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Procedures for debt recovery

By Bamidele Kolawole

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Debt recovery is a very sensitive issue that the person owed needs wisdom, patience and the willingness to be guided by the law, hence, he/she will become liable and will be blamed for acting irrationally.

Amoo, Babatunde Oluwaseun Esq.

Debt simply means the sum of money that is due from one person to the other, usually as a result of contract between them.

In debt recovery, there are two classifications in accordance with the way and manner the debt was incurred. The first one is Debts arising from loans and the other are Debts arising from failure to pay for goods and services rendered. 

Once the date agreed by the parties for repayment have lapsed, debt has accrued. This simply means most Debts are products of a valid contract between the debtor and the party being owed (the creditor).

The process of Debt recovery become necessary only upon default of the debtor to pay at the agreed time and this involves all legal efforts at making the company or individual pay back the sum of money owed.

The first step is to write a demand letter to the debtor either by the creditor himself or by his legal practitioner. This letter must be clear and unambiguous stating the nature of the transaction leading to the debt and also the next line of action the creditor will take if the demand is ignored.

The “letter of demand” will state the amount owed with interest where interest has accrued.

Failure of the debtor to heed to the creditor’s demand may result in a court action where the creditor’s lawyer file a suit to recover the amount owed.

The lawyer can go about this in several ways. Where the money involved is a liquidated amount i.e a certain sum and the lawyer believe the debtor does not have a defence, he can apply for summary judgment as allowed by all the Rules of Courts  of Nigerian States.

 It should however be noted that only Money Lenders within the meaning of money Lenders Laws of the states can institute an action in court to recover money lent as any action filed in court without the Money Lender’s license will be incompetent and unenforceable.

Lastly, the Limitation Act and the Limitation Laws of the Various states gives time limits within which an action to recover debt could be brought and any lawsuit brought to recover debt outside this time limit could be dismissed.

Oluwaseun Adeleye Esq.

The nature of a debt is that it is a civil wrong and not a criminal wrong except if it can be determined that there is a commission of a crime in the process of the debt recovery.

 It must be noted however that the police have no right to be involved in a matter of simple loan agreement between two parties, because such matter is within the realm of civil matters see Okafor & Anor V AIG Police Zone II Onikan & Ors.

However, the police and other law enforcement agencies such as the EFCC can make an arrest for recovery of debt where there is an actual commission of an offence in the process of debt recovery or in the instance where the debt arises through an unlawful means or process such as where money is obtained by fraud or deceit or entering a dud cheque.

Thus, there are lawful modes or procedures to explore for recovery of debt in Nigeria.

The agreement between parties.

The need to execute a written agreement at the initial stage is important. The creditor can execute a loan agreement or contract agreement evidencing that there was an agreement to release the stated sum to the debtor and duly signed by them.

 Letter of Demand

 This is a legal document prepared by the solicitor on behalf of a client. The letter is served on the debtor demanding that he should pay the amount owed to the creditor. A letter of demand is a condition precedent to institute and action for debt recovery in the instance where the debtor has refused to pay.

The court held in the case of Coscharis Beverages Limited V ITF & Anor (2021) LPELR- 56849 (CA) that a creditor must make a demand for debt by writing a letter of demand and same letter must be given to the debtor.

Where a demand letter has been served on the debtor, it is expected that the debtor responds to the letter. He can engage the service of a solicitor to provide legal advice on the appropriate steps to take. In the instance where the debtor does not respond to the letter, it will be deemed that he has admitted to his liability.

The creditor through his counsel can proceed to the court to institute an action for debt recovery where the matter can be heard expeditiously through a summary judgment procedure or undefended list procedure. More so, the debtor solicitor can suggest on behalf of his client, a peaceful dialogue process recover the debt on a new term if agreed upon.

Company Voluntary Agreement

This is a new innovation in the Companies and Allied Matters Act (CAMA) 2020. The Company Voluntary Agreement is a debt repayment procedure which allows a company to negotiate with her creditor on how to repay their outstanding debt in other to avoid liquidation of the company.

Section 434(1) provides, ”the directors of a company may make a proposal under this Part to its creditors for a composition in satisfaction of its debts or a scheme of arrangement of its affairs (in this Act referred to in either case, as a “voluntary arrangement”.

Limitation period for a debt recovery

Debt recovery in Nigeria is subject to the Limitation Act or Limitation laws of various states. Under the Limitation Act, an action for debt recovery will be statute barred if it is not brought within six years.

