Bankruptcy Under The Nigerian Law: An Appraisal


By Progresss Adetunji


Creditors have a range of methods for recouping their funds from recalcitrant debtors. Where the debtor is not a corporate entity, a bankruptcy proceeding may be contemplated by the creditor.

Before diving into this article, it is important to note that bankruptcy generally is a not-so-good situation. Being bankrupt is a state of owing debts and having no money to pay back debts that you owe. It is a state where you give up all your possessions and declaring, essentially, that you don’t have any money left.


The Bankruptcy Act of 2004 Laws of the Federation Nigeria makes provision for declaring as bankrupt any person who cannot pay his debts of a specified amount, and to disqualify him from holding certain elective and other public offices or from practising any regulated profession (except as an employee).

Simply put, it is a situation where your assets do not meet up with your liabilities any longer. The word Bankrupt” is the legal term for being financially incapacitated. Bankruptcy is a legal proceeding initiated when an individual or corporation cannot repay its existing obligations. The bankruptcy procedure starts with a petition filed either by the debtor or on behalf of creditors.

Bankruptcy and insolvency is an extensive topic covered by various laws, treaties, and acts across multiple jurisdictions worldwide. However, for this article’s purpose, I will be limiting myself to what bankruptcy is under the Nigerian legislation.


  1. To investigate the causes for bankruptcy/insolvency;
  1. To ensure a fair distribution of the bankrupt’s property among his creditors; and
  1. To discharge the bankrupt’s obligations.

A bankrupt is not a criminal, but he or she may commit a crime during the bankruptcy process. Despite the fact that a bankrupt is not a criminal, an undischarged bankrupt has the following disadvantages: He is unable to:

  1. vote or be voted for;
  2. be appointed a trustee;
  3. join in the formation of a company or partnership;
  4. act as a director of a registered company or take part in the management of such a company;
  5. be a chairman or a member of any government parastatal.


  • The Companies and Allied Matters Act, (CAMA) Chapter (CAP) C20 Laws of the Federation of Nigeria (LFN) 2004;
  • the Bankruptcy Act as amended by Decree 109 of 1992 CAP B2 LFN 2004;
  • the Bankruptcy Rules, made pursuant to the Bankruptcy Act;
  • the ISA 2007;
  • the Securities and Exchanges Commission Rules (made subject to the ISA above);
  • the Secured Transactions in Movable Assets Act (the Collateral Registry Act) 2017; and
  • the Credit Reporting Act 2017.


While insolvency is a state of being in distress economically and it often applies to corporate bodies and their inability to pay their debts (see section 572 Companies and Allied Matters Act 2020), bankruptcy is a legal proceeding involving liquidating a debtor’s property and assets to repay creditors.

Additionally, bankruptcy may be compared with winding up in that winding up occurs in conjunction with corporate insolvency and is governed by the Companies and Allied Matters Act, while bankruptcy occurs independently of corporate insolvency and it specializes in dealing with individuals and partnership businesses and is governed by the Bankruptcy Act of 2004.


Any person other than corporate bodies who can execute a valid contract can be declared bankrupt under Nigerian law.

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Let us examine the following:

  1. Deceased persons: although a deceased individual cannot be declared bankrupt, his estate may be handled in bankruptcy if his obligations outweigh his assets at the time of death. A court order to this effect will take precedence over a grant of probate or letter of administration.
  1. Criminals incarcerated: no particular care is provided; they will be treated ordinarily.
  1. Minors: may be declared bankrupt only for legally enforceable debts such as contractual obligations and unfulfilled tort judgments such as libel or carelessness.
  1. Aliens may be declared bankrupt if they are resident in Nigeria, have conducted business in Nigeria, or have a place of business in Nigeria.


The primary purpose for filing bankruptcy is to restart from scratch. However, another reason why bankruptcy may be filed which may be to alleviate some of the stress associated with your concerns. Declaring bankruptcy will immediately halt the harassing phone calls, emails, and other efforts to contact and collect from you.

