Company Voluntary Arrangements Under CAMA 2020: A Bold Reform or a Weak Tool? -By Oluwaleye Adedoyin Grace

Abstract

The Companies and Allied Matters Act 2020 introduced Company Voluntary Arrangements (CVAs) as part of Nigeria’s modern corporate insolvency framework. Designed as a rescue mechanism, the CVA allows a financially distressed company to reach a binding compromise with creditors while continuing in business. This article argues that although the CVA is a bold legislative reform, its practical effectiveness remains limited by procedural uncertainty, the absence of a strong moratorium, and weak institutional support. The result is a rescue device that is progressive in concept but fragile in operation. Also, the article examines the statutory framework under CAMA 2020, the practical implications of the Tourist Company of Nigeria experience, and the extent to which the Nigerian framework compares favourably with the UK model.

Introduction

The introduction of Company Voluntary Arrangements (CVAs) into Nigerian company law under the Companies and Allied Matters Act 2020 is widely regarded as one of the most progressive developments in the country’s insolvency framework. Nigerian introduced a formal statutory corporate rescue mechanism through which a financially distressed company may propose an arrangement with its creditors for the satisfaction or restructuring of its debts, while continuing business operations. In legislative terms, this marks a clear departure from the old liquidation-first culture that historically dominated Nigerian insolvency practice.

Yet the real question is not whether the reform is new, but whether it is truly effective. Accordingly, this article examines three central questions: whether the CVA framework under CAMA 2020 provides an effective mechanism for corporate rescue; the extent to which procedural and institutional weaknesses undermine its effectiveness; and what lessons Nigeria can draw from the United Kingdom’s experience with CVAs. A law may be bold in design and still weak in operation. The Nigerian CVA appears to be exactly that: ambitious in theory, but constrained by procedural complexity, limited institutional support, and the absence of a standalone moratorium to shield the company from creditor action while the arrangement is being negotiated and implemented. The result is a reform that promises rescue, but may struggle to deliver it in practice.

What is Company Voluntary Arrangements?

A CVA is a statutory arrangement by which a company in financial distress proposes to its creditors a composition in satisfaction of its debts or a scheme for restructuring its affairs. It is designed to give a viable business breathing space to survive rather than collapse into winding up. In substance, the mechanism reflects the modern insolvency philosophy that value should be preserved where possible, not destroyed prematurely.

This rescue logic is economically sound. If a company is still commercially viable, it may be more beneficial for creditors to accept a structured compromise than to force immediate liquidation, which often yields poor recoveries. CVAs therefore aim to balance two competing interests: the company’s need for survival and the creditors’ need for repayment. That balance is the intellectual strength of the reform, and it is why the CVA deserves serious attention.

Statutory Framework

The statutory basis of CVAs is found in Chapter 17 of CAMA 2020, particularly sections 434 to 442.

The statutory framework reveals a procedure designed to balance the interests of a financially distressed company with those of its creditors. Section 434 permits the directors of a company, subject to the statutory conditions, to make a proposal to the company and its creditors for a composition in satisfaction of its debts or a scheme of arrangement of its affairs. The proposal must provide for a nominee to act in relation to the arrangement, and the nominee must be qualified to act as an insolvency practitioner. This structure allows the company’s existing management to remain involved in the rescue process while placing the arrangement under professional supervision.

The nominee occupies a particularly important position within the statutory framework. Under section 435, the nominee is required to consider the proposal and submit a report to the court indicating whether, in the nominee’s opinion, meetings of the company and its creditors should be summoned to consider the proposal. The nominee therefore functions as an important independent professional safeguard within the process. The procedure consequently attempts to preserve the company’s autonomy while ensuring that the proposal is subjected to professional scrutiny before creditors and members are asked to vote on it.

Sections 436 and 437 further regulate the convening of meetings and the decisions to be taken by members and creditors. This procedural structure is significant because a CVA is fundamentally consensual in character: its success depends upon obtaining the requisite approval and securing the cooperation of those whose rights and interests will be affected by the arrangement. Section 438 addresses the approval and implementation of the arrangement, while section 439 provides for the legal effect of an approved arrangement. Section 440 also provides a mechanism through which an aggrieved creditor or member may challenge the arrangement.