The instant debt merely bars the right to recover the debt because of lapse of specified period of time in the Act. However, where there is acknowledgment of debt which must be in writing signed by the party liable, the right to recover the debt by action is revived and what constitutes acknowledgment in such causes is a matter of fact in each case.

 See National Social Insurance Trust Fund V Klifco Nigeria Limited SCC 288/2015

It is advisable that the creditor should not resort to self-help as a means of debt recovery. The use of violence, seizure or demolition of properties, use of thugs, or threat to life of the debtor are all unlawful means to recover debt from the debtor. The debtor can institute an action and claim for damages against the creditor.

Olubunmi Akinseye Esq

It is expedient to put the issue at hand in the right perspective, hence I presume there had been a Law suit before on which the court had adjudicated, thereby pronouncing a party the Judgment creditor and the other one a Judgment debtor. For the Judgment Creditor to enjoy the fruit of the Judgment, he or she must follow the legal procedures.

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Since it is equally presumable that the res, i.e., subject matter of the Judgment is Pecuniary in nature, we may have to limit this discuss to those procedures by which Judgment money sum could be recovered by the creditors from the debtors. Generally, Judgment benefits can be enjoyed by enforcement, particularly when the Judgment debtor is not ready to comply willingly.

For Judgment in respect of money, the first step is to fi,fa (fieri facias) against the Judgment debtor by the sheriff on court order via a writ filed on behalf of the Judgment creditor by his lawyer.

If the money is remaining, then Garnishee will follow, whereby the debtor’s already verified Banker is called to Court, to confirm how much is in the debtor’s Bank account, after which the Banker is subsequently and consequently ordered to pay the money sum to the creditor.

 If the judgment sum or part thereof is still outstanding then, judgment summons will be issued on the debtor to assess the circumstance of the debt and ability of the debtor to pay. If the court is of the opinion that the debtor is being deliberately refusing to pay, the  debtor could be committed to prison until he pays in full.

Summarily, the legally accepted way to commence debt recovery is by approaching the court via a civil action with claim, after which by enforcement of the resulting Judgment could lead to the attachment of both moveable and immoveable properties of the Judgment debtor, Garnishee of the debtor’s Bank account and even committal to Prison until the last dime is paid up.

Ademola Ikujuni Esq

In Nigeria, there is a time limit on when a debt can be recovered. The statute of limitations for debt recovery arising from a simple contract is six (6) years from the date the contract was entered into and executed, omitting the year the contract was entered into and executed.

As a result, it is desirable to file a debt recovery action as soon as possible, before the 6-year statute of limitations expires, this is encapsulated under Section 21(1)(a) of the Limitation of Action Law.

Below are the procedures for recovering debt from an individual or a corporation in Nigeria:

Stage 1: Try to settle the disagreement amicably with your debtor and collect payment.

Stage 2: Consult a lawyer or a debt collector, and bring documentation such as delivery notes, invoices, written agreements, letters, emails, memos, and so on to the interview.

Stage 3: The lawyer or debt collector will examine and evaluate your claims regarding debt events.

Stage 4: Sending a Demand Letter to the debtor, introducing the person on whose behalf the debt is to be collected, the amount owed or current amount owed where interest has accrued, and specifying the amount owed or current amount owed where interest has accrued.

Stage 5: A creditor’s lawyer can file a lawsuit against an obstinate debtor using a fast-track court method known as “Undefended List Procedure” that is in Abuja or “Summary Judgment Procedure,” in Lagos and other states of the Federation or other procedures provided for under various statutes allowing debt recovery.

The appropriate court to institute a legal action depends on debt sum. It may be instituted in Nigeria through the Magistrate Court, the State High Court or the Federal High Court.

The undefended list procedure involves the collection of liquidated money owed within Abuja. The sum in this regard must be clearly ascertainable sum.

In this procedure, it must be clear through the originating that the defendant has no defense to the case against him and therefore, ruling can be given upon the evidence adduced by the claimant. It is however, confined to a certain amount.

On the other hand, summary judgment procedure can also be used for the recovery of liquidated money in other parts of Nigeria.

A summary judgment is one entered in favour of the Plaintiff or Claimant summarily, without going a full trial, i.e. hearing of evidence, address by counsel before the court’s judgment.

Such judgment is based on the writ of summons, statement of claim, and sometimes statement of defence. In some instances, there may be no pleadings but just affidavit by the Plaintiff and counter affidavit by the Defendant.

