Global Economic Meltdown and the Role of the Judiciary - A Critical Analysis
Chief Idigbe SAN presents a paper on the global economic meltdown and its impact on the judiciary, focusing on causes, effects, and solutions. The paper delves into the subprime mortgage crisis in the United States, deregulated banking sectors, and the responsibilities of judicial officers. It addresses the challenges faced by courts in dealing with increased litigation and commercial disputes amidst global financial turmoil. The presentation emphasizes the need for better income management, regulatory reforms, and the role of the judiciary in mitigating the effects of economic crises.
- Global Economic Meltdown
- Judiciary Role
- Subprime Mortgage Crisis
- Judicial Responsibilities
- Financial Regulation
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11/27/2024 PUNUKA Attorneys & Solicitors GLOBAL ECONOMIC MELTDOWN AND THE JUDICIARY 1 Being a paper presented by Chief Idigbe SAN at
TABLE OF CONTENT 11/27/2024 INTRODUCTION PART ECONOMIC MELTDOWN PART II- PATCHWORK IN NIGERIA AND THE JUDICIAL REMEDIES IT AFFORDS AGAINST GLOBAL MELTDOWN PART III- THOUGHTS RESPONSIBILITY OF THE JUDICIARY IN THE FACE OF GLOBAL MELTDOWN PART IV- THE REAL INDIVIDUAL LESSON FOR JUDICIAL OFFICERS MELTDOWN: HOW CAN PERSONAL INCOME MANAGEMENT CONCLUSION I-CAUSES & EFFECTS OF GLOBAL PUNUKA Attorneys & Solicitors THE CURRENT LEGISLATIVE IN ROLE & WITH THE GLOBAL ACHIEVED THEY 2
INTRODUCTION 11/27/2024 "I can calculate the movement of the stars, but not the madness of men". Quote attributed to Sir Isaac Newton when he was asked about the continuance of the speculative and artificial increase of South Sea stock (and the subsequent crash in value described as Bubblebust leading to the ruin of millions of people and a massive UK financial crisis in 1720) Spence, Anecdotes, 1820, p. 368. PUNUKA Attorneys & Solicitors GLOBAL MELTDOWN: A NEW TALE OF HUMAN GREED AND MISMANAGEMENT THE CHALLENGE CREATED FOR THE JUDICIARY WITH THE EXPECTED INCREASED GROWTH OF LITIGATION AND COMMERCIAL EXPECTATIONS OF INVESTORS AND MEMBERS OF THE GENERAL PUBLIC N.B.: SCOPE OF PAPER BEYOND MERE EXAMINATION OF GRASS ROOTS COURTS SUCH AS MAGISTRATE COURTS DISPUTES AND THE 3
CAUSES AND EFFECTS OF GLOBAL MELTDOWN 11/27/2024 THE GENESIS- THE UNITED STATES OF AMERICA HOUSING BUBBLE OR SUBPRIME MORTGAGE CRISIS DEREGULATED HOUSE MARKET ENVIRONMENT SUBPRIME MORTGAGES LOANS- THE ATTRACTION OF HIGHER YIELDS ON INVESTMENTS TO INVESTORS RECKLESS LENDING AND RECKLESS SPENDING: THE INADEQUACY OF CONSUMER INCOME DEREGULATED BANKING SECTOR: THE REPEAL OF THE GLASS STEAGALL ACT OF 1933: (The result was heavy re-engagement of banks in investment banking and the stock market from year 2000) PUNUKA Attorneys & Solicitors 4
CAUSES AND EFFECTS OF GLOBAL MELTDOWN-CONTD 11/27/2024 THE RESULT AND THE RIPPLE EFFECT SUBPRIME MORTGAGE DELINQUENCY FROM 2006 INSOLVENCY OF SOME REPUTABLE SUBPRIME LENDERS: The unfolding story of American Home Mortgage Investment Corporation ( the 10th largest mortgage lender in US) insolvency, a case study of its domino effect on Bank of America, Bear Stearns and Barclays Bank BANKRUPTCY FILINGS OWING TO RISING INCIDENCE OF FORECLOSURE RIPPLE ON HEDGE FUNDS COMPANIES AND INVESTMENT BANKS PUNUKA Attorneys & Solicitors 5
CAUSES AND EFFECTS OF GLOBAL MELTDOWN-CONTD 11/27/2024 THE NIGERIAN EXPERIENCE CAPITAL MARKET AND SPECULATIVE INVESTMENT BANKS HEAVY SPECULATIVE INVOLVEMENT IN THE STOCK MARKET ARTIFICIAL SHORING OF SHARES WITH TECHNIQUES SUCH AS SHARE BUYBACKS, SHARES RECONSTRUCTIONS ETC RECKLESS INVESTMENT OF DEPOSITORS FUNDS WITH A VIEW TO MAKING HIGH RETURNS UNSOUND LOANS GRANTED TO COMPANIES IN WHICH BANKS BOUGHT SHARES AND LED OTHER INVESTORS TO INVEST SHARP PRACTICES (THE OVERSTATEMENT OF PROFITS, MISLEADING STATEMENTS) AN UNREASONABLE OPTIMISM ABOUT THE GROWTH OF THE NIGERIAN CAPITAL MARKET AND ITS CAPACITY MORE STRINGENT ISA AND SEC REGULATIONS A BIT TOO LATE IN THE DAY TO REDUCE THE EXTENSIVE DAMAGE EXISTING PUNUKA Attorneys & Solicitors CADBURY SCANDAL, 6
