Section 34-42 BOFIA 2020
Section 34, 35, 36, 37, 38, 39, 40, 41, and 42 of the Bank and Other Financial Institutions Act 2020 is under Part IV (FAILING BANKS AND RESCUE TOOLS) of the Act.
Section 34 BOFIA 2020
Intervention Powers in Failing Bank
(1) Where a bank informs the Bank that –
(a) it is likely to become unable to meet its obligations under this Act;
(b) it is about to suspend payment to any extent;
(c) it is insolvent; or
(d) where, after an examination under section 33 of this Act or otherwise howsoever, the Bank is satisfied that the bank is in a grave situation as regards the matter referred to in section 33(1) of this Act, the Governor may by order in writing exercise any one or more of the powers specified in subsection (2) of this section.
(2) The Governor may by an order in writing under subsection (1) of this section
(a) prohibit the bank from extending any further credit facility for such period as may be set out in the order, and make the prohibition subject to such exceptions, and impose such conditions in relation to the exceptions as may be set out in the order, and from time to time, by further order similarly made, extend the aforesaid
period;
(b) suspend any payment or delivery obligations pursuant to any contract to which the bank is a party;
(c) require third party service providers to the bank, to continue to provide services to the bank for such period as may be set out in the order;
(d) require the bank to take any steps or any action or to do or not to do any act or thing whatsoever, in relation to the bank or its business or its directors or officers which the Bank may consider necessary and which is set out in the order, within such time as may be stipulated therein;
(e) remove for reasons to be recorded in writing with effect from such date as may be set out in the order, any manager or officer of the bank, notwithstanding anything in any written law or any limitations contained in the memorandum and articles of association of the bank;
(f) notwithstanding anything in any written law or any limitations contained in the memorandum and articles of association of the bank, and in particular, notwithstanding any limitation therein as to the minimum or maximum number of directors, for reasons to be recorded in writing
(i) remove from office, with effect from such date as may be set out in the order, any director of the bank;
or
(ii) appoint any person or persons as a director or directors of the bank and provide in the order, for the person or persons so appointed to be paid by the bank such remuneration as may be set out in the order.
(g) appoint any person to advise the bank in relation to the proper conduct of its business, and provide in the order, for the person so appointed to be paid by the bank such remuneration as may be set out in the order;
(h) transfer the bank or the whole or part only of the banking business of the bank to third party private purchasers; or
(i) employ any other intervention tools as the Bank may deem fit.
(3) Without prejudice to the provisions of subsection (2) of this section, and notwithstanding the provisions of section 34 of the Central Bank of Nigeria Act or anything in any written law or contract or any limitations contained in the
memorandum and articles of association of any bank, the Bank shall have power at any time to acquire the shares of any failing bank up to a level that guarantees its control by the Bank:
Provided that the Bank shall dispose of such equity investment in the bank at the earliest suitable time.
(4) If after taking any or all of the steps stipulated in subsection (2) of this section or such other measures as in the opinion of the Bank may be appropriate in the circumstance including but not limited to the measures and steps under
sections 37– 42 of this Act, the state of affairs of the bank concerned does not improve, the Bank may invoke its power to revoke the licence of the bank under section 12 of this Act.
Section 35 BOFIA 2020
Application to the Federal High Court for winding up
Where the license of a bank has been revoked pursuant to section 39 of this Act, the Corporation shall apply to the Federal High Court for a winding up order of the affairs of the bank
Section 36 BOFIA 2020
Cooperation, etc with Bank in Banking Crisis
(1) Notwithstanding the provisions of any other enactment, relevant agencies shall cooperate with, render such assistance, grant such waivers or forbearances as may be required by the Governor which in the opinion of the Governor are necessary or expedient to resolve a banking crisis occasioned whenever two or more of the following conditions occur:
(a) banks that are critically distressed control 12.5 per cent or more of the total assets in the industry; or
(b) 12.5 per cent or more of total industry deposits are threatened; or
(c) 12.5 per cent or more of the banking system’s total loans are non-performing; or
(d) 25 per cent or more of banks have applied for liquidity support in excess of 50 per cent of the aggregate takings from the Bank’s window or total interbank funds in the market or have been suspended by their settlement banks for failure to meet clearing obligations:
Provided that the Governor may vary the conditions set out in (a) to (d) above or prescribe such other conditions as the Governor may deem fit.
