Introduction
Debt is an integral component of modern commerce, serving as a catalyst for investment, growth, and expansion. However, in a challenging economic landscape like Nigeria’s, credit default remains a pervasive risk. Creditors, both institutional and individual, often face uphill battles in recovering debts due to a myriad of legal, procedural, and socio-economic constraints. While the Nigerian legal system offers a robust framework for enforcing debt obligations, the realities of enforcement are shaped by practical limitations, judicial delays, and debtor evasiveness. Debt recovery is a critical component of commercial life, particularly in emerging economies like Nigeria, where access to credit is essential for business sustainability and growth. However, the process of recovering debts in Nigeria often involves navigating a complex interplay of legal procedures, judicial inefficiencies, and commercial risks. This article explores the legal framework governing debt recovery in Nigeria, the practical challenges creditors face, and strategies to mitigate these risks while enforcing rights effectively. In the same vein, it examines in detail the legal processes available for debt recovery in Nigeria, the commercial realities that hinder enforcement, and the best practices creditors can adopt to safeguard their financial interests.
Definition of the Concepts
Debt
A debt is liability on a claim; a specific sum of money due by agreement or otherwise. It is the aggregate of all existing claims against a person, entity, or State, a non-monetary thing that one person owes another, such as goods or services.” Per JOSEPH TINE TUR, JCA (Pp 60 – 60 Paras E – F). See Ekaete v. UBN Plc (2014) LPELR-23111(CA). The Black’s Law Dictionary defines “debt” as a specific sum of money due by agreement or otherwise. For a claim to be classified as a debt, it must meet certain criteria:
- The amount owed must be a certain, fixed, or liquidated sum.
- There must be a due date that has passed.
- The obligation arises from an agreement between the parties involved, namely the debtor (the person who owes the debt) and the creditor (the person entitled to recover the debt).[1]
Debt Recovery
Debt recovery refers to the process of collecting money owed by individuals or corporations. It is crucial for maintaining financial health and has direct implications for credit ratings. The process typically follows a structured approach, ensuring compliance with legal frameworks.[2]
Sources of Debt
It should be mentioned that there are several sources or types of debt in Nigeria society which can arise from a variety of transactions. They include;
- Commercial loans: Extended by financial institutions to individuals or businesses.
- Trade credit: Resulting from supply of goods or services with deferred payment.
- Personal loans: Between individuals, often undocumented.
- Credit purchases: Common in real estate, vehicles, and electronics
Considering the above listed sources of Debt, the terms and enforceability of these debts depend largely on the presence of a contract (oral or written), supporting documentation, and security for repayment.
Legal Framework for Debt Recovery in Nigeria
Debt recovery in Nigeria is primarily governed by civil law principles, as codified in statutes, judicial precedents, and procedural rules. The key avenues available to creditors include;
- Action for Recovery of Debt
Civil action remains the most common approach to debt recovery. Under the High Court (Civil Procedure) Rules applicable in various states, an aggrieved creditor may institute proceedings against a debtor depending on what the fact is.
A creditor may institute a civil action for the recovery of debts through the High Court of a State or the Federal High Court, depending on the subject matter and parties involved. The claimant must prove that a valid debt exists, which may arise from loan agreements, unpaid invoices, dishonoured cheques, or other contractual obligations. Recovery actions can be initiated by writ of summons or, where there is no substantial dispute as to facts, via undefended list procedure under the rules of court.[3] Often times, creditors initiate their suits via a Writ of Summons. It is suitable where substantial dispute as to facts exists.
