13 Apr 2016

Debt Recovery Procedures in Nigeria

Debt Recovery Procedures in Nigeria

Debt recovery law

Debt is used by many firms and individuals to fund capital investments that they would not be able to make otherwise, as well as new investments that appear to be costly.

Bank loans, overdrafts, mortgages, credit cards, and equipment leasing/hire purchase are examples of debt obligations that require the borrower (debtor) to repay the lending party (creditor) with money or other agreed-upon value, generally with interest.

Loans and credit cards aren’t the only debt options available to businesses in need of cash. Bonds and commercial papers are common kinds of corporate financing that are only available to members of a certain group of businesses.

Debt Collection and Debt Recovery

Debt collection and debt recovery are nearly identical terms for recouping money that has not been paid by the due date, but the key difference between them is who is chasing the debt. When it comes to debt collection, the creditor is the one who is pursuing the debt. Under debt recovery, a third party is assigned to pursue the debt.

Rules of Debt Recovery

Most large companies have a department dedicated to collecting debts, and they normally intervene 30 days after a payment is missed. If they are unable to reach an agreement with the debtor, they can either hire a third party to collect the amount or take their case to court. According to Section 21 (1) (a) of the Limitation of Action statute, the limitation period for debt collection arising from a simple contract is six (6) years, omitting the year the contract was entered and executed. As a result, once the six-year limitation period has passed, a debt collection action becomes statute-barred.

Lawful method of Debt Recovery in Nigeria

You can employ a variety of debt recovery tactics in Nigeria. Here are a few pointers on how to recover debt in Nigeria.

Involving an Attorney

The first method of reclaiming your debt is to hire an attorney. In Nigeria, attorneys are frequently used as debt collectors.

The reason for this is that only the court has the authority to adjudicate on debt recovery problems, the police or any other similar agency does not have this authority. Lawyers are well-versed in Nigeria’s debt collection laws.

The lawyer will start the procedure by sending the debtor a formal letter of demand with an ultimatum of a specified number of days and a threat of legal action.

This letter of demand must include the amount owing, how the debt was incurred, the deadline for payment, and a threat of legal action if the money is not paid within the specified time frame.

Debtors should be aware that a letter of demand from a creditor is typically the start of a legal fight, and they should be cautious while responding to this letter so as not to jeopardize their chances in court.

Debtors should make sure the reply is labelled “without prejudice,” since if it isn’t, it could be used against the debtor as proof and as an acknowledgment of liability for the debt.

If the debtor refuses to pay after receiving the demand letter, there are several other options for collecting the fund as follows:

Use Alternative Dispute Resolution

Alternative dispute resolution (ADR) is a method of resolving issues or conflicts without having to go to court.

There are several sorts of alternative conflict resolution, but for the purposes of this discussion, we will focus on two of them.


Mediation is a systematic negotiation between the parties with the help of a mediator who makes the final decision on their rights but encourages them to settle out of court.

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It is completely optional, and no one is forced to participate. And it can be used when a case is already in court, with the parties’ decision being submitted to the court as a consent judgment.

The parties at a mediation have the right to have their attorneys present and location is always private not open like a courtroom that is formal.


Arbitration is a method of alternative dispute resolution by solving dispute outside the judiciary court and the dispute will be decided by one or more persons which renders the arbitration award.

Instead of going to court, the parties choose arbitration as a private dispute settlement mechanism which is a better option for most corporations.

The expense of the procedures will be borne by the parties in the settlement of disputes. The cost of the location and the fees paid to the arbitrators are frequently prohibitive, hence this option is discouraged.

Another drawback is the lack of coercive authorities to enforce the Arbitration or arbitral award’s conclusion. The award must still be enforced by the court. If the ruling is not in his favour, the losing side may also appeal.


Litigation will be the last resort if alternative dispute resolution fails to resolve the conflict at hand. A letter of summons and an application for summary judgment are filed in the high court to start the process of litigation.

This saves time by avoiding the need to hold a complete trial in which you must call witnesses and present evidence.