The statutory framework therefore contains the essential elements of a corporate rescue mechanism: initiation by the company’s directors, independent professional involvement through the nominee, creditor and member participation, and legal consequences following approval. Nevertheless, the existence of these procedural safeguards does not necessarily guarantee commercial effectiveness. The real test is whether the framework provides a sufficiently stable environment in which a distressed but viable company can negotiate with its creditors without being overwhelmed by competing enforcement actions and procedural burdens.

It is this distinction between the existence of a rescue mechanism and its practical ability to achieve rescue that forms the central concern of this article.

Why It Is Bold

The CVA is bold because it institutionalizes corporate rescue in a legal system that traditionally leaned heavily toward termination and recovery through liquidation. Its most significant virtue is that it recognizes that insolvency is not always the end of a company; sometimes it is a temporary financial crisis requiring restructuring rather than destruction. That policy shift aligns Nigerian law with modern international insolvency thinking.

The boldness of the CVA also lies in its potential to preserve value beyond the immediate interests of the company itself. The collapse of a viable business may result in the loss of employment, commercial relationships, goodwill, productive assets and future revenue. Liquidation may therefore produce a lower overall economic return where the business is capable of surviving through a carefully structured compromise with its creditors. A successful CVA can preserve the going-concern value of the business while providing creditors with a structured avenue for recovery.

This rescue-oriented philosophy is particularly important in an economy where business failure may have consequences extending beyond shareholders and creditors. Employees, suppliers, customers, financial institutions and government revenue systems may all be affected by the collapse of a significant business. The CVA therefore reflects a broader understanding of insolvency: the objective should not always be to determine how a failed company can be dismantled, but whether a viable business can be preserved without unfairly prejudicing those to whom it owes obligations.

The mechanism is consequently bold not merely because it is a new statutory procedure, but because it represents a change in the philosophy of insolvency law. It recognises that financial distress may be capable of resolution through restructuring and compromise rather than immediate liquidation. This approach is consistent with the wider modern movement towards corporate rescue and the preservation of economic value.

It is also bold because it gives directors a direct role in initiating rescue. Under section 434, the directors may propose the arrangement, which means the procedure is not necessarily dependent on immediate court domination in the same way as a winding-up petition. That feature makes the CVA potentially quicker and commercially more flexible than highly formal court-centered restructuring routes. It also reflects a debtor-in-possession logic, which is often considered more conducive to business continuity.

In addition, the first Nigerian CVA, involving Tourist Company of Nigeria(TCN), demonstrated that the mechanism is not merely theoretical. Its use in a real corporate rescue context showed that Nigerian companies can, at least in principle, turn to the new regime when distress becomes severe. That first case gave practical life to what had previously existed only in statutory text.

Why It Is Weak

Despite its promise, the CVA under CAMA 2020 remains vulnerable to several structural and practical weaknesses. The existence of a statutory rescue mechanism is not, by itself, sufficient to guarantee successful corporate rescue. For a CVA to achieve its purpose, the legal framework must provide a distressed company with sufficient procedural certainty, creditor protection and institutional support to enable meaningful negotiations to take place. On these measures, the Nigerian framework remains incomplete.

1. Absence of a Standalone Moratorium: The most significant weakness is the absence of a standalone moratorium specifically attached to the commencement of a CVA under CAMA 2020. A moratorium is important in a rescue process because it provides a period during which the distressed company is protected from certain forms of creditor enforcement, thereby creating the breathing space necessary to negotiate and implement a restructuring proposal.

Without such protection, the company may be required to negotiate with its creditors while simultaneously facing litigation, enforcement measures or other attempts to recover outstanding debts. This creates a fundamental contradiction within the rescue process. The law encourages the company to pursue rehabilitation, yet does not provide the comprehensive legal shelter that may be necessary for rehabilitation to succeed.

