1 For a discussion of the importance of credit, secured lending and leading dissents to secured lending, see McCormack, GSecured Credit Under English and American Law (2004, Cambridge University Press), chap 1CrossRefGoogle Scholar.

2 For example, as at 30 June 2019, Nigeria's total external debt stock exceeded US$27 billion. See Debt Management Office “Nigeria's external debt stock”, available at: <https://www.dmo.gov.ng/debt-profile/external-debts/external-debt-stock/2944-nigeria-s-external-debt-stock-as-at-june-30-2019/file> (last assessed 10 December 2019).

3 The difficulty faced by MSMEs, especially those in developing countries, is well documented. See for example L Gullifer and I Tirado “Financing micro-businesses and the UNCITRAL Model Law on Secured Transactions” (2017) Oxford Legal Studies Research Papers 1.

4 Nigeria adopted English law following the end of British colonial rule in Nigeria in 1960. By virtue of the Interpretation Act cap 89, 1958, sec 45, the English common law and doctrines of equity, together with statutes that were in force in England as at 1 January 1900 were adopted in Nigeria, subject to local legislation. This remains the case, with English statutes enacted before the limiting date considered federal Nigerian statutes. English cases are of persuasive authority in Nigerian courts, especially on novel issues. For a detailed discussion of the relationship between both systems, see Park, AEWSources of Nigerian Law (1st ed, 1963, Sweet and Maxwell), chap 1Google Scholar.

5 Some examples of recent reformative enactments are Australia's Personal Property Securities Act 2009 and New Zealand's Personal Property Securities Act 1999 No 126. These follow several provincial Canadian statutes enacted in the 1980s and 1990s (such as Saskatchewan's Personal Property Security Act chap P-6.2, Statutes of Saskatchewan 1993). However, the pioneering enactment is art 9 (secured transactions) of the Uniform Commercial Code (UCC) first enacted in the 1950s. See Revised UCC (2010).

6 Under the common law, many such interests were viewed as quasi-security interests because, as they were initially not designed as secured transactions, their form was often seen to override their functionality. By reference to the overall common law security interests, some authors have described the Australian replica of the common law as “a patchwork system of statutory initiatives supplemented by common law and equitable principles”. See Duggan, A and Brown, DAustralian Personal Property Securities Law (2nd ed, 2016, LexisNexis Butterworths) at 18Google Scholar.

7 See McCormack Secured Credit, above at note 1 at 60.

8 This further obviates the need to set aside any specific assets as security for loans.

9 See Companies and Allied Matters Act, cap C20, Laws of the Federation of Nigeria (LFN) 2004, sec 179.

10 It is worth emphasizing that negative pledges and even Romalpa clauses are some of the ingenious measures developed by creditors to protect their interests in secured transactions and that have now become aspects of the common law. Other measures include the insistence on the provision of realty as security for loans, which has become the rule of thumb among Nigerian commercial banks, and charging exorbitant interest rates, some payable upfront in order to reduce future exposure.

11 See below for a detailed discussion of the peculiarities and challenges of these entities.

12 See for example Kohn, R and Morse, D “UNCITRAL: The UNCITRAL Model Law on Secured Transactions” (2016) 72/9The Secured Lender 48Google Scholar.

13 UNCITRAL's involvement in driving the reform of personal property security laws has been immense, as evidenced by its twin reform guides for states, which now constitute the Magna Carta of global reform activities. See UNCITRAL Legislative Guide on Secured Transactions (2010, UN) and UNCITRAL Model Law on Secured Transactions (2016, UN) (UNCITRAL Model Law).

14 The STMA, which became effective on 31 May 2017, was preceded by the Central Bank of Nigeria (CBN) Registration of Security Interests in Movable Property by Banks and Other Financial Institutions in Nigeria Regulation 1 of 2015, issued and gazetted in February 2015 but notified to banks on 29 June 2016. This regulation has similar provisions to the STMA, save for the critical difference that, while the regulation completely excludes company charges, the act gives parties the prerogative to use charges.

15 See for example Vig, V “Access to collateral and corporate debt structure: Evidence from a natural experiment” (2013) 68 Journal of Finance 881CrossRefGoogle Scholar, which found that reform to secured transactions law in India, which facilitated enforcement by creditors, reduced the volume of secured lending.