PART II THE CURRENT LEGISLATIVE PATCHWORK AND JUDICIAL REMEDIES AFFORDED AGAINST GLOBAL MELTDOWN 11/27/2024 DEBT ENFORCEMENT AND RECOVERY S.6(1)(a) & (c) of the Magistrate Court Laws of Lagos State as amended on civil jurisdiction of magistrates, commercial claims within the ambit of MC s jurisdiction subject to a financial ceiling (in Lagos, the sum of N1Million for Chief Magistrate) S272 of the 1999 CFRN, the general jurisdiction of the High Court S251 (b) (d) and (e) of the 1999 CFRN vesting jurisdiction for any matter relating to Bankruptcy and corporate insolvency, see also S142 Bankruptcy Act of 1992 PUNUKA Attorneys & Solicitors INSOLVENCY SUPERVISION BY MAGISTRATE COURTS? Order 20 Magistrate Court Rules: before or at the hearing of any proceedings, a Magistrate Court may suo motu or on application appoint a receiver over a partnership business. Legal implications of above having regard to powers of a receiver and nature of liability under a partnership. S393 CAMA and Schedule 11 Query: Will this rule cover receivership over business names? 7
PART II CONTD-GENERAL CORPORATE INSOLVENCY LEGAL PATCHWORK 11/27/2024 REDISTRIBUTION OF ASSETS UNDER THE NORMAL LAW a Direct Holding or Certificated Securities System. see Ss 79, 151, 152 on definition of membership to company. A host of other similar provisions in CAMA A Dual insolvency system (individual and corporate)- The Bankruptcy Act (No. 109 of 1992 (BA) please see S108; The Company and Allied Matters Act (CAMA), cap C20, LFN, 2004 parts XIV to XVI); and related subsidiary legislation, such as the Bankruptcy Rules of 1990 (BR) and the Companies Winding-up Rules 2001 (CWR). Note Mergers & Acquisition under ISA 2007: a type of insolvency process which involves a voluntary dissolution of the existing company(s) and absorption of its liabilities- into a new entity without a voluntary formal process of winding-up (S122 (6) (d) ISA 2007). PUNUKA Attorneys & Solicitors 8
PART II CONTD-GENERAL CORPORATE INSOLVENCY LEGAL PATCHWORK 11/27/2024 STATUTORY PROVISIONS CREATING THE ORDER OF REDISTRIBUTION? (see pyramid in next slide) S. 393 (1), (cost of receivership factored in realization of security for secured creditors ) S484 (liquidation expenses under winding up procedure, the highest priority), S494 (the general rule on priority of interests) and S495 (The exception under winding-up procedure context only: the preference) PUNUKA Attorneys & Solicitors concept of fraudulent 9
PART II CONTD- THE COMPETING INTERESTS OF VARIOUS STAKEHOLDERS: THE PRIORITY RANKING RULE 11/27/2024 INSOLVENCY ADMINISTRATORS AND SECURED CREDITORS-FIRST MOVER ADVANTAGE PUNUKA Attorneys & Solicitors INSTITUTIONAL CREDITORS (PENCOM , FIRS, SIRS ETC), & LABOUR CLAIMS ORDINARY TRADE CREDITORS DIFFERENT CLASSES OF SHAREHOLDERS 10
PART II CONTD- THE PROBLEM OF THE PRIORITY RULE UNDER THE NORMAL LAW 11/27/2024 S495 applicable ONLY in context of winding up proceeding. S494 fails to take cognizance of the peculiar nature of capital market and interests of investors and the relationship of account holders with issuer companies they have invested in, Capital Market Operators (CMO) and trading on an electronic and intermediated environment (CSCS) Outcome of Normal Law: by failing to recognize the true beneficial owners of the share certificates that stock broking firms hold (please see S86 CAMA), the Certificated system created under CAMA allows the absurd situation where investors are positioned at the bottom of the pyramid of priority. Defeats imperative of special protection of capital market leading to the repeal of Part XVII of CAMA by S263 (1) (d) of the then ISA 1999 as regards dealings in public companies securities Special nature of capital market and SEC ignored Integrity of capital market and protection of investors undermined Hazardous resort to exceptional provisions to S86 of CAMA and equity rules (Equity looks at what ought to be done as done) to provide basic protection to this special breed of investors. PUNUKA Attorneys & Solicitors 11