(2) For the purpose of this section, relevant agencies include:
(a) the Federal Ministry of Finance, Budget and National Planning;
(b) the Nigeria Deposit Insurance Corporation;
(c) the Corporate Affairs Commission;
(d) the Federal Inland Revenue Service; and
(e) any other ministry, department or agency as may be determined by the Governor.
Section 37 BOFIA 2020
Bail-in of a Failing Bank, Specialised Bank or Other Financial Institution
(1) Without prejudice to the provisions of section 34 of this Act or any other provision of this Act and notwithstanding anything to the contrary in any law or contract, the Bank may take the additional measures provided for in this Part as it may deem necessary in respect of a failing bank, specialised bank or other financial institution
(2) For the purpose of rescuing a failing bank, specialised bank or other financial institution, the Bank may, subject to subsection (3) of this section, make a determination that any eligible instrument issued by a bank, specialised bank or
other financial institution or to which a bank, specialised bank or other financial institution is a party or is subject, should-
(a) be cancelled;
(b) be modified, converted or changed in form; or
(c) have effect as if a right of modification, conversion or change of its or their form had been exercised.
(3) The Bank may make a determination pursuant to subsection (2) of this section if the Bank is of the opinion that –
(a) the eligible instrument or instruments ought to be bailed-in to facilitate the rescue of the bank, specialised bank or other financial institution; or
(b) the available assets of the bank, specialised bank or other financial institution do not, or are unlikely to support the payment of its liabilities, as they become due and payable.
(4) The Bank may, before making a determination pursuant to subsection (2) of this section, appoint one or more persons
—
(a) to perform an independent assessment of the extent to which the acts mentioned in subsection 2(a), (b) and (c) of this section should be carried out for all or any eligible instruments; and;
(b) to furnish the Bank with a report on the assessment.
(5) The remuneration and expenses of any person appointed under subsection 4(a) of this section are to be paid by the bank, specialized bank or other financial institution on which the assessment is conducted.
Section 38 BOFIA 2020
Bail–in Certificate
(1) Upon delivery of the report of assessment pursuant to section 37(4)(b) of this Act, the Governor shall, as soon as practicable, issue a bail-in-certificate.
(2) The bail-in certificate comes into effect on such date as the Governor may determine by a written instrument or notice (hereinafter referred to as “the appointed date”).
(3) The bail-in certificate may make provision for one or more of the following:
(a) the cancellation of one or more eligible instruments;
(b) the modification, conversion, or change in the form of one or more eligible instruments;
(c) that one or more eligible instruments is or are to have effect as if a right of modification, conversion or change of its or their form had been exercised under it or them;
(d) where provision under paragraph (c) is made, the details of the modification, conversion or change of the form of the eligible instrument or instruments; and/or
(e) incidental, consequential and supplementary matters, including a requirement that the bank or any other person must comply with a general or specific direction set out in the bail-in certificate.
(4) The bail-in certificate must specify the following information-
(a) the name of the bank, specialised bank or other financial institution;
(b) where the certificate provides for the cancellation of one or more eligible instruments issued by the bank, specialised bank or other financial institution, or to which it is a party or is subject, details of the eligible instrument or instruments to be cancelled, including the types or classes of eligible instrument or instruments;
(c) where the certificate provides for the modification, conversion, or change in form of one or more eligible instruments issued by the bank, specialised bank or other financial institution or to which it is a party or is subject, details of the eligible instrument or instruments to be modified, converted, or changed in form,
including the types or classes of eligible instrument or instruments.
(5) The bail-in certificate may:
(a) make provisions generally or only for specified purposes, cases or circumstances; and
(b) make different provisions for different purposes, cases or circumstances.