2. Summary Judgment Procedure
Under Order 13 of the High Court of Lagos State (Civil Procedure) Rules 2019 and similar provisions in other states, a creditor may apply for summary judgment where the debtor has no defence to the claim. This is a swift mechanism designed to avoid prolonged trials in cases where liability is not contested.[4]
3.Prejudgment Remedies – Mareva Injunction
To prevent the dissipation of assets during the pendency of an action, a creditor may apply for interim remedies to preserve assets pending judgment, one of such is a Mareva injunction, which freezes the debtor’s assets. This equitable remedy is available where the claimant shows that the debtor is likely to frustrate the enforcement of judgment by disposing of assets.[5]
Another prejudgment remedy is Anton Piller Order. This order permits search and seizure of evidence to prevent destruction, typically used in fraud-related matters.[6]
4.Contractual Remedies
It is important to stress the fact that where contracts include arbitration or mediation clauses, parties may be bound to resolve disputes outside court, unless an exception applies. Where parties have agreed to explore Arbitration before exploring other methods of dispute resolution, such an agreement has formed part of the terms of the said contract and both parties are legally bound to comply with the agreement, failure to do so might ordinarily oust the jurisdiction of the court. This particular position is, however, quite controversial. This is because, on one hand, where there is a consensus between parties in a contract, the only duty of the court is to enforce the agreement premise on the principle of Pacta Sunt Servanda which places a responsibility on the court to respect the intention of parties and give effect to terms unanimously agreed upon, provided it does not go against the boundaries of the law. On another hand, there is a constitutionally guaranteed right of access to court and to deny a party of such merely on the basis of contractual agreement would appear unreasonable and ultimately, unconstitutional[7]
In light of the above, it is safe to say that although parties cannot resort to court before exploring arbitration where an arbitration clause is present, the jurisdiction of the court is not completely ousted. Where a party approaches the court, the other party is expected to challenge the jurisdiction of the court to entertain the suit and apply for stay of proceedings pending the conclusion of Arbitration.[8]
Enforcement of Judgment
While it is good to secure a judgment but securing a judgment is only half the journey. Enforcing it often presents greater challenges. Hence, available enforcement mechanisms include;
- Writ of Fieri Facias (FiFa) – This is a writ executed against the judgment debtor’s movable or immovable property whether in the judgment debtor’s possession or otherwise. The writ empowers the court sheriff, following an application by the judgment creditor, to seize the property of the judgment creditor and to sell such property wherever it may be found within the jurisdiction of the court.[9]
- Garnishee Proceedings – Here, the judgment creditor attaches debts that a third party (eg, the judgment debtor’s bank) owes to the judgment debtor. The third party, upon an order of court (a garnishee order absolute), pays the sum owed to the judgment debtor to the judgment creditor in satisfaction of the judgment debt. Not every debt owed is attachable – for the debt to be attachable, the sum must be certain in amount and the judgment debtor must have an immediate legal right to it.[10] It should however be mentioned that the Garnishee Proceedings involve two stages: garnishee order nisi and Garnishee order absolute[11]
- Writ of Sequestration – This is issued in respect of a property of a judgment debtor who disobeys a judgment of the court or who cannot otherwise be found.[12]
- Insolvency/Bankruptcy Proceedings – The Bankruptcy Act defines an act of bankruptcy (amongst other things) as the failure of a judgment debtor to satisfy the requirements of a bankruptcy notice by complying with the terms of a judgment. Section 408(d) of the Companies and Allied Matters Act also permits the institution of winding-up proceedings against a company for its inability to pay its debts, including debts arising from execution or another process issued on a judgment and that remains unsatisfied in whole or in part.[13]
In all, the most common form is garnishee proceedings, especially against financial institutions, though recent banking regulations now require Central Bank of Nigeria (CBN) consent for public institutions’ accounts to be garnished.[14]
Role of Debt Recovery Agencies and Alternative Dispute Resolution
Many creditors engage debt recovery agents or law firms to initiate pre-action recovery efforts. While these efforts are informal, they must comply with consumer protection laws and avoid coercive tactics. Alternative dispute resolution (ADR), such as mediation or arbitration, is increasingly encouraged, especially in commercial contracts where arbitration clauses exist.[15] ADR offers speed, confidentiality, and cost-effectiveness, though enforcement of arbitral awards may still require judicial intervention under the Arbitration and Mediation Act, 2023.
Commercial Realities and Challenges in Debt Recovery
While the legal processes are theoretically sufficient, practical challenges abound. In other words, despite the available legal tools, the process remains fraught with challenges. The challenges therefore are briefly explained below;
- Judicial Delays and Adjournment
Court congestion and procedural technicalities often delay resolution. Cases can linger for years, undermining creditors’ confidence in the judicial process. In some jurisdictions, the lack of digitized case management systems compounds delays. Court congestion, frequent adjournments, and administrative inefficiencies often extend the debt recovery timeline to several years.
2.Debtor Evasion and Asset Hiding
Debtors frequently dissipate assets or use multiple accounts to frustrate garnishee orders. The lack of a unified credit reporting infrastructure also hampers enforcement.