PART II CONTD- IMPERATIVE OF SPECIAL PROTECTION OF INVESTORS IN CAPITAL MARKET: SPECIAL INSOLVENCY LAW- THE ISA 2007 AND SEC REGULATIONS ON INTERMEDIARIES 11/27/2024 Under the Special Law- Distinction between assets of CMOs and account holders/investors dealing through the CMOs through the concept of segregation. see ss. 39 to 43 of the ISA 2007. see also R207A (8) on segregation of accounts by custodians; R207B (18) on segregation of accounts by market participants S42 thereafter states the general rule subject to lawful claim and right of lien that money in trust account is not available for the payment of intermediary s debt. Protection of investors against insolvency of intermediaries through stringent requirement of capitalization for CMOs. See Rules 26, 27,207 and 226 (on custodian of securities and on Depository and other related parties as the case may be) of SEC Rules & Regulations. Creation of Investors Protection Fund (IPF): a safety net for investors see Ss. 197, 198 and 204 in Part XIV of ISA 2007 (compare objectives of IPF with insurance role of NDIC for fund depositors in banks) PUNUKA Attorneys & Solicitors 12
PART II CONTD- IMPERATIVE OF SPECIAL PROTECTION OF INVESTORS IN CAPITAL MARKET: SPECIAL INSOLVENCY LAW- THE ISA 2007 AND SEC REGULATIONS ON INTERMEDIARIES 11/27/2024 IS IT ENOUGH? IS THE ISSUE OF PRIORITY IN REDISTRIBUTION OF ASSETS RESOLVED CLEARLY? COMPARE S42 ISA 2007 AND Ss. 54 TO 56 BOFIA: S42 NOT SPECIFIC-LITIGIOUS CONFLICT WITH NORMAL LAW FOR CAPITAL MARKET S 54 BOFIA CLEAR DEROGATION TO S494. RULES OF INTERPRETATION: PROVISIONS AND WHICH PREVAILS? CONCLUSION- THERE IS STILL A LOOPHOLE IN PROVISION OF ISA 2007 PUNUKA Attorneys & Solicitors AND IN SPECIFIC PROVISIONS, GENERAL 13
THOUGHTS ON ROLE AND RESPONSIBILITIES OF JUDICIARY IN THE FACE OF GLOBAL MELTDOWN 11/27/2024 Ubi jus ibi remedium: The judiciary has to provide effective and adequate remedies in commercial disputes, especially in the area of debt enforcement and insolvency in this current global situation. The attitude of courts would be crucial in building investors confidence in the Nigerian economy and enforcement of law. It follows therefore that the judiciary as a whole must be able to Achieve the swift and efficient administration of justice and adjudication of commercial disputes as is expected for commercial litigation: time particularly of essence Understand the dynamics of insolvency laws very well: need for further training and specialization of judges in addition to conventional education. Provide different and collaborative avenues for remedies: the issue special jurisdiction and exclusive jurisdictions, domestic remedies, collaboration with statutory regulators Promote reconciliation in commercial dispute taking advantage of its rules: in line with inherent nature of insolvency laws based on compromise, settlement between debtor and sundry creditors. Give more effective justice: pursue the fraudulent directors of insolvent companies and making their assets available for distribution to companies creditors. See S506 CAMA PUNUKA Attorneys & Solicitors 14
THE PERSONAL LESSON FOR JUDICIAL OFFICERS: HOW TO MANAGE THEMSELVES (PERSONAL INCOME MANAGEMENT) 11/27/2024 Increasing their income to compensate for investments shortfalls HOW? Propel growth in new areas (move from your strengths to your weakness) Review talents so as to generate extra income (writing, book and internet publishing, agriculture & tourism for those in rural areas-the future for Nigeria, etc) Reduce costs of personal lifestyle, reduce wastage of resources: a direct increase of your income Reduce social habits: smoking, drinking, night clubs Balanced investment portfolio (liquid, semi-liquid, real investment) PUNUKA Attorneys & Solicitors 15
THANK YOU 11/27/2024 Chief Anthony Idigbe SAN PUNUKA Attorneys & Solicitors International Law Centre No. 45 Adjarho Street, Off Admiralty Way (Opposite White Dove) Lekki, Lagos TEL: 2704789, 2704791 FAX: 234 (0) 1 2704790 WEBSITE :www.punuka.com PUNUKA Attorneys & Solicitors 16