A summary judgment motion is solely backed by affidavit and documentary evidence and is granted by the court when the defendant has been demonstrated to be in debt and has no defence to his suit.

Advantage of Litigation

Litigation is less expensive to start because the judges are paid by the state, as opposed to the parties who pay the arbitrators.

Unlike other dispute resolution procedures, the court has complete authority to enforce any judgment it issues, but alternative dispute resolution methods do not.

Disadvantage of Litigation

On the other hand, it has disadvantages in terms of time, as the parties have no control over the trial’s timing and the trial may be extended owing to unforeseen circumstances.

In contrast to mediation, the proceedings are frequently formal and elaborate, necessitating the use of a lawyer.

Parties to a disagreement must follow courtroom protocol, such as bowing to the judge before entering and exiting the courtroom, and addressing him as my lord.

Unlike arbitration and mediation, the processes are also open to the public.

Step by Step Procedures to debt recovery

Agreement between parties

The first step in reclaiming a debt from a corporation is to simply speak with the company or its staff.

To recover a debt from a company, you may only need to make a forceful phone call to demand payment of the obligation owing.

Both sides agreed on a procedure in their agreement 

It cannot be overstated that when parties enter into any type of contract, which involves payment from one party to the other, an agreement should always be drafted.

The parties are free to include in their agreement how any duty or resulting debt owed to another party can be enforced or recovered in the event of either party’s breach.

They may use the mechanism specified in the agreement, which may include arbitration or any other form of alternative conflict resolution.

If the parties agree in the agreement, they may use a neutral third party to resolve the issues. It could be through mediation, which is bringing in a third party to assist in the resolution of the issues.

Letter of Demand

When a debtor is unable to repay a loan, it is a brave step to consult a lawyer. You’ll need to bring documentation to the lawyer’s interview, such as delivery notes, invoices, written agreements, letters, emails, photographs, memos, and so on.

A final demand letter will be sent to the debtor, stating the consequences that will occur if the debt is not paid within a certain amount of time.

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This letter clarify the amount owed, a clear timeline for the corporation to settle the debt (usually 7-14 days), and the consequences of failure to pay the debt owed, which is typically legal action.

A written Letter of Demand to a debtor corporation to recover an owing debt demonstrates sincerity about the debt recovery and also serves as a pre-action notice for a debt recovery lawsuit in court.

After receiving the Letter of Demand, the debtor corporation can either pay the debt to avoid court action or arrange a debt settlement plan that is favourable to both the creditor and the debtor.


It is the Court that has the power to hear and determine an action for debt recovery and enforce payment against a stubborn debtor. A lawyer acting on behalf of the creditor will commence a debt recovery action and for damages for breach of contract.

Winding up Proceeding

The lawyer may also bring an application for the preservation of the moveable and immoveable property of the debtor pending the final determination of the court proceedings. Where the debtor is a company, a winding-up proceeding may be commenced along with the action for Summary Judgment against the debtor.

It is trite law that in an action for the recovery of debt, the cause of action accrues upon demand for the payment of the debt.

Where no demand is made, a cause of action does not arise and no action can be commenced in court. So until such a letter of demand is issued, no right of action would arise and accrue to enable commencement of legal action in a Court of law for the recovery of the debt in question.

Publication of debtors’ names in the newspaper as a kind of threat

Many businesses have adopted this strategy to recover their debts. However, this strategy has advantages, the most important of which is that debtors do not want their name (reputation) to be tarnished. As a result, they tend to pay as soon as their name has been made public.

 Enforcements of Debts

It is a well-known reality that any court judgment will be ineffective if there are no ways of implementing it. As a result, the following are the most common methods of enforcing a judgment in the context of debt recovery:-

Attachment and Sale of Immovable Property

The court orders that the debtor’s properties be sold secretly on application or the debtor’s properties will be sold at public auction.

Also, private sales without the consent of the court but with the approval of the debtor are legal unless the court can set them aside on application.