(6) The Governor may, at any time before the appointed date, add to, vary or revoke any matter specified in the bail-in certificate.
(7) A provision in a bail-in certificate has effect despite any restriction arising by reason of written contract or any law in force before the appointed date of the bail-in certificate.
(8) Where a bail-in certificate provides for the cancellation, modification, conversion, or change in the form of an eligible instrument, or that an eligible instrument is to have effect as if a specified right had been exercised under it –
(a) the cancellation, modification, conversion, or change in form takes effect or the eligible instrument has effect as if the specified right had been exercised under it from (and including) the appointed date, without other or further act by the bank, specialised bank or other financial institution; and
(b) the certificate has effect according to its tenor and is binding on any person affected by it.
(9) A person that fails to comply with any direction in the bail-in certificate is guilty of an offence and shall be liable in the case of an individual, to imprisonment for a term of not less than 6 months or to a fine of not less than N2,000,000 or to both such imprisonment and fine.
Section 39 BOFIA 2020
Moratorium and regulations on Bail-In eligible instruments
(1) Subject to any other provisions of this Act, all claims, judgment debt enforcement, in respect of an eligible instrument existing or being pursued as of the date on the bail-in certificate, shall automatically be suspended and be unenforceable against the bank, specialised bank or other financial institution during the period covered by the Bail-in certificate, or any period as may be determined by the Governor by a written notice.
(2) To ensure the effective operation of the provisions of this section, the Bank may make regulations to impose a requirement on a bank, specialised bank or other financial institution to ensure that the contract governing the eligible instrument contains a provision to the effect that the parties to the contract agree for the eligible instrument to be the subject of a bail-in certificate and that the parties agree to be bound by a bail-in certificate issued by the Bank in pursuant to sections 37 and 38 of this Act.
(3) The regulations which the Bank is empowered to make under subsection (2) of this section may –
(a) specify the eligible instruments or class of eligible instruments, and banks, specialised bank or other financial
institution to which the requirement applies; and
(b) provide for incidental, consequential or transitional matters.
(4) In exercising any power under this section, the Bank may have regard to the desirability of giving each pre-resolution creditor or pre-resolution shareholder of a financial institution the priority and treatment the pre-resolution creditor or pre-resolution shareholder would have enjoyed had the financial institution been wound up.
(5) In determining whether to exercise its powers in accordance with the priority and treatment a pre-resolution creditor or pre-resolution shareholder of a financial institution would have enjoyed had the financial institution been wound up, the Bank may consider the following-
(a) any widespread adverse impact that the bank’s failure would have on the financial system in Nigeria or the
economy of Nigeria, or both;
(b) the need to maximise value for the benefit of all creditors of the bank, specialised bank or other financial institution as a whole;
(c) public interest; and
(d) any other matter that the Bank considers relevant.
(6) For the purposes of this Part of this Act, “eligible instrument” means:
(i) any equity instrument or other instrument that confers or represents a legal or beneficial ownership in the bank, except an ordinary share;
(ii) any unsecured liability or other unsecured debt instrument that is subordinated to unsecured creditors’ claims of the bank, specialised bank or other financial institution that are not so subordinated; or
(iii) any instrument that provides for a right for the instrument to be written down, cancelled, modified, changed in form or converted into shares or another instrument of ownership, when a specified event occurs.
(7) For the purposes of this section, a reference to cancelling an eligible instrument includes cancelling it in whole or in part, and a reference to modifying, converting, or changing the form of an eligible instrument is a reference to –
(a) converting the whole or a part of the eligible instrument from one form or class to another;
(b) replacing the whole or a part of the eligible instrument with another instrument or liability of a different form or class;
(c) creating a new instrument (of any form or class) or liability in connection with the modification of the eligible instrument; or
(d) converting the whole or a part of the eligible instrument into shares or other similar instrument issued by any resulting bank, specialised bank or other financial institution.