3.High Cost of Litigation
Filing fees, legal representation, and execution costs make litigation uneconomical for small debts. Legal action often involves significant legal fees, filing costs, and enforcement charges, which may exceed the debt in some low-value matters. This makes informal settlement or ADR more appealing in many instances.
Risk Mitigation and Best Practices for Creditors/Commercial Realities and Best Practices
To minimize exposure of debt recovery challenges and enhance recovery prospects, creditors are advised to:
- Creditors should conduct Due Diligence before extending credit, assess the counterparty’s credit history and financial capacity through the Credit Bureau or CAC records.
- Secure Credit Transactions: Use instruments like personal guarantees, post-dated cheques, collateral documentation such as land or vehicles, debentures or floating charges for corporate borrowers.
- The Inclusion of Dispute Resolution Clauses like Arbitration or Mediation clauses in contracts can facilitate faster resolution.[16]
- Maintain Proper Documentation: Invoices, delivery notes, and payment acknowledgments are vital in establishing a debt claim.
- Leverage Technology: Fintech-driven credit systems and blockchain technology can offer more secure, traceable, and enforceable credit arrangements.
- Engage Professionals Early: Lawyers and recovery experts can help structure transactions and act quickly in default scenarios.
- Introducing specialized debt recovery courts can also help.
Conclusion
Debt recovery in Nigeria sits at the intersection of law and commercial reality. While the legal architecture is comprehensive, its effectiveness is undermined by procedural bottlenecks, social dynamics, and weak enforcement mechanisms. Creditors must combine legal vigilance with commercial pragmatism, leveraging documentation, security, and dispute resolution strategies to navigate the terrain. Ultimately, a reformed, tech-enabled, and creditor-friendly justice system is critical to enhancing credit culture and economic growth in Nigeria. Furthermore, the Nigerian legal landscape provides a comprehensive, albeit cumbersome, framework for debt recovery. While statutory remedies are robust, commercial realities such as judicial inefficiencies and asset evasion—necessitate a proactive, risk-aware approach to credit management. Legal reform, technology adoption, and institutional strengthening are imperative for enhancing creditor confidence and improving debt recovery outcomes in Nigeria.
[1]https://www.google.com/search?q=definition+of+a+debt+according+to+Black%27s+Law+Dictionary&rlz=1C1GCEA_enNG1158NG1158&oq=definition+of+a+debt+according+to+Black%27s+Law+Dictionary&gs_lcrp=EgZjaHJvbWUyBggAEEUYOTIHCAEQIRigATIHCAIQIRigATIHCAMQIRigATIHCAQQIRigAdIBCTI1NjYxajBqNKgCALACAQ&sourceid=chrome&ie=UTF-8
[2] https://www.legal500.com/developments/thought-leadership/debt-recovery-in-nigeria-the-effective-strategies-and-stages/
[3] Order 5, High Court of Lagos State (Civil Procedure) Rules 2019.
[4] Order 13, High Court of Lagos State (Civil Procedure) Rules 2019; see also Macaulay v. NAL Merchant Bank Ltd (1990) 4 NWLR (Pt. 144) 283.
[5] Kotoye v. CBN (1989) 1 NWLR (Pt. 98) 419; see also Federal Republic of Nigeria v. Ibori (2014) LPELR-23214(CA).
[6] Federal Republic of Nigeria v. Ibori (2014) LPELR-23214(CA).
[7] Section 6 (6)(b) and 36(1) of the Constitution of the Federal Republic of Nigeria (1999) as amended.
[8] Practice Direction NO 1 of 2017, Practice Direction for the enforcement of Arbitration clauses in matters of breach of contract with arbitration clauses made pursuant to the directive of the Hon. Chief Justice of Nigeria and under Order 58 Rule 3 of the Edo State High Court (Civil Procedure) Rules 2012.
[9] Section 20 of the Sheriffs and Civil Process Act, 2004.
[10] Section 83 of the Sheriffs and Civil Process Act, 2004.
[11] Zenith Bank v. Ekereuwem (2012) LPELR-9727(CA).
[12] Section 83 of the Sheriffs and Civil Process Act, 2004.
[13] Section 408(d) of the Companies and Allied Matters Act
[14] Central Bank of Nigeria, Guidelines on Garnishee Proceedings for Public Sector Funds in Banks (2011).
[15] Section 3, Arbitration and Mediation Act, 2023
[16] Ibid