Other debts that does not fall within the contemplation of the two procedures listed above can be recovered through writ of summons either at the high court, federal high court and national industrial courts.

Jerry Adeyogbe Esq

Debt recovery is an action founded on a contractual relationship between the creditor(s) and a debtor(s) for which it is advised that the Creditor sue in a competent court of law to recover the debt owe him and to in addition claim damages for the wrong suffered by him as a result of default by the Debtor. This is in line with the principle “Ubi jus Ibi remedium” meaning where there is a right, there is a remedy.

However, one major step which a creditor must take before he or she sues his debtor is to make a demand either Orally or in writing for the payment of the debt owed him.

This pre-condition must be fulfilled before the jurisdiction of this court can be activated. In the case of Hung v. E.C Investment Company Nig Ltd (2016) LPELR-42125, it was held that: *”In a claim for recovery of debt, the cause of action accrues when a demand is made and the debtor refuses to pay”*

It is upon the failure of the Debtor to pay the debt owed that the Creditor can sue the Debtor to recover the debt.

Unfortunately, Debtors (either individuals or corporate entities) have resorted to self help through the use of the Police and/or other law enforcement agencies as Debtor recovery agencies as against the duty or functions of the police which is expressly provided for in Section 4 of the Police Act, 2020.

Creditors now use police and other law enforcement agencies to aid quick recovery of the debt owed them.

The courts have however frown at this illegality and warned that Police are not debt recovery agencies hence, cannot not settle matters founded on contractual transaction or civil disputes. It is against this backdrop that the court had warned the police and/or other Security outfits to desist from being used as instruments to recover debts.

The courts have emphasized this in several cases such as: Project Arcade Ltd & Anor v. IGP & Ors(2022) LPELR -59127 (CA); Adewole v NPF & Ors (2018) LPELR-50016 (CA) to mention a few.

Notwithstanding, the peculiarity or circumstances of each case (s) will be looked at to ascertain whether such matters involved fraud or obtaining goods by false pretence.

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In summary, the best alternative in a bid to recover debt is to have a recourse to a court of law when the matter borders on debt and not to resort into instigating the police or other law enforcement agencies to recover debt.

Clement Falana Esq

Very simple, the creditor will write a letter of demand to the debtor, specify time within which you want the debtor to pay, failure to pay within the specified time, you can take the debtor to court to claim the money owed.

Eromosele J. Akhagbenin Esq

Debt recovery involves the process of making individuals or companies pay the sum that they owe to others when they have not paid back the debt at the agreed time.

Procedure for Debt Recovery

There are several legal alternatives for recovering debt from a firm or an individual.

Stage 1:Try to settle the disagreement amicably with your debtor and collect payment.

Stage 2:Consult a lawyer , and bring documentation such as delivery notes, invoices, written agreements, letters, emails, memos, and so on to the interview.

Stage 3:The lawyer will examine and evaluate your claims regarding debt events.

Stage 4:Sending a Demand Letter to the debtor, introducing the person on whose behalf the debt is to be collected, the amount owed or current amount owed where interest has accrued, and specifying the amount owed or current amount owed where interest has accrued. Also it is trite law that failure to respond such demand letter is an admission of debt.

Stage 5: The lawyer can file a lawsuit against an obstinate debtor using a fast-track court method known as “Undefended List Procedure” or “Summary Judgment Procedure,” or other procedures provided for under various statutes allowing debt recovery.

In Nigeria, debt recovery entails making legal demands before considering the possibility of taking legal action. If an agreement between parties has a mediation or arbitration clause, the other party must first attempt to recover debt from the debtor-party through mediation and/or arbitration before resorting to filing a lawsuit in court.

 It’s also worth remembering that the Limitations Act and the Limitation Laws of various Nigerian states impose a 6-year limitation on debt collection in Nigeria. If a creditor fails to collect a debt owed within six years, the court may dismiss the case unless there is a break in the chain of causation, such as the corporation admitting or paying some of the obligation during the six-year limitation period.

Segun Oni, Esq

Debt recovery is a very sensitive issue that the person owed needs wisdom, patience and the willingness to be guided by the law, hence, he/she will become liable and will be blamed for acting irrationally.

Debt is somehow inevitable in the existence of mankind due to the fact that some people live above their income and means of livelihood are meagre, it is imperative saying that one needs to live within his/her income.

