Due Diligence for Ship Finance Transactions in Nigeria

Due Diligence for Ship Finance Transactions in Nigeria

Due diligence

Demonstrating title or legal ownership

How does one demonstrate title to or legal ownership of a vessel registered under the laws of your jurisdiction?

Legal ownership of a vessel registered under the laws of Nigeria can be demonstrated with the vessel’s certificate of Nigerian registry issued by the Nigerian Ship Registration Office (NSRO). Legal ownership can also be demonstrated with the builder’s certificate for a new-build vessel or the bill of sale for a purchased second-hand vessel.

Where the registration in Nigeria is based on a bareboat charter, legal title to the vessel can be demonstrated using the underlying foreign registry certificate, builders certificate or the bill of sale.

The NSRO is a department within the Nigerian Maritime Administration and Safety Agency (NIMASA), Nigeria’s maritime regulatory authority.Liens

How can one determine whether there are any liens recorded over a vessel?

One can determine whether there are liens recorded over a vessel by conducting a search at the NSRO. Section 26 of the Merchant Shipping Act 2007 (MSA) requires the NSRO to keep a record of liens existing over a vessel.

How does one determine whether there are any security agreements, liens, charges or other encumbrances granted by a vessel owner or affiliated party who might be a borrower, guarantor or other credit party in connection with a vessel finance transaction?

One can determine whether there are security agreements, liens, charges or other encumbrances granted by a vessel owner by conducting a search at the NSRO. This can also be determined by conducting a search at the Corporate Affairs Commission, Abuja (CAC), which is Nigeria’s company registry, if the vessel owner is a company. Section 197(1) of the Companies and Allied Matters Act 1990 (CAMA) provides that:

Subject to the provisions of this Part of the Act, every charge created by a company, being a charge to which this section applies, shall so far as any security on the company’s property or undertaking is conferred be void against the liquidator and any creditor of the company, unless the prescribed particulars of the charge together with the instrument, if any, by which the charge is created or evidenced, have been or are delivered to or received by the Commission for registration in the manner required by this Act or by any enactment repealed by this Act within ninety days after the date of its creation but without prejudice to any contract or obligation for repayment of the money thereby secured, and when a charge becomes void under this section, the money thereby secured shall immediately become payable.

Public registry searches

Can one determine whether an obligor registered in your jurisdiction is duly organised and in good standing from a search of a public registry?

The legal standing of an obligor in Nigeria may be determined by conducting a search at the CAC on the corporate records of such an obligor. The CAC is an autonomous body charged with the responsibility of regulating the formation and management of companies. All corporate information pertaining to a company registered in Nigeria is available at the CAC.

Companies are, however, not obliged to register unsecured loans, hence it may not be possible to determine the unsecured obligations of a company (from a search conducted at the CAC). Further due diligence on the company by requesting for and reviewing the company’s records would be necessary to determine whether the company has unsecured obligations.

Can the shareholders or other equity interest holders, directors and officers or other authorised signatories of an obligor organised in your jurisdiction be determined from a search of a public registry? If not, how are these parties customarily identified?

The shareholders or other equity interest holders, directors and officers of an obligor may be determined from a corporate search conducted at the CAC. However, it would not be possible to determine the authorised signatories of an obligor from a search at the CAC, as it is not mandatory that resolutions appointing signatories be filed at the CAC.

In order to determine the authorised signatories of an obligor, one may conduct a limited due diligence exercise on the obligor to determine all resolutions passed by the obligor and thereby ascertain the authorised signatories of the obligor.Debt obligation

What corporate or other entity action is necessary for an obligor to enter into or guarantee a debt obligation? When is action by the board of directors or other governing body required? Must shareholders approve a guarantee?

This depends on what the constitutional documents of the obligor provide. Thus, where the articles of association provide that a resolution of the board of directors is required to undertake a guarantee or debt obligation, such approval would be necessary. It is usual for the approval of the board of directors to be required in respect of significant debt obligations for which limits of approval are set. Also, the obligor’s articles or shareholders’ agreement, if any, would determine whether a guarantee needs to be approved by the shareholders.Obligations of foreign lenders

Must foreign lenders qualify to do business in your jurisdiction to extend credit to a borrower organised in your jurisdiction? Will foreign creditors be deemed resident as a consequence of making a loan or other extension of credit to an obligor within your jurisdiction?

Foreign lenders do not need to qualify to do business in Nigeria to extend credit to a borrower organised in Nigeria. Further, creditors will not be deemed resident as a consequence of making a loan or other extension of credit to an obligor within Nigeria.

ACAS – LAW – Chisa Uba and Funke Agbor

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