The absence of a moratorium may therefore discourage viable companies from resorting to CVAs at an early stage of financial distress. A company that anticipates continued creditor pressure may prefer to delay restructuring until its financial position has deteriorated substantially. By that stage, the prospect of successful rescue may have significantly diminished.

This weakness is particularly significant when compared with the contemporary United Kingdom framework. The UK now provides an independent moratorium mechanism under Part A1 of the Insolvency Act 1986, as introduced by the Corporate Insolvency and Governance Act 2020. The moratorium is designed to provide a company with a period of protection from certain creditor actions while rescue options are explored. During the moratorium, restrictions apply to winding-up proceedings, administration applications and certain forms of enforcement.

The Nigerian framework therefore lacks an important protective component that can make rescue mechanisms commercially meaningful. A CVA without adequate protection can be likened to asking a drowning person to swim while others continue pushing them under: the mechanism promises rescue, but the surrounding legal environment may continue to undermine the very process through which rescue is expected to occur.

2. Procedural Complexity and Uncertainty: A second weakness lies in procedural complexity and uncertainty. Although the CVA is intended to provide a flexible alternative to more formal insolvency procedures, the statutory process involves proposals, nominee reports, court involvement, meetings, voting, approval and subsequent implementation. For a company already experiencing financial distress, each additional procedural requirement may increase cost, delay and uncertainty.

This problem becomes more serious where practitioners and courts are not yet sufficiently familiar with the operation of the new procedure. Insolvency law depends not only upon statutory language but also upon predictable professional and judicial practice. Where uncertainty exists regarding the proper procedure, companies may become reluctant to use the mechanism, while creditors may question the reliability of the process.

The experience of TCN illustrates this concern. The Federal High Court was required to give directions concerning the conduct of Nigeria’s pioneering CVA, and the court itself acknowledged the absence of specific insolvency procedural rules comparable to those available in the United Kingdom.

3. Dependence on Creditor Cooperation: A third weakness is the CVA’s dependence upon creditor cooperation. The mechanism seeks to achieve a compromise between a distressed company and its creditors, but creditors do not necessarily share the company’s interest in continued survival. An individual creditor may have a stronger incentive to pursue immediate repayment than to wait for the uncertain benefits of a restructuring arrangement.

This creates an inherent tension within the rescue process. The company requires creditor support in order to restructure, while creditors may perceive enforcement or immediate recovery as more commercially attractive. The effectiveness of a CVA therefore depends substantially upon the credibility of the proposal, the quality of the nominee’s assessment and the willingness of creditors to accept a compromise.

The challenge is particularly acute where creditors believe that liquidation or enforcement would provide a better recovery than participation in the arrangement. For this reason, the success of a CVA cannot be assessed solely by reference to its statutory procedure. It must also be assessed by whether the procedure creates sufficient confidence among creditors that restructuring will produce a better outcome than business failure.

4. Institutional and Professional Limitations: Finally, the effectiveness of the CVA is dependent upon the capacity of the institutions and professionals responsible for implementing it. Insolvency practitioners must possess the technical competence required to assess proposals and supervise arrangements. Courts must develop a consistent understanding of the procedure, while lawyers and corporate actors must be sufficiently familiar with the statutory framework to use it correctly.

The absence of established practice is particularly significant because CAMA 2020 introduced CVAs into a legal environment in which the procedure had not previously been available as a statutory corporate rescue mechanism. The challenge, therefore, is not merely legislative. Nigeria must develop the professional, judicial and institutional infrastructure necessary to support the legislation.

Consequently, the weakness of the Nigerian CVA does not lie in the idea of corporate rescue itself. Rather, it lies in the gap between the legislative ambition of the mechanism and the legal and institutional environment in which it must operate.

The TCN Case

The Tourist Company of Nigeria Plc (TCN), operator of the Federal Palace Hotel in Lagos, provides an important practical illustration of the opportunities and challenges associated with the Nigerian CVA regime. TCN became the subject of Nigeria’s first reported CVA under CAMA 2020, approximately fifteen months after the enactment of the legislation. The company’s experience therefore provides an important early test of whether the statutory framework could operate effectively in practice.

