The Nigerian Central Bank announced on June 3, 2024, that Heritage Bank’s banking license had been revoked and that the National Deposit Insurance Corporation (NDIC) was appointed as the bank’s liquidator. This action has raised many concerns among bank stakeholders and creditors.

Liquidation of a bank is the process of permanently closing a bank and its branches, selling off any asset, and using the proceeds to settle as many of the bank’s remaining liabilities as possible[i]. A bank can be liquidated as a result of the revocation of its license by the Central Bank of Nigeria (CBN) pursuant to Section 12(1) of the Banks and Other Financial Institutions Act (BOFIA 2020), and this can occur under circumstances such as when the bank ceases to conduct its licensed banking business in Nigeria for six continuous months or for an aggregate period of six months within a 12-month period; the bank undergoes liquidation, winding up, or dissolution proceedings; the bank fails to meet the conditions stipulated in its license or violates provisions of the BOFIA, the CBN Act, or related regulations and the bank’s assets are insufficient to cover its liabilities, rendering it financially unstable. The CBN stated that Heritage Bank breached Section 12(1) of the BOFIA 2020 by the bank’s inability to improve its financial performance resulting in threatened financial instability.

THE NATIONAL DEPOSIT INSURANCE CORPORATION

The NDIC is to be appointed as the liquidator of a bank whose license is revoked by the Central Bank of Nigeria[ii] and its duty as liquidator is to realize the assets of the failed institution; and to enforce the individual liability of the shareholders and directors[iii]. It also has powers to windup the bank, bring or defend any action or other legal proceedings in the name of such failed insured institution, sell the property of the failed insured institution of whatever nature by public auction or private contract with power to transfer the whole of it to any person or to sell same in parcels amongst other functions[iv].

DEPOSITORS AND CREDITORS

Following its appointment as liquidator, the NDIC is to ensure that insured depositors of the Bank liquidated receive their money up to the insured limit. Where a bank’s license has been revoked, the assets of the insured institution shall be available to meet all its deposit liabilities and such deposit liabilities shall have priority over all other liabilities of the insured institution[v]. Hence, in discharging its mandate, the NDIC compensates insured depositors as well as manages the claims of the remaining depositors, creditors, debtors, and shareholders[vi]. When banks fail, the NDIC will sell the assets of the bank in liquidation and the liquidation dividends are often given to creditors and shareholders after depositors have received their full refund. It’s safe to say that Heritage Bank’s depositors and creditors will receive their money back because the NDIC[vii] announced that depositors with alternate accounts within the industry will receive payments up to the insured amount of N5 million each, provided they can locate their alternate account using their Bank Verification Number (BVN). On the other hand, depositors with funds exceeding N5 million will receive a liquidation dividend upon the bank’s asset realization and the recovery of outstanding debts^[viii].

Furthermore, to verify their deposits and receive payment for the insured amounts, all depositors of the closed bank who do not already have an alternate bank account in the industry are to visit the closest branch of Heritage Bank with means of identification that can be verified as proof of account ownership. Alternatively, they can file an online claim by going to the claims page of the NDIC website^[ix]. The process of paying creditors begins as soon as all depositors have been paid, thus creditors must visit the closest bank branch to submit their claims or do so online^[x].

SHAREHOLDERS, DIRECTORS AND OFFICERS

In the event of a bank’s license revocation, the NDIC can enforce the personal liability of significant shareholders and directors if their actions and inaction contributed to the bank’s failure[xi]. This means that directors, significant shareholders, officers, employees, and other parties involved with the bank can be held personally liable for monetary damages if their actions or inactions contributed to the bank’s failure. The liability of directors for granting unauthorized credit facilities is unlimited and personal. Directors and the shareholders may be liable even if their actions occurred before the institution was declared failing or failed[xii]

DEBTORS

NDIC can take several actions against debtors (borrowers) of a bank whose license has been revoked. These actions aim to recover the debts owed to the failed bank and protect the interests of depositors and creditors. NDIC can either set off a loan owed by the debtor against the debtor’s deposit held in the failed bank or any other failed bank under liquidation. This indicates that NDIC will use the deposit to repay the debt or alternatively, use the Global Standing Instruction (GSI) run by the Central Bank of Nigeria. Through this program, the NDIC is able to access the debtor’s accounts at other banks and utilize the money there to pay off the outstanding loan. Other insured institutions are able to provide the NDIC with information regarding the debtor’s accounts and investments.

INSTITUTING COURT ACTIONS

A legal action concerning the NDIC’s duty to compensate depositors of the bankrupt financial institution cannot be initiated after a period of six years[xiii]. In addition, the NDIC shall not be subject to any restorative, prohibitive, or like order concerning the payment of insured deposits to depositors of an insured institution[xiv]. However, the greatest compensation claimants may receive in any action against the NDIC would be the actual damage is done, which would be the maximum insured deposit for depositors; shareholders receive the nominal value of shareholders’ shares in the insured institution and a group of shareholders will get the nominal value of every share in the insured institution[xv].

JUDGEMENT CREDITORS

The NDIC Act provides that any judgment debt against an insured institution that is in liquidation or against the NDIC acting as the liquidator of an insured institution that is not appealable must be filed with the NDIC as an unsecured creditor claim and must be admitted to proof in line with the guidelines the NDIC has established for the administration of claims payment[xvi]. This can be obtained by going to the claims page on the NDIC website, completing the forms there, and uploading the necessary files. Therefore, people who have a judgment debt against Heritage Bank can still enforce it by following the guidelines. Furthermore, any judgment debt against an insured institution under liquidation as stated in the judgment which is filed as proof of claim with the Corporation as liquidator of such institution shall cease to be applicable from the date the Corporation commenced liquidation of such insured institution[xvii].

