Debt recovery is a critical aspect of business as well as personal transactions in Nigeria. Debts may arise from loan agreements, credit sales, supply of goods and services, tenancy or rent agreements, or even court judgments. If a debtor defaults or in any way declines to settle the debt, the creditor risks incurring heavy financial losses. Fortunately, Nigerian law provides formalized mechanisms, both in courts and alternative forums for creditors to enforce their rights and recover debts.
This piece sheds light on the recoverable forms of debts in Nigeria, limitation periods, court procedures, methods of enforcement, and alternative remedies in Nigerian law.
Forms of Debts Recoverable in Nigeria
Debts recoverable under law in Nigeria are categorized as follows broadly:
- Debt of a personal or consumer nature – borrowing from individuals, rent outstanding, or purchases by credit outstanding.
- Debt of a commercial nature – liabilities under contracts of trade or business.
- Bank or financial institution debts – bank loan default, overdraft, or credit facilities.
- Judgment debts – sums awarded by a court judgment that have not been paid.
Although the recovery procedure is the same for all of these categories, there are particular specialist statutes governing debts that necessitate banks, financial institutions, and insolvency.
Limitation Period for Debt Recovery
Statutory time limits must be recognized by creditors when they initiate debt recovery.
- Simple contract debts: Section 8(1)(a) of the Lagos State Limitation Law (and the similar provisions in other states) stipulates that an action to recover debt on a simple contract should be filed within six years from the date of falling due. Actions brought later can be deemed to be statute-barred, and the court will not entertain them even if the debt is not remitted.
- Judgment debts: Section 12 of the aforementioned Law stipulates a limitation period of twelve years from the judgment date for the enforcement of judgment debts.
- Acknowledgment or part-payment: If a debtor acknowledges the debt in writing or makes part payment, the limitation period runs afresh from the payment or acknowledgment date.
Immediate action at law is therefore of utmost importance in order not to forfeit the right of recovery.
Court Procedures for Debt Recovery
Debt recovery processes in Nigeria generally follow the following steps:
1. Letter of Demand
The process often begins with a formal demand letter issued by the creditor or its lawyer, requesting payment within a specified time frame. This is a step that shows an attempt to amicably resolve the matter before resorting to court.
2. Commencement of Legal Action
If the debtor fails to pay, the creditor may file a claim in:
- Magistrate’s Court – in the case of debts up to a certain amount (₦10 million in Lagos), or
- High Court – where there are higher claims.
The proceeding is usually initiated by a writ of summons. In cases where there are simple cases with no reasonable defence, the creditor may apply for summary judgment, whereby the court can quickly dispose of the case without an ordinary trial.
3. Judgment and Enforcement
In case the creditor wins in court and the debtor does not comply voluntarily, enforcement becomes necessary. Enforcement is governed by the Sheriffs and Civil Process Act and relevant High Court (Civil Procedure) Rules. The key enforcement mechanisms are:
- Garnishee Proceedings: Attachment of the money of the debtor in a bank or from a third party, which are remitted directly to the creditor.
- Seizure and sale of debtor’s movable or immovable property (e.g., vehicles, machinery, or property).
- Writ of Possession: Employed in cases of tenancies, it allows the creditor to recover possession of let premises.
- Committal Proceedings: Employed in cases of willful disobedience of court orders. Even if imprisonment can be done, courts handle with circumspection keeping in view constitutional protection of individual liberty.
Alternative Dispute Resolution (ADR)
Litigation is far from the most expedient or best option. Creditors and debtors can resolve their dispute by utilizing ADR methods such as:
- Negotiation: Direct settlement talks between the parties.
- Mediation: Facilitated discussion with the help of a neutral third person (e.g., Lagos Multi-Door Courthouse).
- Arbitration: If the contract specifies an arbitration clause, the conflict can be referred to arbitration. An arbitral award may be enforced by court.
The Arbitration and Mediation Act, 2023 has also entrenched ADR in Nigeria as an effective method of resolving debt disputes without the necessity for lengthy litigation.
Recovery under Special Legal Frameworks
Outside court procedures, Nigerian law provides other procedures for debt recovery:
- Secured Transactions in Movable Assets Act, 2017 (STMA): Creditors can register security interests over a debtor’s movable property (e.g., machinery, receivables). In the event of default, the creditor can enforce the security without the need for a court order if proper procedures are followed.
- Global Standing Instruction (GSI) Policy: Adopted by the Central Bank of Nigeria, it allows banks to debit the accounts of a borrower in all Nigerian banks to settle outstanding defaulted loans.
- Asset Management Corporation of Nigeria (AMCON): AMCON absorbs banks’ non-performing loans and can recover by disposing of assets or through the courts.
Prohibition of Unlawful Debt Recovery
Creditors should refrain from illegal means of recovery. Nigerian courts have condemned the use of the police, EFCC, or security agencies to harass or arrest debtors. Debt recovery is a civil matter and criminalization can only be permitted where fraud, criminal breach of trust, or allied crimes are being perpetrated.
The Supreme Court and Court of Appeal have shown that debt cannot be recovered by intimidation or illegal detention.
Lastly, success in debt recovery depends on proper documentation, adherence to procedural law, and timely action within the limitation periods in statute. Creditors are strongly advised to seek professional legal assistance to ensure due process compliance and improve their chances of recovery.