16 The STMA's other objectives include the enhancement of financial inclusion in Nigeria, the facilitation of access to credit secured with movable assets and the establishment of a collateral registry. See sec 1 for a comprehensive list of the STMA's objectives.

17 The breadth of transactions constituting security interests is further emphasized by the STMA, sec 63(1), which defines a security interest as “a property right in collateral that is created by agreement and secures the payment or other performance of an obligation, regardless of whether the parties have denominated it as a security interest”.

18 See for example Saraki v FRN [2016] 3 NWLR (pt 1500) 531.

19 Cap C 20 LFN 2004.

20 For a discussion of the key elements of a typical personal property security act reform, see Beale, H “An outline of a typical PPSA scheme” in Gullifer, L and Akseli, O (eds) Secured Transactions Law Reform: Principles, Policies and Practice (2016, Hart Publishing) 7Google Scholar.

21 See Pennington, R “The genesis of the floating charge” (1960) 23 Modern Law Review 630CrossRefGoogle Scholar.

22 For a detailed discussion of floating charges, see Gullifer, L (ed) Goode and Gullifer on Legal Problems of Credit and Security (6th ed, 2017, Sweet & Maxwell), chap 4Google Scholar.

23 SMEDAN is a statutory agency established by the SMEDAN (Establishment) Act 2003 to initiate and articulate ideas for small and medium scale industries policy thrusts and to oversee, co-ordinate and monitor their development. See SMEDAN (Establishment) Act, sec 8 for its detailed responsibilities in respect of MSMEs.

24 SMEDAN “Federal Republic of Nigeria: National policy on micro, small and medium enterprises” (2015), available at: <https://smedan.gov.ng/images/PDF/MSME-National-Policy.pdf> (last accessed 10 December 2019).

25 The policy states however that, where conflicts arise between the employment and assets criteria (for example, where an enterprise has assets worth NGN 12 million but employs only seven people), the employment criterion takes precedence and the enterprise will be classified as a micro enterprise. See id, para 1.3.

26 NGN 10 million amounts to approximately GBP 21,000 at the prevailing exchange rate as at December 2019. See currency converter, available at: <https://www1.oanda.com/currency/converter/> (last assessed 3 December 2019).

27 SMEDAN “Federal Republic of Nigeria”, above at note 24, para 1.3.

28 Id, para 1.4.1.

29 Ibid.

30 Ibid.

31 Ibid.

32 Ibid.

33 Id, para 1.5.

34 Ibid.

35 For example, the cost of purchasing a single piece of agricultural equipment, such as a tractor, usually exceeds GBP 20,000 and, even when instalment payments are permitted, the instalments may exceed what these impecunious entities can comfortably afford from their meagre earnings.

36 For a discussion of Nigeria's infrastructural challenges, see V Foster and N Pushak “Nigeria's infrastructure: A continental perspective” (an Africa infrastructure country diagnostic report by the International Bank for Reconstruction and Development, February 2011), available at: <https://ppiaf.org/documents/3154/download> (last assessed 3 December 2019).

37 The provision of security is just one of the conditions set by institutional creditors for obtaining loans. See for example the First Bank of Nigeria's conditions for term loans and advances to SMEs, available at: <https://www.firstbanknigeria.com/business-banking/loans/sme-product-financing/import-finance/> (last assessed 3 December 2019).

38 For a list of more than 15 government schemes since the 1960s, see SMEDAN “Federal Republic of Nigeria”, above at note 24 at 20.

39 A recent review of repayment by SMEs on loans disbursed under the supervised credit scheme of the Nigeria Agricultural Cooperative and Rural Development Bank in Kaduna State found that only about a quarter of a total sum of NGN 88.7 million disbursed was repaid by borrowers. See generally Sambo, AO et al. “A critical evaluation of the legal framework for SMEs’ loan redemption in Nigeria” (2014) 22 International Islamic University of Malaysia Law Journal 56Google Scholar.

40 [1897] AC 22.