Where the NDIC has commenced liquidation of an insured institution and applies to the Court for a stay of any suit, application, proceedings, execution, attachment, or action pending or instituted in any court by or against such insured institution or the Corporation, the Court shall, whether or not leave had earlier been granted to commence or proceed with such action or matter under this Act or any other law, grant such stay as to all parties[xviii]. Furthermore, where the NDIC has assumed control of an insured institution and applies to the court for stay of any suit, application, proceedings, execution, attachment, or action pending or instituted in any court by or against such insured institution or the Corporation, the Court shall, whether or not leave had earlier been granted to commence or proceed with such action or matter under this Act or any other law, grant such stay as to all parties until the NDIC relinquishes control of the insured institution[xix]. This means that the NDIC has the power to apply to the Courts to stay any pending action against Heritage Bank and the Court is obliged to grant it.

Where an insured institution is in liquidation, any judgment sum obtained against the insured institution by a judgment creditor that has not been satisfied prior to commencement of liquidation or that is obtained after commencement of liquidation shall not be enforceable against the assets of the insured institution facing liquidation or the Corporation[xx]. This seems to be in line with Section 57(4) of the NDIC Act 2023 as referred to as any judgment debt against Heritage Bank or NDIC as the liquidator must be filed with the NDIC as an unsecured creditor claim and must be admitted to proof in line with the guidelines the NDIC has established for the administration of claims payment.

According to the CBN, financial institutions and their shareholders can challenge their license revocation. However, they can only do so within a 30-day period after license revocation[xxi].

CONCLUSION

The CBN’s decision to revoke Heritage Bank’s bank license implies that the bank has reached the end of its existence and is no longer able to carry out its primary function of accepting deposits from the public and utilizing those deposits to fund loans[xxii]. In its capacity as the bank’s liquidator, the NDIC will see to it that the depositors, creditors, and all debts owed by the bank—including those to its employees—are paid off. Following this, they will pay investors and creditors, who are typically the last to get paid after all the depositors and priority claims have been satisfied.

The amount of bank assets that can be successfully realised by the liquidator is a significant factor. Given the nature of the banking industry, loans and advances typically make up the majority of a bank’s assets. Several problems have hindered the banks in liquidation from recovering their loans, including the borrowers’ weak business conditions, which makes recovery attempts challenging, the lengthy legal process, and the fact that many of the loans were unsecured and improperly given[xxiii]. Liquidation of assets could extend for many years; consequently, uninsured depositors, other creditors, and shareholders could wait for many years before being paid.

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[i] https://www.bankrate.com/banking/heres-what-happens-when-your-bank-is-liquidated/#what-is-it

[ii] Section 55 (1)(b) of the National Deposit Insurance Corporation Act 2023 (NDIC ACT 2023),

[iii] Section 57(2) of the NDIC Act 2023

[iv] Section 62 (1) of the NDIC Act 2023

[v] Section 72 of the NDIC Act 2023

[vi] An Appraisal of NDIC as a Regulatory Authority in Nigeria THE INTERNATIONAL JOURNAL OF BUSINESS & MANAGEMENT by Abere, Mojisola Anne, Edewusi, Gabriel Damilola and Olowo, Samson Oluwole.

[vii]On the 3^rd of June 2024 NDIC announced through its Director of Communication & Public Affairs

Bashir A. Nuhu and be seen https://ndic.gov.ng/ndic-commences-liquidation-of-heritage-bank/#:~:text=1.,deposits%20to%20the%20bank%20depositors.

[viii] https://ndic.gov.ng/ndic-commences-liquidation-of-heritage-bank/

[ix] Ibid

[x] Ibid

[xi] Section 76 of the NDIC Act 2023

[xii] I. Ezeribe, T. Oguntade, G. Ogundoye, “Bank failures in Nigeria: Implications for Stakeholders-A case study of Heritage Bank”, < https://topeadebayolp.com/wp-content/uploads/2024/06/BANK-FAILURES-IN-NIGERIA-IMPLICATIONS-FOR-STAKEHOLDERS-%E2%80%93-A-CASE-STUDY-OF-HERITAGE-BANK2.pdf>, accessed on June 13, 2024

[xiii] Section 30(6) of the NDIC Act 2023

[xiv] Section 29(2) of the NDIC Act 2023,

[xv] Ibid

[xvi] Section 57(4) of the NDIC Act 2023,

[xvii] Section 57(6) of the NDIC Act 2023

[xviii] Section 73(1) of the NDIC Act 2023

[xix] Section 73 (2) of the NDIC Act 2023

[xx] Section 73(3) of the NDIC Act 2023

[xxi] Section 12 (5) of the BOFIA Act 2020

[xxii] https://www.icirnigeria.org/what-heritage-banks-licence-revocation-means-for-customers-investing-public/

[xxiii] https://ndic.gov.ng/failure-resolution/types-of-failure-resolution/

Written by Deborah Dada and Toluwani Kalaro for The Trusted Advisors

Email us: info@cms.trustedadvisorslaw.com

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