Legacy debts are one of the hidden costs which bedevil companies in transitional situations (mergers, acquisitions, business transitions). Legacy debts refer to debt obligations incurred by a target company and its predecessors in title, which are inherited by the acquiring company. These debts are usually difficult to identify during transactional due diligence, as they are sometimes concealed within obscure transaction documentation.

The concept of odious debt refers to the particular set of equitable considerations that have often been raised to adjust or sever debt obligations in the context of political transitions based on the purported odiousness of the previous regime and the notion that the debt is incurred did not benefit, or was used to repress the objects for which the loan is taken.

It should be noted that the legal obligation to repay a debt has never been accepted as absolute and has been frequently limited or qualified by a range of equitable considerations, some of which may be regrouped under the concept of “odiousness” which may be invoked in order to invalidate debt obligations. In determining whether to assume the legacy debt, regard is often had to the purpose for which the debt was incurred. If the legacy debt was incurred for an illegal purpose or a purpose which is profligate or inconsistent with the objects of the company, the acquiring company may apply to the court to adjust or sever the legal obligations arising from the transaction.

Debts that may be viewed within this spectrum include debts undertaken by a board in order to prevent a takeover attempt, debts undertaken to subsidize personal expenses of managerial staff, as well as debts incurred to finance criminal activities. A problem may however arise where the purported odious debt conferred some tangible benefit in whole or in part upon the corporate entity and its successors in title. This implies balancing the concept of sanctity of contract against the reality of protecting the funds of the company from embezzlement or wastage.

Generally speaking, when corporate succession occurs, whether through dismemberment, acquisition or some other change that alters the nature of the corporate entity itself, legal obligations are not thought to be automatically transferred to the new corporate entity because as a formal matter the identity of the corporate entity has changed and the new company has not expressed its will to be bound by the debts incurred by its predecessors. The question thus arises whether to commence business on a clean slate, thereby reducing the incentives of companies to enter binding contracts or enshrine financial stability by inheriting the debts incurred prior to its existence.

There is a rich case law concerning the limits of contractual freedom, whereby contractual obligations have been found unenforceable or partly enforceable without substantially preventing the growth of sophisticated financial markets. Some scholars are of the view that contracts made by a predecessor that are of no advantage to the company should not be honoured, in particular where the funds have been applied to purposes that are harmful to the company. Other authors suggest that the total repudiation of the debt would cause substantial injustice and in order to equitably invoke this principle the debtor would have to partially repay the debt. This position places emphasis on equitable arguments to do what is right and just in the circumstances.

In general, the law of contract provides ample room for a judge or adjudicator to balance the equities in a case involving illegal or immoral behavior of one or more parties to the transaction. The treatment of odious debt should therefore be based on the equitable considerations underlying the transaction and the after effects of the legacy debt on the affairs of the company. Consequently, a legacy debt which enhances the book value of the firm over the long term is easier inherited than a legacy debt which leads to long run reduction on the book value of the firm. In the event of the former, the principle of promissory estoppels may apply to prevent the successor company from repudiating the debt.

Milton and Cross offers investment advisory and due diligence services to individual and corporate organizations engaging in merger and acquisitions as well as related transactions. We may be contacted directly on +2348036258312, or by email on :

Senator Udo Udoma Faults Proposed National Code of Corporate Governance

culled from Thisday Newspaper

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A former Senator and the Chairman, UAC of Nigeria Plc, Senator Udoma Udo Udoma has criticised the proposed national code of corporate governance (NCCG), saying that the Financial Reporting Council of Nigeria (FRC) is trying to usurp the powers of other regulatory agencies. Udoma made this remark at the 2015 public lecture of Chartered Secretaries and Administrators of Nigeria(ICSAN) held in Lagos. Speaking on the theme: “Governance: The synergy between leadership and followership,” he argued that there is no one-size-fits-all approach to corporate governance, noting that ” the corporate governance rule you need for a major bank cannot be the same with what you require for a biscuit manufacturer or a company trading in sugar.” Udoma added: “I am surprised and puzzled by the current attempt being made by the FRC to come up with they call a universal code of corporate governance. What does that mean? I understand that they are even extending the rules to churches, mosques and other not-for-profit organisations. I think we are carrying this thing too far. “I am even at a loss to understand under what authority they are proceeding with that? Even if they have power to enforce corporate governance code, which is arguable, does that also give them the power to make the rules?

This is because, the power to enforce, does not automatically give you the power to regulate. If it is, the police would have taken over the power to make laws from the National Assembly.

He continues “I believe that the FRC is attempting to usurp the powers of other regulatory agencies. I am not sure it was the intention of the National Assembly to create the FRC to be the super regulator that all other regulators report to. In fact when I saw the draft, there are aspects of it that seem to be amending the Companies and Allied Matters Act (CAMA.). “CAMA provides that the board should have a chairman, a managing director and a board member, but they are saying that a board should have a chairman, a managing director and a senior independent board member, who is supposed to monitor the performance of the chairman. If they want to amend CAMA, they should know the process of amending CAMA.” Udoma further noted: “This is why when I was chairman of SEC and we were looking at corporate governance, we set out what we felt was the minimum and we recognised that various other regulators such as the Central Bank of Nigeria, will have tighter ones for banks and so on so forth. And that is a normal thing, you have the minimum one and within each industry, you have the tighter one”.