To start with, the Black’s Law Dictionary defines “Debt” as a specific sum of money due by agreement or otherwise. The sum must be certain, the date of paying back must have passed/lapsed. Debtor means a person, country, or organization that owes money while creditor is a country, organization, or person to whom money is owed (the person who claims or is entitled to recovery).

Undoubtedly, the Police is never an agent of debt recovery, including the Police Act do not enjoin the Police to act as agent of debt collector, this is so because debt is not a criminal offence but just a civil wrong except the debtor in the course of becoming indebted commits a crime, it is now the Police and other Security Agents that can be useful to recover the debt.

 Although, there are some institutions and agencies that are saddled with this enormous responsibility.

Essentially, debt recovery is the process of getting back by the creditor the sum that is owed by the debtor.

To some people, debt is a daily affair, it has become part and parcel of their life, it is imperative that debt be minimised to the barest level, whatever, your take home (income) cannot accommodate, don’t because of shyness or respect incur it.

In Nigeria, there are several lawful means for recovering debt from individuals or organizations, however, there is a time limit in which a debt can be recovered. The statute of limitations for debt recovery arising from a simple contract is six (6) years from the date the contract was entered into and executed, omitting the year the contract was entered into and executed.

As a result, it is desirable to file a debt recovery action as soon as possible, before the 6-year statute of limitations expires, as stipulated in Section 21(1)(a) of the Limitation of Action Law, otherwise, it will become statute barred.

PROCEDURES FOR DEBT RECOVERY

Employ the services of a lawyer – before you give out loan facility to anybody, engage the services of a lawyer who will prepare an agreement where terms of the loan facility, means and mode of payment will be stated therein. When and how the debt will be settled and it will be signed with witnesses evidencing the transaction.

A demand letter can be sent to them by the lawyer and notice for the payment can be given to the debtor(s) by the lawyer.

Through Alternative to Dispute Resolution (ADR) this will involve the service of a third party as a means of settling the debt, it involves a situation in which parties themselves will fashion a modality of paying the debt. It is a win – win approach. No winner; no loser.

It can be done through mediation/ arbitration.

 Litigation: creditor can go to court through means of fast track procedure or summary judgement procedure, this is usually known as undefended list.

This action needs expeditious and accelerated hearing; it may be instituted in either a magistrate court or a high court. Judgement will be entered, usually it is an undefended list.

By engaging the services of debt recovery professionals – people who are specialists in debt recovery, they are trained and have the backing of the law. 

J.O. Sebiotimo Esq

Debt has been in existence since the beginning of time and the fact that we are all humans makes us susceptible to debt in other to achieve some of our endeavors as man. 

There are two or more parties that are typically involved in debt i.e Creditors and Debtors, parties can use any available options to escape the burden of debt. Before discussing the procedures available for debt recovery, it is apposite to understand what debt means. 

WHAT IS DEBT?

The Black’s Law Dictionary defines “Debt” as a specific sum of money due by agreement or otherwise. See also Per /kongbeh, J.C.A. in NIPOST V INSIGHT ENGINEERING COMPANY LIMITED.

It means that for a money claim to be regarded as debt, the money must be a specific sum which must equally be certain, fixed or liquidated amount of money; there must be a due date and such due date must have elapsed; the debt must arise from some agreement by parties to it called the “Debtor” (the person who owes the debt) and “Creditor” (the person who claims or is entitled to recovery). There are steps to be taken in recovering debt owed by the debtor provided the time for payment of such debt has passed.

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THE ROLE OF A DEBT COLLECTOR

The process of debt collection in many cases involves a debt collector or a debt collection agency, whose primary object is to ensure debts owed to the creditor are successfully recovered after which the agency gets paid an agreed percentage from the money recovered.

In order to successfully recover these debts, the collector has to conduct the necessary research in being well abreast with all necessary details of the debtor. 

Not only should the debt collector conduct research on the debtor, there is also need for a proper examination of the debt in question to better understand what advice maybe best suited for the case and most beneficial to the creditor. The debt collectors could suggest a waiver, debt restructuring, debt adjusting, debt adjustment or a debt write-off depending on the advice he thinks suitable.

TYPES OF DEBT COLLECTORS

The types of debt collection agencies include: 

1.First-Party Agencies: these are usually subsidiaries or departments of the Creditor’s company. They are called first party because they are a part of the original contract between the Creditor and the Debtor.