Furthermore, the writ of execution satisfied will serve as approval for sales of goods seized in execution in court procedure for at least five days, regardless of whether the debtor’s properties are perishable in nature or the owner of the seized goods makes such requests in writing.

Writ of Sequestration

For either moveable or immovable goods, a writ of sequestration is issued against the judgment debtor’s personal property.

It leads in the sheriff seizing all of the debtor’s assets, prohibiting the debtor from utilizing them whenever he or she wants.

Also, if the properties are products, they cannot be sold, and if they are residential properties, the debtor is not allowed to access them or receive any rents or profits owing to him on any of them.

“A writ of sequestration shall be directed to two or more commissioners to be appointed by the court because of this, and they shall be commanded and given authority to enter upon all the immovable property of the person against whom the writ has been issued,” according to order 11 of 9 Judgment Enforcement.

Garnishee Proceedings

This is an execution strategy in which the judgment creditor attaches a debt owing to the judgment debtor to another individual to satisfy the judgment debt and costs.

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Additionally, this is a useful attachment of the debtor’s assets in the hands of another individual, known as a garnishee.

This can also be viewed as a method of enforcing a debtor’s court decision. The judgment debtor, the judgment creditor, and the debtor to the judgment debtor are the only parties involved in the garnishee case.

Bankruptcy Petition

A creditor petition for bankruptcy is a court filing made by a creditor after multiple failed attempts to recover a debt.

When a debtor is declared bankrupt, the debtor’s assets are sold to pay back the creditor. It’s a strict procedure that requires creditors to go through a series of steps before the court would hear their case.

Winding up Proceedings

This is a legal method for dissolving a corporation.

It is a process in which a company’s operations are suspended, its assets are sold, and the proceeds are distributed to people who owe money to the company.

According to CAMA 2004, the following situations may lead to a company being wound up by a law court:

  • When the company has agreed by special resolution that the winding up of the company should be by court.
  • When the number of company members is decreased below two.
  • The company is unable to deliver its statutory report or hold statutory meetings; and, finally, the corporation is unable to pay its debts.

However, it is important to highlight that although winding up is used for businesses, bankruptcy is utilized for individuals who are unable to pay their debts.

Writ of Fifa

This is also known as a Writ of Fieri Facias and is the most popular way to collect judgment debts.

The attachment and sale of the judgment debtor’s property to satisfy the judgment debt is the effect of this writ.

Furthermore, if a court orders that a judgment debt be paid in instalments, the order serves as a stay of execution, and the writ may be issued only for the amount of instalments that have become due on the judgment.

Limitation to an action for a debt recovery

A debt recovery action has a time limit, which means that if it isn’t filed on time, it will be statute-barred. A debt collection action cannot be started after six years, according to Section 18 of the Limitation of Statute Law. This means that if an action against a debtor is not filed with the court within six years of the action’s start date, the law will not allow it. An action for debt recovery based on a simple contract must be filed in court within six years of the date the cause of action arose.

According to the Limitation of Statute Law, Section 20 (1) (a). The repercussions of failing to comply with Section 20 (1) (a) of the Act are outlined in Section 12 (c). The right of action will cease to exist and, as a result, will no longer be exercisable when the six-year period will expire.


Debt recovery in Nigeria comprises making legal requests before contemplating the prospect of legal action.

If a mediation or arbitration clause exists in a contract between two parties, the other party must first attempt to recover debt from the debtor-party through mediation and/or arbitration before filing a lawsuit in court.

It’s also worth mentioning that the Limitations Act and the Limitation Laws of some Nigerian states provide a 6-year limitation term for debt collection in Nigeria. If a creditor fails to collect a debt owed within six years, the court may dismiss the case unless the chain of causation is broken, such as the corporation admitting or paying some of the debt during the six-year limitation period.


Adebiyi Adesewa wields a degree in Accounting and has helped startups and small businesses navigate starting our business.  Her specialty includes How to guides, articles, small business tips, sharing insights on what matters to the small business.

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