The circumstances giving rise to the CVA were significant. TCN experienced severe financial difficulties during the COVID-19 period, with its revenue reportedly falling from approximately ₦7.7 billion in 2019 to ₦1.3 billion in 2020. Its 2020 audited financial statements also disclosed substantial outstanding obligations to creditors. In response, the company’s directors proposed a CVA principally aimed at restructuring shareholder and related-party loans, including the waiver of interest that would otherwise have accrued from 1 March 2020.

The proposal was considered by the nominees appointed in connection with the arrangement. The nominees reported that the proposal was viable and fair to creditors and the company and expressed the view that it had a reasonable prospect of approval and implementation. The matter subsequently came before the Federal High Court in Lagos, which directed that separate meetings of the company’s members and creditors be convened.

The meetings were held on 8 December 2021, and the proposal received unanimous approval from the creditors and shareholders present. The Federal High Court subsequently sanctioned the outcome, and the arrangement took effect pursuant to section 438(2)(a) of CAMA 2020. TCN’s own financial reporting confirms that the CVA was used to modify the terms of shareholder and related-party loans and that the arrangement was approved through the court-ordered meetings.

The significance of TCN, however, extends beyond the fact that the arrangement succeeded. The proceedings exposed uncertainty regarding the appropriate procedural role of the court in a CVA. In the TCN proceedings, the nominees sought court intervention concerning questions surrounding their appointment and the convening of meetings. Legal commentary subsequently criticised the extent to which the procedure appeared to borrow from court-centred schemes of arrangement rather than follow the relatively direct statutory process contemplated by Chapter 17 of CAMA 2020.

The court’s involvement was understandable given that TCN was the first major test of the new statutory regime. Indeed, commentary on the proceedings noted that the court was required to provide procedural directions in circumstances where specific insolvency procedural rules for the new regime were not yet available. The court’s intervention consequently helped facilitate the rescue of the company, but it simultaneously highlighted the need for greater procedural clarity.

TCN therefore presents a paradox. On one hand, it demonstrates that the CVA provisions of CAMA 2020 are capable of being utilised to restructure a distressed company’s obligations and preserve its business. On the other hand, the procedural uncertainty surrounding the first application demonstrates that the mere existence of statutory provisions does not automatically produce a settled and predictable restructuring culture.

The TCN experience consequently supports the central argument of this article. The Nigerian CVA is not merely theoretical; it has been successfully deployed in practice. However, its first major application also revealed gaps in procedural certainty and institutional preparedness. TCN should therefore be viewed not simply as evidence of the success of the CVA regime, but as an important early lesson in the areas requiring further legislative and institutional development.

Comparative Insight

A useful assessment of the Nigerian CVA can be made by examining the United Kingdom framework from which the Nigerian provisions were substantially influenced. Both systems recognise the CVA as a mechanism through which a financially distressed company may reach a binding compromise or arrangement with its creditors while allowing existing management to remain involved in the company’s affairs. The UK model has, however, developed over a substantially longer period and is supported by a more established restructuring culture.

Under the UK framework, directors may propose a CVA where the company is not in administration or liquidation, while an administrator or liquidator may also make a proposal in appropriate circumstances. The proposal is supervised by an insolvency practitioner, and creditor approval is central to its effectiveness. The UK Government explains that a CVA allows an insolvent limited company to reach an agreement with its creditors and continue trading where the creditors approve the arrangement.

The most significant comparative difference for present purposes concerns creditor protection. The contemporary UK framework contains a separate moratorium regime under Part A1 of the Insolvency Act 1986. The moratorium is designed to provide a struggling company with a period of protection while rescue and restructuring options are explored. During the moratorium, restrictions apply to various forms of insolvency proceedings and creditor enforcement, subject to statutory exceptions and safeguards.

This development is particularly relevant to Nigeria because it demonstrates that a rescue mechanism can be supported by a separate legal breathing space. The UK moratorium does not itself constitute a CVA; rather, it provides a protective environment within which a company may explore rescue options, including a CVA. Indeed, the UK legislation expressly contemplates the continuation of a moratorium while a CVA proposal is pending in appropriate circumstances.

