Business & Economy - News - February 1, 2021

Investment tribunal, NDIC differ over refund of investor’s subscription to defunct bank’s IPO

The Investments and Securities Tribunal (IST) and the Nigeria Deposit Insurance Corporation (NDIC) on Monday disagreed over the demand by an investor for the refund of its subscription for the shares of the defunct All States Trust Bank PLC.
The IST in its judgment in a case brought before it by Winners Medical Diagnostics & Research Institute Limited requesting for the refund of its subscription asked the NDIC to take up that responsibility as part of legal obligation to settle all liabilities of liquidated banks and financial institutions in the country.
But, the NDIC said its responsibility as defined by the extant regulations guiding liquidation of banks follow established procedures, which give priority to the settlement of the liabilities to all depositors over all other classes of creditors.
Background
During the 2005 initial public offer (IPO) issue of the defunct All States Trust Bank Plc, Winners Medical Diagnostics & Research Institute Limited said it applied for the subscription of 2.5million units of shares of the bank at N2 per shares of 50 kobo each ad paid N5million.
Before the conclusion of the IPO and allotment of the shares, the company said the bank became distressed and its operating license was revoked by the Central Bank of Nigeria (CBN).
Subsequently, the company said the assets and liabilities of the defunct bank was transferred to Ecobank Nigeria Limited, which acquired the bank.
The transferred assets and liabilities, the company said, included the share/IPO Suspense Account No. 0170102746018 created to receive deposits for the sale of the shares/IPO of the bank,
In its filing before the IST, Winners Medical Diagnostics & Research Institute Limited alleged the NDIC, along with the CBN and Securities and Exchange Commission (SEC) breached their legal duties by neglecting to take care of the interest of investors before the bank was liquidated.
To demand for the refund of its subscription, Winners Medical said it wrote to Ecobank, All States Trust Bank Plc (In liquidation), First Registrars & Investor Services Limited, First Bank Plc and BGL Securities Limited, the joint issuing houses to the IPO.
In responding to its correspondence on the matter, Winners Medical said although Ecobank acknowledged the existence of the Share/IPO suspense account, it stated that it was not part of the private sector deposit liabilities of the defunct bank it inherited.
However, Winners Medical said NDIC had classified its company as a general creditor to Ecobank whose claims ranked subordinate to claims by private depositors, payable only after claims for depositors’ liabilities shall have been settled.
Not satisfied by NDIC’s response, Winners Medical petitioned the IST by instituting case No. IST/OA/03/19 requesting the tribunal’s intervention.
IST ruling
After reviewing the application, the IST presided by its Chairman, Onyemaechi Elujokor, with two members, Albert Otesile and Abubakar Ahmad faulted the NDIC’s submission.
The tribunal said the NDIC was wrong in classifying or categorizing the claims for the return of money paid for unallotted shares regulated by ISA 1999 (repealed and re-enacted as ISA 2007) and SEC Rules and Regulations that general credits ranking was subordinate to private deposits of the defunct bank, payable only after depositors’ liabilities claims have been settled.
Consequently, the IST ruled that the NDIC should pay Winners Medical N5million, in addition to at 2 percent interest above the CBN monetary policy rates from March 2006 when NDIC took over the defunct bank until the full payment was made.
Also, the tribunal awarded Winners Medical N500,000 as cost for the application.
NDIC reacts
But, in its reaction the NDIC described the IST ruling as decision taken in error, as it misconstrued and consequently misapplied the provisions of the relevant legislations governing bank liquidation in Nigeria.
As the statutory liquidator of the defunct bank, the NDIC said complied with the applicable laws in the realization and distribution of the assets of defunct banks.
The NDIC listed the applicable legislations that guided its decision as the Companies and Allied Matters Act [CAMA] 2020; Banks and Other Financial Institutions Act, [BOFIA] 2020; the NDIC Act 2006, Failed Banks Act (FBA) 1994 and other relevant legislations.
“Bank liquidation requires a specialized procedure when resolving a failed bank. The emphasis is on settlement of deposit liabilities above all other claims,” the NDIC clarified.
On the priority of deposit liabilities over other liabilities of the bank, the NDIC cited Section 55 of the BOFIA, 2020 which addresses the issue.
“Where a bank is unable to meet its obligations or suspends payment or where its management and control has been taken over by the Bank [Central Bank of Nigeria], or where its license has been revoked under the provisions of this Act, the assets of the bank shall be available to meet all the deposit liabilities of the bank and such deposit liabilities shall have priority over all other liabilities of the bank,” the NDIC said
Insisting the above provision of BOFIA was clear and unambiguous, the NDIC maintained that depositors of failed banks must as a matter of law be settled first before any other claimants as depositors rank first in the order of priority of claim.
Applied order of priority
The NDIC said Sections 657 of CAMA and 55 of BOFIA jointly provide that claims in relation to the assets of a bank in liquidation would be applied in the order of priority.
The ranges from liquidation expenses, depositors claims, preferred claims (as determined by CAMA), equitable charges, general creditors and return of capital to shareholders.
The NDIC said share/IPO subscription fee paid by the Winners Medical to the defunct bank for the allotment of shares only qualifies the company as a creditor to the defunct bank as the subscription fee would be treated as money had and received by the defunct bank.
Although the NDIC said It was not contending the indebtedness of the defunct bank to Winners Medical in respect of the share/IPO subscription fee, it said its position and contention was that the law on priority of claims must be strictly followed in the distribution of the assets of the defunct bank.
“To pay the Claimant herein as ordered by the Tribunal without following due process as prescribed by law would amount to illegality on the part of the liquidator [NDIC] as it would be a clear violation of the express provision of the laws.
“The Tribunal also when it ordered the NDIC in its corporate capacity to pay the Claimant the judgment sum. Any award of damages should be against the defunct bank as it is still a legal entity until dissolved and its name struck out of the register of companies at the CAC,” the NDIC said.

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