41 For a detailed discussion of the elements of the incorporated company and the value they hold in engendering the economic exigencies for the modern business enterprise, see Kraakman, R et al. The Anatomy of Corporate Law (3rd ed, 2017, Oxford University Press), chap 1CrossRefGoogle Scholar.

42 Capitalization also plays a critical role in engendering venture capital in the first place because, without it, the investment cannot easily be ascertained. See for example the Banks and Other Financial Institutions Act, cap B3, LFN 2004, sec 21.

43 See for example CAMA, sec 578 and the entire part XV, consisting of 130 sections dedicated to the winding-up of companies.

44 See id, secs 38–39, which spell out a company’ specific powers and the limits on the exercise of such powers. See also FCDA v Unique Future Leaders International Ltd [2014] 17 NWLR (pt 1436) 217.

45 See for example “CAC registered 91,609 business names in one year” (6 September 2017) The Guardian Newspaper, showing the number of entities registered between July 2016 and June 2017, available at: <https://guardian.ng/business-services/cac-registered-91609-business-names-in-one-year/> (last assessed 3 December 2019).

46 It is however necessary to correct the inaccurate general perception that companies are more complex to create. For example, the current charges for registering a business name are the same as those paid for incorporating small companies. See summary of Corporate Affairs Commission fees, available at: <http://new.cac.gov.ng/home/summary-of-fees-and-forms/> (last assessed 3 December 2019). Furthermore, the documentation requirement and incorporation process are considerably less onerous for smaller companies.

47 Under CAMA, sec 18, any two or more persons may incorporate a company. This is however subject to a few exceptions, including the obligation in CAMA, sec 19 that obliges any group exceeding 19 members to be incorporated as a company.

48 Failure to register attracts punitive measures under CAMA. See CAMA, sec 584. There is however no means of tracking compliance with sec 573 and, considering the government's desire to boost the growth of small companies, sanctions against them are invariably never pursued.

49 This can be gleaned from SMEDAN “Federal Republic of Nigeria”, above at note 24, para 3.2.1.

50 See CAMA, secs 166 and 178.

51 STMA, sec 2(1)(a).

52 It must be highlighted that MSMEs may also seek alternative forms of financing, such as venture capital and unsecured loans. However, for many reasons, these options present even greater difficulties than secured financing; for example venture capital as a means of finance is unsuitable for entities without capitalization and the desire of venture capitalists to participate in the business usually discourages small business promoters. On the other hand, the highly regulated nature of the Nigerian financial sector makes it difficult for these entities to meet the onerous conditions set by financial institutions for unsecured loans.

53 Although resembling security devices, liens are merely passive legal rights to retain another's property until certain demands have been satisfied. See Clarke, W (ed) Fisher and Lightwood's Law of Mortgages (2014, LexisNexis) at 6Google Scholar.

54 See Ihunwo v Ihunwo and Others [2013] 8 NWLR (pt 1357) 550.

55 Beale, H et al. The Law of Security and Title-Based Financing (2nd ed, 2012, Oxford University Press) at 563Google Scholar.

56 Ibid.

57 See Donald v Suckling (1866) LR 1 QB 585.

58 McKendrick, EGoode on Commercial Law (5th ed, 2016, Penguin Books) at 687Google Scholar.

59 Naughton, J “Commentary on commercial pledges” in Gillooly, MSecurities over Personalty (1994, The Federation Press) 154Google Scholar.

60 Ahmed El-Hag v GKJ Amachree (1962) LLR 10.

61 Bills of Sales Act 1878, sec 4. Bills of sale are governed by the provisions of the English Bills of Sales Acts of 1878 and 1882, as amended by the Bills of Sales Acts of 1890 and 1891, all of which are statutes of general application in Nigeria. See above at note 4.

62 Orojo, JONigerian Commercial Law and Practice (vol 1, 1983, London Sweet & Maxwell), para 11.42Google Scholar.

63 Mills v Charlesworth (1890) 25 QBD 421.

64 Bills of Sales Act 1882, part III, secs 7–11.

65 Thomas v Kelly (1888) 13 App Cas 506.

66 ACB Ltd v Oladapo (1951) 12 WACA 285.

67 See IO Smith Nigerian Law of Secured Credit (2001, Ecowatch Publications Ltd) at 35.

68 See Ogundaini v Araba (1978) 1 LRN at 280.

69 Ibid. See also CAMA, sec 178.

70 CAMA, sec 178.

71 See id, para. 2.2.

72 The harmonization of security interests should ideally remove compartments associated with the common law system, such as the demarcation between legal and equitable interests. See for example the definition of security interests in STMA, sec 63(1).