The comparison nevertheless requires caution. Nigeria should not simply transplant every aspect of the UK system without considering its own commercial and institutional circumstances. The effectiveness of insolvency legislation depends upon the quality of insolvency practitioners, judicial capacity, creditor behaviour, regulatory oversight and the broader commercial environment. A legal mechanism that functions effectively in one jurisdiction may produce different results where the supporting institutions are less developed.

The more useful lesson from the UK is therefore not that Nigeria must replicate the British system wholesale, but that the effectiveness of a corporate rescue mechanism depends upon an ecosystem of complementary protections and institutions. Nigeria’s CVA regime has adopted the core idea of creditor compromise and corporate rescue, but the supporting framework requires further development if the mechanism is to achieve its full potential.

It would, however, be premature to conclude that the Nigerian CVA is inherently ineffective. The procedure is relatively new within the Nigerian legal system, and its limited practical history makes it difficult to assess its long-term effectiveness solely on the basis of its early applications. The fact that only a limited number of reported CVAs have emerged does not necessarily establish that the legislation itself is defective. It may also reflect limited awareness, the novelty of the procedure and the gradual development of professional expertise in corporate restructuring.

Furthermore, the success of TCN demonstrates that the statutory framework is capable of producing a binding restructuring arrangement. The company was able to propose a CVA, obtain creditor and shareholder approval and secure the implementation of the arrangement under CAMA 2020. This demonstrates that the procedure possesses practical value and should not be dismissed merely because it contains structural weaknesses.

The appropriate criticism, therefore, is not that the Nigerian CVA has failed, but that its potential remains constrained. A newly introduced rescue mechanism should be expected to develop through judicial interpretation, professional practice and legislative refinement. The first application in TCN has already contributed to this development by exposing questions concerning the appropriate role of the court and the procedural operation of Chapter 17.

Nevertheless, novelty cannot permanently justify structural deficiencies. If the absence of adequate creditor protection, procedural certainty and institutional support discourages viable companies from using the mechanism, the very objective for which the CVA was introduced may be undermined. The challenge is therefore to preserve the flexibility and debtor-in-possession character of the CVA while strengthening the legal safeguards necessary to make rescue commercially realistic.

The Nigerian CVA should consequently be understood as a developing rescue mechanism rather than an outright failure. Its weakness lies not in the concept of voluntary corporate restructuring, but in the incompleteness of the legal and institutional environment supporting that concept.

Recommendation

If the CVA is to become an effective instrument of corporate rescue in Nigeria, legislative and institutional reforms are necessary.

First, CAMA 2020 should be amended to introduce a standalone moratorium for companies pursuing a CVA. Such a moratorium should provide a temporary period of protection against specified creditor actions while negotiations are ongoing. Appropriate safeguards should nevertheless be established to prevent abuse and to protect creditors from unnecessary prejudice. The objective should not be to deprive creditors of legitimate rights indefinitely, but to create a controlled breathing space within which a viable rescue proposal can be considered.

Second, greater procedural clarity is required. The legislation and applicable insolvency rules should clearly define the respective roles of the directors, nominee, creditors, members and the court. The experience of TCN demonstrates the uncertainty that may arise when practitioners and courts are required to determine procedural questions in the absence of sufficiently detailed rules. Clear procedural guidance would reduce delay, cost and unnecessary litigation.

Third, Nigeria should strengthen professional and judicial capacity in corporate restructuring. Insolvency practitioners, judges, lawyers and corporate advisers should receive specialised training on the operation of CVAs and other rescue mechanisms. The effectiveness of insolvency legislation depends significantly on the ability of the professionals administering and interpreting it to understand its commercial and legal objectives.

Fourth, the regulatory framework should encourage the development of a stronger rescue culture. Companies should be encouraged to seek restructuring at an early stage of financial distress rather than waiting until insolvency becomes irreversible. Creditors, similarly, should be encouraged to assess whether a proposed restructuring can produce a better recovery than immediate enforcement or liquidation.

