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The Fate of the Depositors’ Funds in the Event of Insolvency of a Financial Institution in Nigeria

Introduction

Insolvency is the inability of a corporate entity or individual to pay its debts. In common language, insolvency in a company is the crucial stage typifying a possible death of the company or a resuscitation to life when properly managed. Thus, the law of insolvency is a double-edged sword. In the first instance, it aims at putting in place regulations and procedures for the restructuring and revamping of an insolvent company and on other end, it aims at giving such failing company a final burial with its surviving interests well catered for.

Insolvency in the banking sector is regulated by a special regime of laws and regulations because the business of banks is so delicate for them to be allowed to fail. The reason for this is not far to seek. It emanates from the ever-recurring issues of corporate scandals. Bank insolvency law and procedure, including their complexity, is commonly known as a “Gordian3knot”. In Nigeria, insolvency and bank resolution is also specially regulated by the Nigerian Deposit Insurance Corporation Act, 2006 (NDIC Act), Central Bank of Nigeria Act, 2007 (CBNAct), Banks and Other Financial Institutions Act, 2020 (BOFIA, 2020) and the Companies and Allied Matters Act, 2020 (CAMA, 2020).

There are various points of discussion when considering bank failures; we may choose to address the fate of the shares of shareholders, the creditors liabilities, the duties and liabilities of the directors and management officers of the banks. However, this discussion is focused on the fate of the depositors ’funds where a bank is undergoing resolution.

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