Banking Law, Publication

Business survival in the face of economic recession: leveraging on Insolvency Laws

1.0 Introduction

In a dwindling economy, many business corporations are faced with the threat of having to wind up business activities as a result of insolvency, hence it becomes imperative that attempts be made to rescue these businesses from ‘dying’ rather than wait to give same a ‘befitting burial’ by way of liquidation and winding up process. This corporate ‘silver bullet’ is called “corporate/business rescue”.

Moreover, the economic strength of a country is often measured by the resilience of its business to survive insolvency in the face of economic downslide by swiftly re-positioning, restructuring and bouncing back to business. Recently the Nigerian economy has been described by some economic and political stakeholders to be “broke” as debt payments exceeds revenue[1], and this  certainly leaves businesses in the Country with the reality of striving to survive in times as this.

In situations where a viable business (corporation) is insolvent given a failing economic system or poor decision taken internally in the business,  the going concern of the company need be preserved because the corporation/business is worth more to its creditors ‘alive’ than ‘dead’. Therefore, for business/corporation to survive in the face of a hostile economy such as the present situation in Nigeria, it is astute to leverage on some of the rescue options available under the Nigerian legal system and corporate space that conceivably will bring back a failing business/corporation back to life as a going concern.

This expository article considers recent insolvency legal frameworks in Nigeria in light of business rescue mechanisms that has potential of recuing struggling businesses in the face of economic recession. This exposition is also to enable business owners to compete globally, thereby sustaining an effective human resource development for the country.

2.0 Corporate Rescue

Foremost, “Rescue” within the context of business is a necessary intervention when a company or business enterprise is insolvent to prevent the company from totally failing. Put differently, a “rescue” can be referred to as a remedial action taken when the corporation/business is in distress.

Corporate rescue is a process by which a distressed business may be resuscitated or rejuvenated, with or without its company. This involves any fundamental remedial action to a company at a period of corporate crisis, which include both the formal and informal strategic rescue mechanisms.[2] This concept aptly seeks to give a form of lifeline to a financially distressed company, so that instead of opting for the traditional or more conventional approach of company’s liquidation, efforts are geared towards reviving the said ailing company.

In summary, corporate rescue works towards the restoration of a business corporation in difficulty, which leads to the preservation of the legal entity itself so that the company can continue operations after reorganization. The business rescue implies the termination of the old company (the shell) but the core business and its activities will remain intact and thriving unit under a new leadership.  

3.0 Insolvency Law

Insolvency law, practice and process in Nigeria (See Chapter 26 of CAMA 2020) determines whether a financially weak corporate entity will survive a crisis or not. Insolvency is defined as the failure to satisfy or fulfill financial obligations to the creditors of a business. The words ‘bankruptcy’ and insolvency are usually employed interchangeably, and rightly so, within the context they are used. It is however, imperative to note that there is no specific ‘Insolvency Act’ in Nigeria. The major source of corporate insolvency law in Nigeria is the Companies and Allied Matters Act (CAMA) 2020.

Therefore Insolvency laws is a collection of laws and processes for the resolution of the financial affairs of companies in financial difficulties. Just like individuals become bankrupt and go into ‘bankruptcy’ as provided for under the Bankruptcy Act, Cap B2 LFN 2004, and ailing companies go through winding-up process as provided for under CAMA 2020.

4.0 Some Corporate/business Rescue options in Nigeria.

Globally rescue is becoming widely accepted and liquidation is only considered as a tool of last resort when the rescue process is unable to bring the company back to solvency (back to life). Business rescue is a noble concept, which seeks to balance out the interests of both the creditors and debtors in line with international best practice.   The rescue of a corporation can either be a business rescue or a corporate rescue.

These rescue options/mechanisms will be highlighted below:


Internal restructuring refers to the various informal workouts a company may undertake to improve its capital structure and pay its debts, to rescue it back to business. This procedure is generally employed when a company is in financial distress and decides to maintain its corporate identity, and recover on its own without seeking the help of third parties. Some internal rescue options include:

  1. Arrangement on Sale: In an arrangement on sale procedure, the members of the company resolve by special resolution to voluntarily wind up the business of the company, sell its assets to another company and receive shares or debenture of that company as consideration for the assets.

Arrangement on sale involves first, the transferor company by special resolution resolving to voluntarily wind up its business. In the context of the winding up process, a liquidator would be appointed with the specific mandate of gathering the assets of the company and selling the whole or part of the assets of the company to an identified transferee company. Thereafter, the liquidator distributes the shares or debenture of the transferee company to the members of the transferor company in order of their priority in liquidation.

b. Arrangement and compromise;

Arrangement and compromise is a procedure whereby the company/business and its creditors, members or a class of creditor or members accept less than what they are entitled to as full and final satisfaction of the debt obligations of the company.

The arrangement and compromise option in CAMA 2020 requires the prior approval and sanction of the Federal High Court. And were the court grants the application, the company would hold a meeting and, in that meeting, present a scheme of arrangement for approval by the interested creditors or member, wherein the scheme is required to be approved by persons holding 75% of the value of the company’s shares, debt, or specific class of debt in the company.


This type of restructuring involves an arrangement between the company in financial distress and a third party.  Usually, companies attempt internal restructuring before exploring external restructuring options. These options includes:

  1. Mergers and Acquisitions: merger is the fusion of two or more corporate entities to become one single entity assist in the rescue of failing businesses. An acquisition is the take-over by one company/business of sufficient shares in another company to give the acquiring company control over that company, this also is an option to rescue failing businesses. (Rule 421, Consolidated Securities and Exchange Commission Rules)

The difference between a merger and an acquisition is in the result of the two processes. In a merger process, two or more companies are fused to form a new company. In an acquisition process, a company purchases the shares and assets of another company, and takes control of it. In this case, no new company is formed unless the acquiring company winds up the target company.

The principal law that governs mergers and acquisitions in Nigeria is the Federal Competition and Consumer Protection Act 2019 (FCCPA).

  • Takeover: A takeover is an external restructuring process that involves the acquisition of 30%-50% of the shares or voting rights of the target company. A takeover is similar to an acquisition except that a takeover is a hostile or unilateral acquisition where the target company does not wish to be acquired. The acquiring company makes a bid for the target company and if its bid is successful, the acquiring company takes control of all the target company’s operations, holdings and debt.
  • Receivership: Receivership is another option to rescue a business, as this arrangement simply allows a failing company to repay loans, debts, to creditors by appointing a receiver or a receiver manager to administer the affairs of the business and its assets until it survives insolvency.

5.0 Conclusion

It is quiet unfortunate that the economy of the Nation is currently being threatened by recession, nevertheless, rescuing ailing or financially distressing companies will go a long way to ensure a healthy and vibrant economy, where large scale unemployment will be obliterated and improved standard of living enthroned.

A careful analysis of the global best practices of insolvency laws and practice reveals that more than ever before there is a dire need for adequate legal framework for insolvency practice that will make its support or principal point corporate/business rescue.

[1] Reported on Premium times, 21 July 2022 available at :   

[2] Belcher, A (2009), Corporate Rescue, 2nd edition, London, Sweet and Maxwell: 12


About O.C Ali, Esq.

O.C ALI, is a Lawyer, with interest in Dispute Resolution & Corporate Legal Advisory. (Partner, MCALI LEGAL CONSULT, LP). He tweets: @CharlesMcali CAVEAT: The Information provided in this article should not be taken as providing legal advice on the subject. Kindly send an email, to If you need further legal advice on the issues raised therein.