Fifth, creditor confidence should be strengthened through greater transparency and accountability. The nominee’s assessment of the viability of a proposal should be sufficiently detailed to enable creditors to make informed decisions. The interests of secured, preferential and unsecured creditors should be carefully balanced so that the rescue process does not become a mechanism for unfairly transferring the burden of financial distress from the company to its creditors.

Finally, Nigeria should continue to develop its insolvency procedural rules and jurisprudence. The TCN proceedings demonstrate the important role that courts may play in clarifying the operation of the new regime. However, a mature insolvency system should not depend excessively on judicial improvisation to resolve basic procedural questions. Clear legislation, detailed procedural rules and consistent judicial interpretation would provide the certainty required for businesses and creditors to have confidence in the CVA process.

These reforms would not require Nigeria to reproduce the United Kingdom model wholesale. Rather, they would strengthen the Nigerian framework while preserving the flexibility and corporate-rescue philosophy that made the introduction of CVAs under CAMA 2020 a significant reform.

Conclusion

The Company Voluntary Arrangement under CAMA 2020 is both a bold reform and a weak tool. It is bold because it represents a genuine shift toward corporate rescue and signals that Nigerian insolvency law is gradually embracing modern restructuring principles. It is weak because the legal and institutional machinery needed to make it effective is still incomplete, especially the absence of a statutory moratorium and the uncertainty that continues to surround its practical use.

Its value therefore lies not in its current perfection, but in its reform potential. The CVA is an important step in the right direction, but it is not yet a fully dependable rescue mechanism. Until Nigeria strengthens the supporting legal framework around it, the CVA will remain a promising but fragile instrument of corporate survival.

References

1. Companies and Allied Matters Act 2020 (CAMA 2020), ss 434–442, Chapter 17. Chapter 17
2. Aisha Ali Tijjani, Emmanuel Oluwafemi Olowononi, Asma’u Sulaiman Muhammad and Precious A N Ahiarammunnah, ‘An Examination of Company Rescue through Company Voluntary Arrangement under the Companies and Allied Matters Act 2020’ (2025) African Journal of Law, Ethics and Education.
3. ‘An Overview of Company Voluntary Arrangements in CAMA 2020’, ThisDay (6 October 2020).
4. Oluwatumininu Omotoye, ‘The Ambivalent Nature of Companies and Allied Matters Act 2020 on Corporate Rescue: A Look at Company Voluntary Arrangements’ (2024) International Journal of Law and Clinical Legal Education, 5.
5. Tourist Company of Nigeria Plc, Annual Report and Financial Statements for the Year Ended 31 December 2020.
6. Tourist Company of Nigeria Plc, ‘Notice of Creditors’ Meeting’, ‘Notice of General Meeting’, ‘Proposal for Company Voluntary Arrangement’ and ‘Enrolled Court Order – CVA November 2021’.
7. ‘A Preliminary Appraisal of Nigeria’s First-Ever Company Voluntary Arrangement’, ThisDay (11 January 2022).
8. Insolvency Act 1986 (UK), pt I.
9. Corporate Insolvency and Governance Act 2020 (UK), s 1, inserting Part A1 into the Insolvency Act 1986.
10. Insolvency Act 1986 (UK), pt A1; see also Insolvency Service, Insolvency Act 1986 Part A1: Moratorium – Guidance for Monitors (2020).
11. Oluwatumininu Omotoye, ‘The Ambivalent Nature of Companies and Allied Matters Act 2020 on Corporate Rescue: A Look at Company Voluntary Arrangements’ (2024) International Journal of Law and Clinical Legal Education, 5.
12. Aisha Ali Tijjani et al, ‘An Examination of Company Rescue through Company Voluntary Arrangement under the Companies and Allied Matters Act 2020’ (2025) African Journal of Law, Ethics and Education.

Oluwaleye Adedoyin Grace, LL.B. (Hons.)

oluwaleyeadedoyingrace2001@gmail.com or 08106289069