The Governor of the Central bank of Nigeria Mr. Godwin Emefiele seems to toe a different line, as he describes the proposed uniform Code of Corporate Governance being developed by the Financial Reporting Council of Nigeria (FRC)  as “a veritable tool in the quest to guarantee investment in the economy”.

Chairman, Lagos Chapter of the Chartered Institute of Bankers of Nigeria (CIBN), Mrs. Taiwo Ige opines that the NCCG would ease regulation; “We have always talked about corporate governance as being self-regulating. If you imbibe the culture of corporate governance, you will feel comfortable within yourself because you must have done what is expected of you. So, anybody can come and have a look at what you have done without you being afraid. So the harmonised code is going to curb corruption and enthrone best practice. It would align the nation with what is done globally,”.

On his part, Mr. Jide Iyanda of the Nigeria Deposit Insurance Corporation (NDIC), argues that the National Code of Corporate Governance would enhance investor confidence in Nigeria.

“The international community and investors would have confidence in the Nigerian economy and the perception about Nigeria will improve significantly. Nigeria can get it right only when things are done appropriately in both the private and public sectors,” Iyanda added.

Similarly, Mr. Kola Abdul, Managing Director/Chief Executive Officer, Brent Mortgage Bank and Vice Chairman at the CIBN Lagos branch ,, who notes that the private sector had over the years been focused on getting things right so as to ensure that they remain as going concerns, argues that the bane of the Nigerian economy had been the public sector.

“There is no public governance in the public sector and we lack ethics in that sector. So, if the government has woken up from the slumber, to create a common standard and acceptable policy for all sectors in the country, then it is a welcome development. But the challenge I have with this is that as Nigerians, we are always ahead of regulations. As we are today, I can tell you that there are people looking at the loopholes with a view to exploiting them. But I hope that with the new government in place, we can overcome that challenge,”

Long live Nigeria!


Pursuant to its statutory responsibility to develop principles and practices of corporate governance, the steering committee constituted by the Federal Government of Nigeria to develop a National Code of Corporate Governance (NCCG) for the country has finalised work on the draft document. The draft code was on the 15th of April 2015 published for comments from stakeholders for 30 days.

The Executive Secretary/Chief Executive Officer, Financial Reporting Council (FRC), Mr. Jim Obazee, disclosed to journalists in Lagos that the deadline for receiving comments on the draft NCCG is May 14th 2015, while a public hearing on the subject would be held on May 19th. The FRC Scribe pointed out that the federal government is aware that the issuance of a national code of corporate governance is a very important deliverable that can be used to enhance the country’s national competitiveness and socio-economic issues including corruption and lack of corporate independence.

Milton and Cross will examine the NCCG to determine whether it meets global best standards in Corporate Governance as well as analyzing the extent of its applicability to Nigeria’s unique business environment.

You may download the codes by following the links below:

Private Sector Code:

Public Sector Code:

Non Profit Organisation Code: bqcIt35R2dvc09QWXZscTQ/view?pli=1


Corporate governance has been defined by the Central Bank of Nigeria as the systems by which corporations (emphasis mine) are governed and controlled with a view to increasing shareholder value and meeting the expectations of the other stakeholders. This definition embodies the common misconception among organisations and regulators alike, that Corporate governance is reserved for corporations or companies listed on the stock exchange; nothing indeed could be further from the truth. Corporate governance operates to ensure proper decision making in organizations ranging from Ultra-high net worth companies to the little corner shop owned by a sole proprietor. It is the cornerstone upon which strong, sustainable organizations have been built.

Corporate governance deals with the rights and responsibilities of a company’s management, its directors (reference to Directors here is general, and includes all those undertaking the responsibility of being the governing mind of the organization), and various stakeholders such as employees and customers. A well developed code of corporate governance effectively harmonises the relationship between owners, managers and stakeholders of the target organizations; by mitigating friction between management and owners of organizations, the organization is positioned to make highly effective decisions, leading to improved profitability and/or market share.

The entrepreneur who embarks upon a new venture often remains the key operator in the venture long after the business has expanded beyond the technical or managerial competence of the promoting entrepreneur. This normally manifests in insider abuses arising from the pervasive influence of related parties and unfettered decision making powers. These abuses more often than not, lead to the demise of the organization.

How may this unfortunate state of affairs be averted?

The answer depends upon the organization and its structure. In most corporate organizations it is theoretically easy to separate the managerial and controlling functions especially as shareholders are not required to be directors. Furthermore, most contemporary corporate governance codes usually stipulate that a proportion of the Board of Directors be composed of Independent Non executive directors. In addition, many companies separate the positions of the Chairman of the Board of Directors and the Chief Executive in order to provide for checks and balances, preventing corporate autocracy. It is essential that these independents should not be vendors, suppliers, contractors or parties with hold interest in the company. In the event that any such conflict of interest arises, it is the duty of the director to promptly advise the Board of Directors of the facts and nature of the conflict of interest.

Empirical studies conducted by Gill, Sharma, Mand and Mathur revealed that a positive relationship exists between strong corporate governance systems and corporate cash flows; effectively, the stronger the corporate governance systems, the higher its investment returns and cash flows. When you clearly define corporate governance standards for your organization, you effectively mitigate the risk of corporate failure arising from technical or managerial incompetence, thereby positioning the organization for sustained growth and increased profitability.