Overview
Insolvency is the inability of a corporate entity or an individual to pay its debts. For a company, it marks a critical stage that could mean either collapse or revival, depending on how well it is managed. The law of insolvency is therefore a double-edged sword. It provides procedures for restructuring and revamping a failing company, and it also provides a framework for winding such a company up with the interests of survivors protected.
Bank insolvency is regulated by a special regime because banks are too delicate to be allowed to fail casually. The recurring problem of corporate scandals explains why. Bank insolvency law and procedure are notoriously complex, often described as a Gordian knot. In Nigeria, the framework is set by the Nigeria Deposit Insurance Corporation Act 2006, the Central Bank of Nigeria Act 2007, the Banks and Other Financial Institutions Act 2020, and the Companies and Allied Matters Act 2020.
Bank failure raises several questions. What happens to shareholders' shares, creditors' liabilities, and the duties and liabilities of directors and management? This discussion focuses on one of them: the fate of depositors' funds where a bank is undergoing resolution.
