The ascertainment of the validity of appointment of a receiver and/or manager is immeasurable and not to be ignored. Where an appointment of a receiver and/or manager is in contravention of the requirements of the law or the terms of the debentures, such appointment would be void and subject to challenge by the company.
The validity of the appointment of receivers and/or managers is mostly ascertained on the following grounds:-
1. Formalities of Appointment
There is no set statutory form for the appointment of a receiver and/or manager out of court. However, any formalities stipulated in the relevant debentures or trust deed must be followed. Where the debenture requires the appointment to be made in writing or by deed, that form must be observed. It is important to state that a deed is required not only where the appointment provision expressly states that the appointment shall be by deed, but also, where the receiver and/or manager is given the power to execute deeds in the name of the debenture holders.709 Also, where the debenture requires the consent of other debenture holders for an appointment to be made, such consent must be first obtained.
709 Picarda, op cit, p. 44.
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2. Conditions Precedent
Where there are express condition precedent to the appointment of a receiver, such conditions must be faithfully satisfied if the appointment is to be valid. Some of the conditions precedent to the appointment of a receiver as provided in the CAMA or the debenture include:-
(i) Necessity for Formal Demand
It is a moot point whether a formal demand for payment of money due is a prerequisite to the appointment of a receiver. It is submitted that the making of a demand is not a prerequisite to the validity of an appointment of a receiver under the extant law in Nigeria. However, it is worthy to note that express words in a debenture or trust deed may make a demand a crucial element in the appointment of a receiver.
But in the absence of express words requiring a demand to be made, the necessity of demand cannot be implied.710
(ii) Requirement of Time
As a corollary to (i) above, is whether there is a prescribed time limit to be observed prior to the appointment of a receiver. This issue borders more on the time that the realisation of security by the appointment of a receiver and/or manager can be invoked when a company fails to pay the principal sum borrowed or any instalment of interest or any premium.711 The prescribed time limit provided in the CAMA is within one month after it becomes due.712
Arising from the above, is the contention as to whether a receiver and/or manager can be appointed to realise the security for the debenture holder without exhaustion of the prescribed time limit of one month after the payment becomes due
710 H Picarda, „Receiver and on Demand Debentures‟ (1984) 5 Bus L Rev, pp105-107.
711 CAMA, op cit, s. 208 (1) (a).
712 Ibid.
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or the happening of the event specified in the debentures. It is submitted that where there is prescription of time in a statute or the debenture as a condition precedent for the appointment of a receiver and/or manager, it must strictly be complied with. Thus, where appointment of a receiver and/or manager did not comply with the condition precedent as to the time or happening of a specified event as provided in the statute or debenture, such appointment may be challenged on the ground of non-exhaustion of prescribed time limit, hence the appointment is premature and incompetent.
(iii) Authority to Appoint.
The validity of an appointment of a receiver and/or manager can be challenged on the ground that the person making the appointment lacked the necessary authority to make the appointment at the time it was so made. In view of this, it is important that the appointment of a receiver and/or manager be made by persons with the appropriate standing to so do as provided in the statute or debenture.713
The persons with the requisite authority to appoint a receiver and/or manager under the extant laws in Nigeria are:-
a) The trustee of the covering debenture trust deed,714 b) Debenture holder(s),715
c) Asset Management Corporation of Nigeria,716
d) The court on the application of the trustee717 or any interested person.718 3. Absence of Registration of the Charge
Another issue that can impugn the validity of appointment of a receiver and/or manager is where the charge under which he was appointed was not registered where
713 CAMA, op cit, s. 209(1).
714 Ibid, s. 209(1) (a).
715 Ibid, s. 209(1) (b) (c). op cit
716 AMCON Act, s. 48(1).
717 CAMA, op cit, s. 209(1) (d).
718 Ibid, s. 389 (1).
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registration is mandatory. In this respect, the validity of an appointed receiver can be attacked by a liquidator or creditor on the ground that the charge itself is void for want of registration.719 It should be noted that while the charge remains valid and effective as against the company, in the case of a liquidator and creditors, non-registration of the charge on which the appointment of a receiver and/or manager is derived from is fatal and may subject the appointment to a challenge or attack.