Section 40 BOFIA 2020
Termination of rights
(1) This section applies to a contract, where one of the parties, is-
(a) a bank that is the subject or proposed subject of a resolution measure; or
(b) an entity that is part of the same group of companies as that of a bank where —
(i) the bank is the subject or proposed subject of a resolution measure;
(ii) the contract has a termination right that is exercisable if the bank becomes insolvent or is in a certain financial condition; and
(iii) the obligations of the entity under the contract are guaranteed or otherwise supported by the bank.
(2) The Bank may, by notice in writing under the hand of the Governor, suspend the exercise of any termination right in a contract to which sub-section (1) of this section applies for a specified period.
(3) A notice pursuant to subsection (2) of this section-
(i) may relate to all or a class only of the contracts to which subsection (1) of this section applies;
(ii) may make different provisions for different classes of contracts to which subsection (1) of this section applies;
and
(iii) may be of general or specific application.
(4) When exercising a power under subsection (2) of this section, the Bank must have regard to its impact on the safe and orderly functioning of the financial market and financial market infrastructures operating in Nigeria.
(5) A suspension by notice under this section, takes effect from (and including) the time of publication of the notice.
(6) During the period of suspension of a termination right under a contract and despite any provision of a written law or contract, any purported exercise of that right has no effect.
(7) A person whose termination right under a contract is suspended shall not, without the prior written consent of the Bank, exercise that right before the expiry of the suspension.
(8) On the expiry of the suspension period of a termination right under a contract, the person who holds that right may exercise the right in accordance with the terms of the contract, but not on any of the following grounds:
(a) a resolution measure taken in relation to the bank;
(b) the occurrence of an event directly linked to such resolution measure; or
(c) if the contract forms part of any business of the bank that has been transferred to another person pursuant to the provisions of this Act.
Section 41 BOFIA 2020
Asset separation tool
(1) Notwithstanding anything contained in any law or in any contract or instrument, the Bank may transfer the assets of a bank, specialised bank or other financial institution to one or more private asset management vehicles, and for this
purpose, the Bank may issue instruments transferring any of that property.
(2) The transfer referred to in subsection (1) of this section shall take place without obtaining the consent of the shareholders of the bank, specialised bank or other financial institution or any third party other than the private asset management vehicle, and without complying with any procedural requirements under any law or written contract.
(3) The Bank or such person as may be directed by the Bank, shall determine the consideration for which assets are transferred to the private asset management vehicle and such consideration may be paid in the form of debt issued by
the private asset management vehicle; provided that nothing in this subsection (3) of this section, shall prevent such consideration from having a nominal or negative value.
(4) The Bank may for the purposes of subsection (1) of this section, issue an instrument of transfer to the private asset management vehicle:
Provided that nothing in this section shall be construed as precluding the Bank from directing that the private asset management vehicle transfers the assets back to the bank, specialised bank or other financial institution and the bank, specialised bank or other financial institution shall be obliged to take back any such assets.
(5) Shareholders or creditors of the bank, specialised bank or other financial institution and other third parties shall not enforce any right, judgment or claim howsoever described against the assets transferred to the private asset management vehicle.
(6) The private asset management vehicle shall manage the assets transferred to it with a view to maximizing their value for an eventual sale or organized and measured winding-up.
(7) The obligations of a private asset management vehicle under this section shall not imply any duty or responsibility to shareholders or creditors of the bank, specialised bank or other financial institution and the management of a private asset management vehicle shall have no liability to such shareholders or creditors for acts and omissions in the discharge of their duties unless in the case of fraud or gross misconduct which directly affects the rights of such shareholders or creditors.
Section 42 BOFIA 2020
Sale of business tool
(1) The Bank shall have the power to transfer to a purchaser –
(a) shares or other instruments of ownership issued by the bank; and
(b) all or any assets, rights or liabilities of the bank.
(2) A transfer made pursuant to this section shall be made on commercial terms, and the Bank shall take all reasonable steps to obtain commercial terms for the transfer, having regard to the circumstances.