73 Hicks, ANigerian Law of Hire Purchase (1977, ABU Press) at 1Google Scholar. In cases where the seller agrees to part with both possession and ownership, his interest is limited to a personal action against the buyer with no attendant or consequential interest in the goods. Such cases amount to unsecured credit sales and are not discussed further in this article. See Ajagbe v Idowu [2012] 1 BFLR 102.

74 See MIA & Sons Ltd v Afrotech Technical Services Ltd and Another [1991] 5 NWLR (pt 194) 724.

75 See Yakassai v Incar Motors (Nigeria) Ltd (1975) 5 SC 107.

76 Beale et al The Law of Security, above at note 55 at 261.

77 Most finance leases contain an express undertaking by the lessee to retain possession and not dispose of or otherwise encumber the goods with any interest adverse to the lessor financier's title.

78 Above at note 13.

79 Ibid.

80 However, this objective is not backed by special MSME-centric provisions; in fact, the STMA fails to refer to MSMEs beyond sec 1.

81 UNCITRAL Legislative Guide, above at note 13 at 1.

82 The registrar has responsibility for supervising and administering the registry's operations. See STMA, sec 10(3).

83 See for example the STMA, part V on priorities of security interests.

84 See CAMA, sec 7(1). Although SMEDAN possesses vast statutory powers over MSMEs, the obvious argument against SMEDAN managing this responsibility is, however, that the STMA is not an enactment governing MSMEs, as it applies to all security interests in movable assets. See SMEDAN (Establishment) Act, secs 2, 8, 9 and 27 for SMEDAN's extensive responsibilities.

85 Cap B3 LFN 2004.

86 These include the powers to grant, vary and revoke banking licences, and approve the operation of foreign banks. See generally BOFIA, secs 3, 5 and 8, although other specific powers regarding financial institutions are interspersed in the act.

87 CBNA, sec 2.

88 International Monetary Fund “Financial system soundness” (factsheet, March 2019), available at: <http://www.imf.org/en/About/Factsheets/Financial-System-Soundness> (last assessed 3 December 2019).

89 There is no gainsaying the fact that reform aimed at liberalizing access to credit should not be unduly regulated.

90 See Sani Dododo v EFCC [2013] 1 NWLR (pt 1336) 468.

91 See Wade, H and Forsythe, CAdministrative Law (11th ed, 2014, Oxford University Press) at 27CrossRefGoogle Scholar.

92 This is buttressed by the definition of “security interest” in sec 63(1) of the STMA and by the fact that sec 2(1)(a) applies to all security interest in movable assets.

93 See the definition of security interest in id, sec 63(1).

94 Ibid.

95 Ibid.

96 See discussion of the implications of sec 2(3) in “Introduction”, above.

97 See CAMA, secs 166 and 178(1).

98 STMA, sec 8(2).

99 See id, sec 40.

100 See for example UNCITRAL Model Law, art 18(2), which provides for possession as a means of perfection. The APPSA, sec 21(2)(b) also recognizes possession as a means of perfecting and publicizing a security interest over assets.

101 See Ihunwo, above at note 54.

102 A benefit of sec 8(2) may be that it could simplify lenders’ due diligence by restricting it to searches at the collateral registry. However, it is contended that such simplification comes at a higher cost because it replaces the cheap benefit of taking possession with an obligation to file a financing statement, which could have been totally obviated by possession.

103 See National Provincial and Union Bank of England v Charnley [1924] 1 KB 431.

104 See “The STMA and the challenges in the current credit framework”, above.

105 UNCITRAL Legislative Guide, above at note 13 at 320. Unlike the STMA however, UNCITRAL provides two other options for the treatment of acquisition financing by states. See UNCITRAL Model Law, above at note 13, art 38.