2. Third-Party Agencies: a third-party agency is usually not a party to the original contract but becomes an agent of the Creditor for the purpose of recovering debts owed by the compan’s debtors .The creditor assigns accounts directly to such an agency on a contingency-fee basis.

The third party agency makes money only if money is collected from the debtor (often known as a “No Collection – No Fee” basis). 

3. Debt Buyers: the debt buyer purchases accounts and debts from creditors for a percentage of the value of the debt and may subsequently pursue the debtor for the full balance due, including any interest that accrues under the terms of the original loan or credit agreement. 

This is most times the case when Asset Management Corporation of Nigeria (AMCON) is involved in a debt recovery situation.

 The agency purchases debts from banks or financial houses at a particular percentage which may have reduced the value of the debts, but bears some risks involved in the recovery of the debt.

 Procedures for Debt Recovery in Nigeria

What is Debt Recovery?

Debt recovery involves the process of making individuals or companies pay the sum that they owe to others when they have not paid back the debt at the agreed time. Debt recovery is crucial because it has a direct impact on your credit score.

 Procedure for Debt Recovery in Nigeria

In Nigeria, there are several legal alternatives for recovering debt from a firm or an individual. It is pertinent to note that in Nigeria, there is a time limit on when a debt can be recovered and once the recovery is not done within the time limit provided by law, such recovery becomes statute barred.

 The statute of limitations for debt recovery arising from a simple contract is six (6) years from the date the contract was entered into and executed, omitting the year the contract was entered into and executed. As a result, it is desirable to file a debt recovery action as soon as possible, before the 6-year statute of limitations expires, as stipulated by Section 21(1)(a) of the Limitation of Action Law.

 STEPS TO RECOVER DEBT FROM AN INDIVIDUAL OR A CORPORATION IN NIGERIA:

FIRST STEP: Try to settle the disagreement amicably with your debtor and collect payment. In achieving this, the clauses in the agreement has to be considered if it includes Arbitration clause and if it does, parties must first submit themselves to Arbitrators in recovering the debt. 

SECOND STEP: Consult a lawyer or a debt collector, and bring documentation such as delivery notes, invoices, written agreements, letters, emails, memos, and so on to the Lawyer of Recovery Agency for perusal so as to take an informed decision on the debt.

THIRD STEP: The lawyer or debt collector will examine and evaluate your claims regarding debt events.

FOURTH STEP: Sending a Demand Letter to the debtor, introducing the person on whose behalf the debt is to be collected, the amount owed or current amount owed where interest has accrued, and specifying the amount owed or current amount owed where interest has accrued.

FIFTH STEP: A creditor’s lawyer can file a lawsuit against an obstinate debtor using a fast-track court method known as “Undefended List Procedure” or “Summary Judgment Procedure,” or other procedures provided for under various statutes allowing debt recovery. The appropriate court to institute a legal action depends on debt sum. It may be instituted in Nigeria through the Magistrate Court, the State High Court or the Federal High Court.

Conclusion

In Nigeria, debt recovery entails making legal demands before considering the possibility of taking legal action. If an agreement between parties has a mediation or arbitration clause, the other party must first attempt to recover debt from the debtor-party through mediation and/or arbitration before resorting to filing a lawsuit in court.

 It’s also worth remembering that the Limitations Act and the Limitation Laws of various Nigerian states impose a 6-year limitation on debt collection in Nigeria. If a creditor fails to collect a debt owed within six years, the court may dismiss the case unless there is a break in the chain of causation, such as the corporation admitting or paying some of the obligation during the six-year limitation period.

More so, it should be noted that none of the Law Enforcement Agency (The Police, EFCC or any law enforcement agency) should be involved in recovering of debt as it is a pure civil case, unless there is an issuance of dud cheques. In such an instance, what the law enforcement can investigate is the issuance of the dud cheques and not recovery of such debt. 

Owing a debt and even the refusal, failure or inability of a debtor to liquidate his debts is not a criminal offence punishable under any law in Nigeria. See the decision of Supreme Court in the case of Economic and Financial Crime Commission (EFCC) v. Diamond Bank PLC., Petro-continental (Nigeria) Limited and H.R.H. Eze (Dr.) Peter Opara (2018) LPELR-44217 (SC). 

This means that no matter how sinful, uncivilized, disrespectful, annoying or immoral it may seem for one to refuse to pay his debts, it is still not regarded as a crime under any law in Nigeria.

Where a debt is owed, the Creditor should take appropriate steps in recovering such debt. 

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