FIRST CITY MONUMENT BANK v. COMMON INTEREST COMMUNICATIONS LIMITED & ANOR.
COURT OF APPEAL
(LAGOS DIVISION)
(OGAKWU; TUKUR; TOBI, JJ.CA)
FACTS
First City Monument Bank Limited (the Appellant), a commercial bank carrying on business in Nigeria, granted a loan facility to Common Interest Communications Limited (the 1st Respondent) in the year 2000 pursuant to an established banker-customer relationship. Mr. Felix Ide Eguabor (the 2nd Respondent) was a director of the 1st Respondent and actively involved in its affairs. Over time, a dispute emerged between the parties regarding the status of the loan facility. The Respondents maintained that the indebtedness had been fully liquidated but alleged that the Appellant continued to debit the company’s account with what they described as fraudulent and illegal charges.
The Appellant, on the other hand, insisted that the facility remained outstanding. Relying on its rights under the relevant security instrument, the Appellant proceeded to appoint a Receiver/Manager over the assets of the 1st Respondent in order to recover the alleged debt and also sealed off the company’s business premises, thereby disrupting its operations. Aggrieved by these actions and disputing both the alleged indebtedness and the propriety of the receivership, the Respondents commenced an action at the High Court of Lagos State seeking among other reliefs, declarations that substantial sums had been fraudulently and illegally charged to the company’s account, orders for refund of those sums together with penalties, a declaration that the storming and sealing of their business premises was unlawful, and injunctive reliefs restraining further interference with their business operations.
The Appellant entered a conditional appearance and filed a Motion on Notice seeking to strike out the action in limine on several grounds, including that the suit constituted an abuse of court process in view of an earlier action pending at the Federal High Court; that the Respondents lacked the locus standi to institute the action because the 1st Respondent was in receivership and only the Receiver/Manager could sue; that the action was statute-barred; and that the writ of summons used to commence the action was defective and unknown to the rules of court.
In its judgment, the trial court dismissed the Motion on Notice. Dissatisfied with that ruling, the Appellant appealed to the Court of Appeal. One of the issues for determination was: Whether the lower court was right to have held that the Respondents were competent to institute the action at the lower court without recourse to the receiver/ manager whose appointment is not in dispute.
ARGUMENTS
Learned counsel for the Appellant contended that, having regard to the relevant statutory provisions, only a Receiver/Manager has the authority to institute or defend actions for and on behalf of a company in receivership. Counsel argued that upon the appointment of Mr. Kenneth Egede as Receiver/Manager, he became the proper person to commence the action at the lower court in the name of the 1st Respondent, and that no other person could validly do so. Counsel further maintained that once a Receiver/Manager is appointed, he possesses the exclusive right to sue on behalf of the company, except in circumstances where his appointment itself is being challenged.
In response, learned senior counsel for the Respondents submitted that the section of the law relied upon by the Appellant does not confer exclusive authority on the Receiver/Manager to institute actions on behalf of a company in receivership. Rather, it merely provides that the appointment of a Receiver/Manager does not extinguish all the powers of the Board of Directors or the company. He further argued that the 2nd Respondent possesses the requisite locus standi to institute the action, being the alter ego of the company and a person who would be directly affected by actions taken against it.
Learned senior counsel relied on the constitutional guarantee of access to court where rights have been, or are likely to be infringed, to contend that the 2nd Respondent was competent to sue notwithstanding the statutory provisions cited by the Appellant. Learned senior counsel also distinguished the authority relied upon by the Appellant, submitting that it concerned the control of assets of a company in receivership and established only that the Receiver/Manager’s powers relate to the assets under receivership. He added that the issue would have been different if the question were whether the Receiver/Manager could sue in his own name rather than in the name of the company, which was not the situation in the present case.
DECISION OF THE COURT
In resolving the issue, the Court of Appeal held that:
The appointment of a Receiver/Manager does not extinguish all the powers of a company’s Board of Directors, nor does it preclude the company from suing or being sued in respect of matters outside the scope of the receivership. It equally does not prevent the company from instituting an action in its own name to protect its interests, even where such interests may conflict with those of the person who appointed the Receiver/Manager.
Furthermore, the Court of Appeal held that upon the appointment of a Receiver/Manager pursuant to a debenture deed or other security instrument, the powers of the Board of Directors are suspended only in respect of the company’s business or assets covered by that instrument, and in that limited sphere the Receiver/Manager becomes the proper person to maintain or defend actions in the name of the company relating to such assets. The Court clarified that the appointment does not dissolve the company nor divest it of ownership of the affected assets, as its separate legal personality remains intact and title continues to vest in it. What is suspended is merely the directors’ authority to deal with those assets during the subsistence of the receivership, which explains why the directors retain the locus standi to challenge the validity or continued appointment of the Receiver/Manager where necessary.
Issue resolved in favour of the Respondent.
Oladapo Akinosun with Ayodeji Jacousu and Aaron Jaye for the Appellant
Yinka Aquah with Eric Ikwele for the Respondent
This summary is fully reported at (2020) 6 CLRN in association with ALP NG & Co.
