bank Consolidation and the Capital Market: Challenges to Judicial Officers", at the 4th annual business luncheon organized by Capital Market Solicitors Association, yesterday, Chairman of the Tribunal, Dr. (Mrs.) Nnenna Orji, noted that with the countdown to the December 2005 deadline for meeting the N25 billion capital requirement, it will not be unusual that in the rush to beat the deadline, some banks' Manage-ment and Board of Directors will get sloppy in their ethical mandates in the course of complying with regulatory processes.
"To beat the deadline, to meet regulatory conditions and processes in the face of resultant huge liabilities and/or losses (institutional and personal) people are going to attempt shortcuts, cover-ups or manipulations".
She said the major challenge that these consolidations will pose, will be for the relevant regulatory institutions such as the CBN, Securities and Exchange Commission (SEC), Corporate Affairs Commission (CAC), Nigeria Deposit Insurance Corporation (NDIC), Nigerian Stock Exchange (NSE), and the Federal Inland Revenue Service (FIRS), to put in place clear strategies, rules and procedures to ensure transparency and adherence to best practices in order to engender confidence in the process and the outcome.
Part of the challenges for the regulators, she said, is urging the management, and particularly boards of directors , to focus on what can be called core fundamentals of the porches of consolidation and seek what serves the best interest of the company and its shareholders.
She said in the course of bank consolidation, a shareholder may complain that scheme shares was not dispatched to them as at when due thereby depriving him of the opportunity to register his proxies in time.
Other disputes she said, may arise during the valuation and share exchange ratio, failure/ refusal or delay in complying with the three months for the filing of comprehensive report on the completion of the scheme, due to insider dealings as regards in particular, takeovers, complaints of lack of full disclosure in the process of consolidation, due to non payment of creditors of merger/ consolidated entity within 21 days after effective date of merger/ consolidation as provided in the scheme paper as well as non payment of cash option dissenting shareholders within 14 days of effective date of merger.
She assured that the Tribunal is fully prepared to exercise its juridical powers in resolving these bank consolidation disputes by applying a variety of remedies, such as injunctive reliefs, compelling orders etc.
In some case, she said, the Tribunal can make declaratory orders or be called to give directives.
According to her, where parties are dissatisfied with the decisions of the regulatory body, whether at the stage of the CBN or at the SEC, such a matter can be brought before the Tribunal for appropriate judicial review.