106 Ibid, UNCITRAL Model Law, art 38.

107 STMA, sec 63(1).

108 See UNCITRAL Legislative Guide, above at note 13 at 332.

109 Parties must avoid designating such security interests as charges in order to avoid being entrapped by the definition of charges inadvertently retained by sec 2(3). See “The STMA and the challenges in the current credit framework”, above.

110 STMA, sec 6(1)(c).

111 See Re Yorkshire Woolcombers Association Ltd [1904] AC 355.

112 Ibid.

113 Duggan and Brown Australian Personal Property, above at note 6 at 128.

114 However, arguments also exist to buttress the existence of the debtor's right to deal. For example, the very existence of a creditor's right to take possession implies that the secured asset is ordinarily in the debtor's possession. The right to deal also aligns with UNCITRAL's expectations of the unitary security system. See UNCITRAL Legislative Guide, above at note 13 at 83.

115 See Re Spectrum Plus [2005] 2 AC 680.

116 However, the converse is not the same with secured parties under the STMA who are, ironically, obliged to conduct searches at the companies’ registry if the potential grantor is an incorporated company. It is suggested that this constitutes an additional burden on such secured parties.

117 STMA, sec 2(1)(c).

118 It is noteworthy that the companies’ registry, established in the early 1990s following the enactment of CAMA, has never interfaced with any other similar registry, notably the bills of sales registry. Issues of assets filtering between transactions under CAMA and the bills of registry are however rare, because bills of sales are hardly ever used. However, depending on how well STMA is received, its enactment may reverse this trend with this issue attaining greater significance in the Nigerian legal system.

119 This would happen because only incorporated companies remain eligible to create charges pursuant to CAMA.

120 In this example, G is an incorporated company.

121 Potential creditors wishing to lend to companies are expected to conduct searches at the companies’ registry to ascertain the state of the company's assets, although this extends beyond the scope of any obligation imposed by the STMA.

122 See for example the definition of registration under sec 63(1) of the STMA as “the processing of a financing statement to bring it in compliance with the requirements of this Act”, a process unrecognized under CAMA.

123 For example, see the STMA, part V for priority rules for transactions under the STMA; and CAMA, sec 179 for priority rules under CAMA.

124 For a discussion of priorities under the common law, see generally Worthington, SEquity (2nd ed, 2006, Clarendon Law Series), chap 4CrossRefGoogle Scholar.

125 For a detailed discussion of both maxims, see McGhee, J (ed) Snell's Equity (31st ed, 2005, Sweet & Maxwell), chap 4Google Scholar.

126 The phrase “legal” is used in a different sense to denote an interest created in full conformity with the legal process for its creation, in contrast to the position with equitable interests. See generally id, para 1-002.

127 CAMA, sec 178.

128 Worthington Equity, above at note 124 at 96.

129 This difficulty is aggravated by the fact that receivers generally have limited duties to other creditors and often no general duty of care to them. See Downsview Nominees Ltd v First City Corp Ltd [1993] AC 295.

130 See CAMA, sec 393(1).

131 [1992] 3 NWLR (pt 228) 231.

132 The statutory rationale can be found in CAMA, sec 179. See also Intercontractors Nigeria Ltd v UAC of Nigeria Ltd [1988] NWLR (pt 76) 303.

133 See for example the Personal Property Security Act 1993 (Saskatchewan), sec 56(1).

134 See Owen & Co v Cronk [1895] 1 QB 265.

135 See APPSA, sec 116, which provides that chap 4 of the act (which deals with the enforcement of security interests) does not apply if there is a receiver or receiver and manager in control of the collateral, except if the grantor is an individual.

136 See Duggan and Brown Australian Personal Property, above at note 6 at 370.

137 STMA, sec 63(1).

138 This ensures total harmonization and its attendant benefits, including obviating the need to resort to the general principles of law in resolving priority issues.

139 This follows from the fact that the redundancy of possession arising from sec 8(2) of the STMA renders pledge transactions subject to dual perfection, ie the registration of a financing statement irrespective of possession.

140 This should be easily handled by CAC, since loan transactions by individuals are usually less complex than those by companies that CAC already manages.