NDIC Secures Landmark Judgment in Favour of Depositors of Lead Merchant Bank (In-Liquidation)

The Nigeria Deposit Insurance Corporation (NDIC) has secured a landmark judgement to the tune of N556,493,034.16 (Five Hundred and Fifty-Six Million, Four Hundred and Ninety-Three Thousand, Thirty-Four Naira and Sixteen Kobo Only) in favour of depositors of Lead Merchant Bank Limited (in-liquidation).

The judgement was recently delivered by Honourable Justice Ibrahim N. Buba of Federal High Court, Lagos in a matter instituted by First Bank of Nigeria (FBN) Plc. over a claim of indebtedness by Lead Merchant Bank (in-liquidation) to the FBN prior to the revocation of the closed bank’s licence in 2006 by the Central Bank of Nigeria (CBN).

FBN had claimed in its suit before the court that the closed bank became indebted to it under a clearing and settlement banking transaction and that as at 9th March, 2006 when the bank’s licence was withdrawn, the indebtedness stood at N556,493,034.16. The applicant further claimed that the transaction was secured by an unregistered legal mortgage over Lead Bank’s property at No.1, Oladele Olashore Street, Victoria Island, Lagos and that the property was covered by a registered Deed of Assignment the originals of which the defunct Lead Bank deposited with the Applicant as security for the transaction.

Following the revocation of Lead Bank’s licence, the Applicant claimed that it approached/notified the Respondent (i.e. NDIC) of the aforesaid indebtedness of the closed bank but that the Respondent classified the Applicant’s claim (i.e. FBN) as creditor’s claim which would only be considered after the claims of depositors had been fully paid/settled. Not satisfied with the response, the Applicant approached the court, claiming amongst other reliefs, a declaration that FBN being an equitable mortgagee of the said property was entitled to an order of court to sell same and liquidate the outstanding indebtedness of the defunct bank in the sum of N556,493,034.16 owed to the applicant.

However, the Respondent (i.e. NDIC) contended that it indeed recognised the Applicant’s claim of N556,493,034.16 indebtedness by the defunct bank, but that such a claim constituted creditor’s claim which could only be settled in strict compliance with the priority ranking of applicable Laws; and having gone

through its records, the respondent (NDIC) confirmed that it was yet to meet its entire obligation as a deposit guarantor by fully paying the depositors of the defunct Lead Merchant Bank.

The Respondent further contended that out of a total of 3,925 depositors at closure of the bank, it had settled only 3,510 depositors as at December 31, 2016; leaving 415 depositors yet to be settled till date. Similarly, the Respondent claimed that out of the sum of N10,149,641,894.23 representing the total amount of deposits at closure of the bank, it (the Respondent) was yet to settle the sum of N13,764,579.23 representing the outstanding insured claims and the sum of N1,583,816,855.75 representing the outstanding uninsured claims as at December 31, 2016.

In its judgement, the court held that the Applicant’s claim bordered on the priority of payment where a bank suspended payment or was unable to meet its obligations; this the court stated was settled by Section 54 of the Bank and Other Financial Institutions Act (BOFIA) Cap B3 Laws of the Federation of Nigeria 2004 which provides thus:

“Where a bank is unable to meet its obligations or suspends payment, the assets of the bank in the Federation shall be available to meet all the deposit liabilities of the bank and such deposit liabilities shall have priority over all other liabilities of the bank.”

The court further held that the above provision was crystal clear and that the path to follow in dealing with the assets of a bank in-liquidation was no more open to debate. In the same vein, the Court affirmed that in line with Section 55 of the BOFIA, where any of the provisions of the Companies and Allied Matters Act (CAMA) are inconsistent with the provisions of BOFIA, the provisions of BOFIA shall prevail in so far as they relate to banks and winding up by the Federal High Court.

The court therefore dismissed the Applicant’s originating summons as lacking in merits, and awarded the cost of N250,000 in favour of the Respondent.