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NAICOM On Trial Over Recapitalization In COVID-19 Era: Any Justification?

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Legal fire works will commence today over the planed recapitalization of the Nigerian insurance sector via the operating insurance and reinsurance companies in Nigeria by the regulatory body, National Insurance Commission (NAICOM).

As it is often said that laws are made for man rather than man for laws, this dictum buttressed the fact that any law that does address the expectations of the people due to its unpopular nature is bound to fail to the extent of its inconsistency with the present needs of the people. Though, NAICOM has as its sailing point for the proposed recapitalization, the need to make Nigerian insurance sector competitive as compared to other countries, but many believes that such should not be made with fiat without the general acceptance of the stakeholders who’s input and opinion must constitute the essential ingredients of the recapitalization process for a holistic execution and realisation.

Such was the case in 2018 when NAICOM was restrained by a high court from implementation of proposed Tier-Based Minimum Solvency Capital (TBMSC), a home grown recapitalization process targeted at categorizing insurance companies into three cadres according to their respective financial strength. The major sin held against NAICOM was its attempt with the TBMSC to create class distinction among the operators of sector through inordinate classification of the operators into three categories depending on respective companies financial muscle.

But this time around, NAICOM has come up with recapitalization process which places heavy burden on the insurers financial capability within the COVID-19 pandemic era.
In the planned recapitalization, NAICOM had raised the minimum paid-up share capital of a life insurance company from N2 billion to N8 billion; non-life insurance from N3 billion to N10 billion and composite insurance from N5 billion to N18 billion. Re-insurance companies on the other hand were directed to raise their capital base from N10 billion to N20 billion.

Many stakeholders were of the opinion that though the sector needs recapitalization but such should be in form of government guaranteed bailout funds as in the case of the power sector, given the essential role of the insurance sector in the socioeconomic development of the country.

Given the level of devastation wrecked on the economy by the COVID-19 pandemic lockdown, the Incorporated Trustees of Standard Shareholders Association of Nigeria and Mr Godwin Augustine had approached the Court in Abuja, to restrain NAICOM from going ahead with the recapitalization given the ill timed nature of it and the potential of the process to liquidate many insurance companies and render many workers jobless following possible inability of any insurance and reinsurance company to recapitalise.

Consequently, the Federal High Court sitting in Abuja, on Thursday, 13 August ordered the National Insurance Commission (NAICOM) to appear before it to show cause why it must proceed with the set process of recapitalisation of insurance and reinsurance companies in the country. Justice Ahmed Mohammed gave the order summoning NAICOM before it after taking the argument of Counsel to the plaintiffs, Ayodele Akintunde, SAN, in a motion ex-parte dated and filed on July 22 marked: FHC/ABJ/CS/ 835/2020 in Abuja.

While the Incorporated Trustees of Standard Shareholders Association of Nigeria and Mr Godwin Augustine Anono are 1st and 2nd plaintiffs respectively, NAICOM is the sole defendant in the suit. Akintunde informed the court that the commission had, in circulars numbered: NAICOM/DPR/CIR/25/19 of May 20, 2019; NAICOM/DPR/CIR/25-02/2019 of July 23, 2019 and NAICOM/DPR/CIR/25-03/2019 of Dec. 30, 2019, directed all insurance and reinsurance companies in Nigeria to increase their minimum paid-up share capital, in the manner stated in the circulars, not later than Sept. 30, 2021, without compliance with the requirements of the law.

“Despite the plaintiffs/applicants solicitor’s letter to the defendant on the 16th of April, 2020, the disastrous economic consequences of the COVID-19 pandemic as a result of the total lockdown and shutdown of the economic activities which has affected all sectors of the economy in Nigeria and all over the world, the defendant is headstrong on continuing with recapitalisation process as stipulated in the defendant’s circulars. The 2nd plaintiff and other trustees and members of the 1st plaintiff have invested a lot of money in buying shares in insurance and reinsurance companies affected by the defendant’s circulars and they also hold policies of insurance companies,” he said.

The lawyer expressed fear that NAICOM might continue with the implementation of the directive despite the current economic situation foisted in the country and the world by the pandemic. He urged the court to grant his prayer, asking it to hear the case as a matter of urgency during the ongoing vacation pursuant to Order 46 Rule 5(1) and (2) of the Federal High Court (Civil Procedure) Rules 2019.