It is referred to legally as “the automatic stay.” This implies that creditors are banned from suing you, enforcing liens on your property, or calling you incessantly in an attempt to collect on the debt. Additionally, it prevents evictions, utility disconnections, and pay garnishments.

Bankruptcy is a long-lasting and agonizing predicament. After filing, the procedure typically takes six months or more to complete. You and probably your colleagues or coworkers have received phone calls from debt collection companies attempting to settle your debts before and during that period. These calls must cease immediately upon filing for bankruptcy.

Bankruptcies are more prevalent than ever in today’s economy. There are several reasons why individuals file for bankruptcy, but what are the primary ones? 

Common causes of bankruptcy include:

  1. Divorce: Not only is divorce emotionally draining, but it may also result in financial difficulties. When a family is divided, expenditures skyrocket, and income is divided. If one party or both parties are unable to pay their obligations, controlling the resulting costs may be very challenging. Splitting two people’s paychecks is seldom a simple task.
  1. Expensive Medical Bills as a result of a disability or disease: According to Harvard University research, the leading cause of bankruptcy is medical bills. These charges account for a startling 62% of all bankruptcies recorded. Additionally, the survey found that 72% of persons who filed for bankruptcy due to medical bills had some health insurance. 
  1. Income reduction: Due to the fact that businesses sometimes have to reduce expenditures, this eventually implies that workers must accept salary reductions and bonus reductions. 
  1. Loss of employment 


It is to be noted that section 4 of the Bankruptcy Act provides for condition in which a creditor may petition for bankruptcy 

i. Petition for Bankruptcy:

A bankruptcy process is initiated when a bankruptcy petition is filed with a Federal district court. Before a petition for bankruptcy may be filed, the debtor must have committed an act of bankruptcy.

What constitutes an act of bankruptcy is stated in section 1 of the Bankruptcy Act 1990 Laws of The Federation of Nigeria.

ii. Receiving order

This is a court order made during bankruptcy proceedings that place the debtor’s estate under the court’s custody and management. The court official who exercises judicial custody and control over the debtor’s estate on the court’s behalf is sometimes referred to as the Official Receiver.

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This ruling does not revoke the debtor’s estate title. It just robs him of possessing and exercising authority over the property. The order of receipt must be reported in the gazette.  See section 3 of Bankruptcy Act of 1990 LFN for jurisdictions of a receiving order. 

iii Filing statement of affairs.

A Statement of Affairs is a document that details the debtor’s assets and obligations. It lists creditors and any securities held by them, as well as the names of any additional parties holding property on behalf of the debtor (trustees).

Unless the court approves an extension of time, a statement of affairs should be provided

within seven days of the debtor filing the bankruptcy petition; or within fourteen days of the

the creditor files the petition. The statement of facts should be accompanied by a sworn declaration, the debtor’s affidavit. In the absence of an order from the debtor, the official receiver may hire another individual to draft the statement at the estate’s cost.

iv. Creditors’ Initial Meeting

The official receiver should convene the first meeting of creditors as soon as possible after issuing a receiving order. This gathering is to discuss any composition or plan of arrangement to circumvent adjudication. If the meeting approves a composition or arrangement strategy,

and when it is determined that the debtor should be adjudicated bankrupt, the meeting may also select a trustee or a committee in bankruptcy. See section 15 of the Bankruptcy Act. 

v. Examination by the Public

When a receiving order is entered, the Official Receiver has the authority to petition the court for the assignment of a time and location for the debtor’s public examination. See section 17 of the Bankruptcy Act.

vi. Order of adjudication

This is the court order declaring the debtor insolvent. After adjudication, the bankrupt’s property is divided among his creditors, and the title to the property is transferred to the creditors. See section 20 of the Bankruptcy Act 2004 

vii. Order of Discharge

According to the Act, a bankrupt may petition to the court for a discharge at any time after being ruled bankrupt. Generally, the application must be heard in public court. 


