Debt is used by many corporations and individuals to make large purchases that they cannot afford under normal circumstances or for other purposes. A debt arrangement ‘gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest’.
Debt recovery, also called debt collection, is the process of pursuing payments of debts owed by individuals or businesses. An organisation that specializes in debt collection is known as a Collection Agency or Debt Collector. Most Collection Agencies operate as agents of creditors and collect debts for a fee or percentage of the total amount owed.
Debt recovery in Nigeria encompasses making legal demands before exploring the option of instituting an action in court. There are diverse legal options to explore when recovering debts from companies or individuals However, it is important to state that there is a limitation period to which a debt can be recovered in court, in Nigeria. The limitation period for debt recovery that arises from a simple contract is six (6) years, excluding the year the contract was entered into and executed. Thus, it is advisable to institute an action for debt recovery timeously before it becomes statute-barred upon the expiration of 6 years provided under Section 21(1) (a) of the Limitation of Action Law.
The legal framework for the prompt recovery of debt in Nigeria is enunciated under the following subheadings:
- Provisions of Companies and Allied Matters Act on Liability of Companies and their Directors
Section 316 of the Companies and Allied Matters Act, 2020 provides that where a company receives property by way of advance payment for execution of a contract or project and the company with intent to defraud, fails to apply the property for the purpose for which it was received, every director and officer of the company who is in default shall be personally liable to the party from which the property was received and a refund of the property so received and not used for the purpose for which it was received. This provision spells out who bears the liability within a company where such event occurs and gives the creditor a target.
- Provision of Companies and Allied Matters Act on Winding Up of Companies
Section 571 (d) of the Companies and Allied Matters Act 2020 provides that a creditor may commence winding up proceedings against a company if it is unable to pay its debts. Section 572 of the Companies and Allied Matters Act provides that a company shall be deemed to be unable to pay its debts if it is indebted to a creditor in a sum exceeding N2, 000 and same remain unpaid after 3 weeks of service of a statutory letter of demand delivered at the registered place of business of the company.
Procedure for Recovery of Debt from Fraudulent Directors and an Insolvent Company
- The Company and its Directors will be served a letter of demand demanding full payment of the debt within 7 days of receipt of the letter failing which an action will be commenced to recover the debt, claiming damages for breach of contract and winding up proceedings against the company.
- If the debtor does not pay the debt within 7 days as provided in the letter of demand, a summary judgment proceeding in court may be commenced against the debtor and its Company to recover the debt. Also, an application for security or attachment of the moveable and immoveable property of the debtor pending the determination of the proceeding is brought before the Court.
Winding up proceeding may also be commenced against the Company so as to liquidate and sell its assets. Before this is done, a statutory letter of demand for winding up of the Company for inability to pay its debts would have been served on the Company.
It is equally important to note that where there is an element of fraud, undue influence by false pretense, it constitutes an economic crime for which a petition may be sent to the Economic and Financial Commission (“EFCC”). Where criminal culpability is established, their assets would be frozen towards payment of the debt and criminal prosecution.
- Summary Proceedings in Court
This is a machinery for debt recovery in court where a claimant may apply summarily to Court for issuance of a writ of summons to recover a liquidated sum. The application state the grounds upon which the claim is based and that the defendant has no defence on the merit to the claim. The Court would give judgment where it is satisfied that, indeed, the defendant has no defence to the claim.
- Debt recovery through Alternative Dispute Resolution
Outside the court room, parties may settle debts through ADR mechanisms like Arbitration, mediation, etc.
This is done by involving a third party in the process of recovering debt. The service of a professional mediator could be employed to help the parties reach an amicable settlement.
In order to resort to Arbitration, there must be prior voluntary agreement by the parties. Where there was a loan agreement or any other agreement, an arbitration clause must be included. Where the arbitrator(s) make a binding decision on the debt recovery, such can be enforced in court where the need arises.
- Letter of Demand
This is the commonest machinery for debt recovery. Demand letters are extensively used in business before the aggrieved party takes legal action in court against the recipient. Here, a Lawyer writes a letter of demand to the debtor, warning about the consequences that will arise if payment of the debt is not made within a stipulated time. This letter would contain and confirm the exact money being owed, a clear timeframe for the debt to be repaid (usually 7-14 days), the consequence of failure to pay the debt, which is usually an action in court. 
Despite the availability of a legal structure for debt recovery in Nigeria, albeit scanty, there are some problems associated with it and they are listed in this article as follows:
- Slow-paced administration of criminal justice: The courts are slow to sit, hear and enter judgements and this ultimately affects prompt justice. It is said that justice delayed is undoubtedly justice denied.
- Arbitration or other forms of Alternative Dispute Resolution could be a difficult option to explore when it is not stated in the contract as a dispute resolution option as some parties, especially the erring party, might refrain from participating. This is problematic because consent and submission of the parties to the process is vital.
The problems with the legal framework for debt recovery in Nigeria which have been highlighted in this work can be solved. The following measures are recommended:
- Use of technology for electronic filing, appointment of more judicial officers and prompt hearing of cases can all have an effect on the administration of justice in Nigeria. This will definitely propel faster service of justice even as it relates to debt recovery.
- Parties to contracts should endeavour to include dispute settlement mechanisms other than litigation in their contracts.
All told, creditors are advised to seek professional advice from lawyers when taking steps to recover debts so as to avoid taking the law into their hands.
 James Chen, ‘Debt’ (Investopedia.com, April 16, 2021) available at https://www.investopedia.com/terms/d/debt.asp accessed on 19/04/2021
 Matog Consulting, ‘Debt Recovery Methods & Enforcements in Nigeria’, (April 17, 2020), available at https://www.matogconsulting.com/debt-recovery-methods-enforcements-in-nigeria/, accessed on 19/04/2021
 Winifred Idairu, ‘How To Recover Debt in Nigeria’ (Mondaq.com, August 11, 2020) available at https://www.mondaq.com/nigeria/financial-services/974962/how-to-recover-debt-in-nigeria, accessed on 19/04/2021
 Winifred Idairu (n 3)