Akintunde argued that if allowed to continue with the policy, this might restrict the business of insurance and reinsurance in the country and cripple the plaintiffs’ and members of the 1st plaintiff’s source of livelihood. According to him, unless this matter is heard by this honourable court as a matter of urgency during the vacation, the 2nd plaintiff and other members and trustees of the 1st plaintiff will suffer irreparable damage, untold hardship and a complete collapse of their investments by the death of many insurance companies and the default by insurers in respect of claims on their various policies.

Justice Mohammed, after listening to the counsel, ordered NAICOM to appear before the court on Aug. 20 to show cause why the interim order of injunction being sought by the plaintiffs should not be granted. He directed that the motion ex-parte; the motion on notice, seeking order of interlocutory injunction; the originating summon; the enroll order and hearing notice should be served on NAICOM. The judge then adjourned the matter till Aug. 20 for the defendant (NAICOM) to come and show cause why the order should not be granted.

Further to this at the resumed hearing in August, the Federal High Court, Abuja, fixed Sept. 2 for definite hearing in the suit, seeking to stop the National Insurance Commission (NAICOM) from proceeding with its planned recapitalisation process of insurance and reinsurance companies in the country. Justice Ahmed Mohammed fixed the date after taking arguments from counsel representing the parties in the matter.

Although Justice Mohammed did not give an order, restraining NAICOM from continuing with the recapitalisation process, he, however, cautioned that no further action should be taken by the defendant (NAICOM) until the matter was heard.
“I want to see if the defendant (NAICOM) will take further step between now and the date for definite hearing. I will adjourn for hearing and let me see if the defendant will overreach me.

“I don’t think they will do anything. They will not. It is a dangerous time now because the two of you now know that the matter has been fixed for hearing and any action taken will amount to interfering in the matter,” the judge assured the plaintiffs.

While the Incorporated Trustees of Standard Shareholders Association of Nigeria and Mr Godwin Augustine Anono are 1st and 2nd plaintiffs respectively, NAICOM is the sole defendant in the suit.
NAICOM had, in circulars numbered: NAICOM/DPR/CIR/25/19 of May 20, 2019; NAICOM/DPR/CIR/25-02/2019 of July 23, 2019 and NAICOM/DPR/CIR/25-03/2019 of Dec. 30, 2019, directed all insurance and reinsurance companies in Nigeria to increase their minimum paid-up share capital not later than Sept. 30, 2021.The plaintiffs, through their Lawyer, Ayodele Akintunde, SAN, had argued that the regulatory body acted without compliance with the requirements of the law, asking the court to stop the recapitalisation move.

At Wednesday’s sitting, Akintunde informed the court that the matter was slated for the defendant to respond to affidavit of facts.
“Essentially, the business of today is for my law to determine whether the defendant had shown cause on why the order should not be granted.
“Yesterday afternoon (Tuesday), I received a counter-affidavit with the affidavit of facts from the defendant.
“And this morning about 11:35am, I received a further and better affidavit from the defendant counsel.
“I will also like to draw your attention to the fact that we have filed a counter-affidavit to the preliminary objection filed by my learned SAN,” he said. He pointed out that the argument of the defendant had been whether the court had jurisdiction to entertain the matter, instead of responding to the main suit.

When the judge asked Counsel to the defendant, Chukwuma-Machukwu Ume, SAN, on whether the commission had responded to the substantive suit, he said it was yet to file its response. Ume said he was in court only to respond to the court order that NAICOM should show cause why the prayers sought by the plaintiffs should not be granted.

“Mr Ume, the fact that you are showing cause does not mean you should not respond to the main suit?,” the judge told NAICOM’s lawyer. Ume, however, explained that the 30-day period, as stipulated by the Federal High Court Rule, to respond to the suit had not elapsed.

“Our time to file defence to the main suit is still running. We were served on Aug. 17 and the process gave us 30 days to respond. We have submitted a cogent reason to say that the interim order they sought is not right. Our 30-day is still running from the day we were served and that is why we are here today only to show cause,” he said.

Akintunde, who expressed fear that NAICOM might continue its planned recapitalisation despite the pendency of the matter in court, said: “My lord, there is no evidence before your lordship to show that they have responded to the processes in accordance with the court rule.”
“The only complaint they have is whether your lordship have jurisdiction to hear the case.”

He restated how NAICOM issued a fresh circular directing the insurance and reinsurance companies to commence the recapitalisation process on Aug. 17, the date it received the enroll order of the court.
“I am interested in the hearing of the matter expeditiously but my lord should give an order for the status quo to remain,” he enjoined.

Justice Mohammed, who noted that the matter had been adjourned for the second time, said: “My honest opinion is to fix this matter for hearing today (Wednesday).”
He, however, adjourned the suit until Sept. 2 for definite hearing.

 

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