The Federal High Court is without a doubt entrusted with exclusive jurisdiction over bankruptcy cases under the provisions of the Decree and Section 251(1)(j) of the 1999 Constitution. In determining the proper venue for the commencement of bankruptcy proceedings, the Rules seemed to prioritize the location of the debtor’s business rather than his residence.

Thus, even if the petitioner no longer lives in the division of the Federal High Court where the debtor conducted business for the majority of the six months immediately before the filing of the petition, a petition must be filed in that division.


While there is no ideal moment to file for bankruptcy, there is a fair rule of thumb to follow when considering the question: should I file for bankruptcy? If it will take you more than five years to repay all of your obligations, it may be time to file bankruptcy.

This is because the bankruptcy legislation was created to provide individuals with a second opportunity, not to penalize them. If you’ve been financially devastated by a combination of mortgage debt, credit card debt, medical bills, and student loans and don’t see a way out, bankruptcy may be the best option. There is still hope if you do not qualify for Bankruptcy, Both of them normally take many years to complete, and none of them ensures that all of your obligations will be cleared when you are through.

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Bankruptcy includes some substantial long-term consequences, since it will stay on your credit record for years, but there is a tremendous mental and emotional boost associated with being granted a new start and having all your obligations wiped.

Other debt-relief options include a debt management program or debt settlement, although neither is ideal.


A debtor or a creditor may file for bankruptcy. Where the petitioner is a debtor, it seems that just stating that he is a debtor and unable to pay his obligation is sufficient. The petition is regarded to constitute a bankruptcy act, and the debtor is declared bankrupt.

He is not necessary to have previously filed a declaration of insolvency. It is necessary that the petition’s debts be admissible be for any amount, but it must be immediately unpayable.

In some instances, the court has the option to deny a receiving order on a debtor’s petition38. Additionally, it has been established that a receiving order will not be entered if the debtor has legitimate grounds for alleged inability to pay his debt. Petition of the debtor may be revoked only with the permission of the court.

To qualify as a creditor with the authority to bring a legitimate petition, the creditor’s petition must include the following information:

  1. That the debtor has done a bankruptcy-related conduct.
  2. That the creditor is authorized to file the petition under the provisions of the revised clause of Cap 30 as amended by Bankruptcy (Amended) Act 20. 


It is necessary to educate practitioners and the general public on the existence of the law, as well as its implications and the rights and duties of those covered by it. The legal system and practice of Bankruptcy may be included in law school curricula and bankers,’ professional training accountants.

Additionally, the judiciary will be required to play a significant role in interpreting the provision of the bankruptcy legislation in a detailed way in order to facilitate the development of a body of Nigerian case law generating interest in bankruptcy among practitioners and the lending public law. Additionally, the court’s adjournment authority should be used in this manner.

It will facilitate the decision of bankruptcy expeditiously petition. This will contribute significantly to building trust in the bankruptcy Proceeding, which is a reasonable debt recovery strategy.

Progress  is a legal practitioner and writes from Lagos. She can be reached at 


  • Afe Babalola university;lecturers note on bankruptcy, pg
  • Uwadineke C. KALU, (PhD), Reader, Department of Commercial and Property Law, Faculty of Law, Nnamdi Azikiwe University, Awka, Anambra State Nigeria, and Enweluzor Gloria
  • Bankruptcy Petitions and Proceedings; Text of a paper delivered at the seminar on Bankruptcy Law and Practice on 29-30 April, 1991 p. 13 et seq.
  • AGAEZICHI, LLB, Alumna, Faculty of Law, Nnamdi Azikiwe University, Awka, Anambra State Nigeria.
  • Blacks law dictionary.
  • The first English Act on bankruptcy dated back to 1542.
  • The constitution of the Federal Republic of Nigeria 1999 (as amended)
  • Companies and Allied Matters Act 2020


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