To recover debt legally in Nigeria, one has to understand how the law dictates the process of repossessing debt in Nigeria. Here we outline the processes of recovering debt legally in Nigeria but first what is debt recovery?
What is Debt Recovery
Debt recovery consists of the various procedures that a creditor(the party being owed) would utilise to win back what is being owed to them by a debtor(party owing). Sometimes this involves contracting a third-party service to help you recover your debt.
Why Self-Help is not Advisable
Self-help refers to the methods or measures which creditors use to pressure debtors into paying them back what is owed to them.
In desperation, people resort to underhanded measures like intimidation using thugs or the police, false imprisonment, threats, etc to pressure their debtors into paying back their debts.
Self-help is heavily disapproved of in courts as it could mean you violated the fundamental human rights of the debtor in the debt collection process. The court may reward them with monetary compensation that may be greater than what they originally owed you.
Involving the Police in Debt Recovery
The police have no jurisdiction to charge or arrest a person owing money since neglecting to pay back debt is not a crime. The court has dictated that the act of involving the police in the acquisition of debts is unconstitutional seeing as it is not part of the duties given to them in The Nigerian Police Act which details the duties and code of conduct of the police.
The only time the police are to be involved in debt recovery is when there is any criminal activity involved. For example, if the debtor has used the money borrowed from you to participate in illegal activity.
Involving the police could lead to you losing the case if it is ever brought before the court.
Because you can’t involve the police doesn’t mean you won’t be able to recover your money. There are many ways your debt can be legally reclaimed which are outlined below.
The Process of Legally Recovering Debt
First Step: Use of Third-Party Debt Recovery Agency –
The first step is to hire a debt collection agency and submit the evidence you have of the contract between you and the debtor for them to review and decide the best actions to take in recovering your debt.
Second Step: Submitting Letter of Demand to Debtor –
Your debt recovery agency will then write a Letter of Demand to your debtor stating a due date for them to pay, the amount they owe, and what they’re owing you for. This is the first step in the legal procedure of recovering debt.
Third Step: Check if the agreement was signed under the Secured Transactions in Movable Assets Act (STMA) –
If the repayment agreement was signed under the Secured Transactions in Movable Assets Acts, 2017, you can take possession of the collateral agreed upon in the contract after ten days. If the debtor does not allow you to claim the collateral, it is possible to get a court order against them.
Fourth Step: Deploy Alternative Dispute Resolution Mechanisms –
Legal action is seen as the last possible step to be taken when trying to recover debt. The Nigerian constitution has made provision for other methods of resolving the issues between the parties involved in debt recovery by introducing a type of conflict resolution called Alternative Dispute Resolution Mechanisms.
Alternative Dispute Resolution is the process of trying to settle the disagreement between two conflicting parties without the involvement of the court. It is backed by The Constitution of the Federal Republic of Nigeria, 1999(amended), Section 19. Lawyers or debt recovery agents are required to use these methods before litigation. Some of these methods include Negotiation, Mediation, Conciliation, and Arbitration.
Negotiation – This is when both parties have a sit down with their legal representatives to discuss the agreement and terms of repayment.
Mediation – employs the use of an unbiased third party professional called a mediator, to help the disagreeing parties reach an amicable settlement.
The mediator ensures that there is a real understanding between the creditor and debtor and uses various skills to make sure that proper communication ensues during the conflict resolution process.
Conciliation – Conciliation and mediation use almost the same process with the key difference being the role of the conciliator. The conciliator is there as a makeshift judge that helps the two parties reach a final agreement. The advice of the conciliator does not have to be taken into consideration by either party when reaching their final decision on settlement. While in mediation, the mediator is seen as a neutral entity that does not give final judgement. They only offer suggestions and allow the two parties to agree on their own.
Arbitration – This is like a mini court trial before reaching the actual court. The two parties present their issues before an arbitrator with evidence supporting each party’s claim.
The decision reached by the arbitrator is final and enforceable by the court of law.
Final Step: File a lawsuit against the debtor –
The next step is to sue the debtor in court. By this time, your debt recovery agent must have exhausted all possible routes to getting the money back.
The court has the power to force the debtor to pay. The decision reached by the court depends on the amount of money owed and the evidence presented ensuring that no foul play was involved before the submission of the case to the court.
The problem with this last step is that it is time-consuming and can require a lot of money which is why it is advisable to resolve the issue before taking legal action.
Limitation of Action Act
According to Sections 18, 20 and 21(1)(a) of the Limitation of Action Law, if after six years you have not taken any action in the procurement of the debt to you, then the action for the recovery of debt is void.
There are certain situations where the law allows for the Limitation of Action Act to be waived. For instance:
The Failed Banks (Recovery of Debt) and Financial Malpractices in Banks Act states that:
“The provisions of the Limitation Law of a State or Limitation Act of the Federal Capital Territory, Abuja shall not apply to matters brought before the court under this Part of the Act”.
Section 35(5) of the AMCON (Amendment No. 2) Act, 2019, also states:
“Any statute of limitation of a state or Federal Capital Territory or any statute or rule or practice directions of any court limiting the time within which an action may be commenced does not apply or operate to bar or invalidate any claim brought by the Corporation in respect of an eligible bank asset or brought to recover a debt or enforce any security or obligation of a guarantor or surety in connection with an eligible asset".