Ayo Olorunfemi June 4, 2025

AVOIDING THE ROCKS OF SHIP FINANCING IN NIGERIA: COMMON PITFALLS AND CHALLENGES

INTRODUCTION

Nigeria’s maritime industry forms a critical component of its economy with significant potential due to its 853-kilometer coastline along the Gulf of Guinea. However, ship financing in Nigeria presents unique challenges that require careful navigation. This summary explores the key complexities inherent in Nigerian ship financing, highlighting common pitfalls and offering practical mitigation strategies.

REGULATORY HURDLES

Legislative Framework

The regulatory landscape for ship financing in Nigeria comprises several key statutes:

Merchant Shipping Act 2007: Establishes the framework for vessel registration, ownership, and maritime liens
Nigerian Maritime Administration and Safety Agency (NIMASA) Act 2007: Empowers NIMASA to administer maritime safety, security, and labor standards
Cabotage Act 2003: Restricts coastal trade to vessels built, owned, registered, and manned by Nigerians, subject to ministerial waivers
Companies and Allied Matters Act (CAMA) 2020: Prescribes requirements for company registration, corporate governance, and security registration

Regulatory Authorities

Multiple regulatory bodies oversee various aspects of ship financing, creating jurisdictional complexities:

NIMASA: Primary maritime regulatory authority for vessel registration and safety standards
Central Bank of Nigeria (CBN): Regulates exchange control matters for international financing
Corporate Affairs Commission (CAC): Oversees company registration and security perfection

Navigation Strategies

Successful navigation of regulatory hurdles requires:

Comprehensive due diligence and regulatory compliance assessment
Pre-transaction consultations with regulatory authorities
Strategic transaction structuring incorporating regulatory flexibility

DOCUMENTATION REQUIREMENTS

Ship Registration Documentation

Vessel registration requirements include:

Evidence of ownership and seaworthiness certification
Technical specifications and compliance documentation
Deletion certificates for pre-owned vessels
Proof of Nigerian ownership and incorporation certificates

Security Documentation

Effective security documentation encompasses:

Mortgage instruments and collateral documentation
Mandatory marine insurance coverage
Registration of charges under CAMA 2020
Compliance with the Secured Transactions in Movable Assets Act 2017

Loan Documentation

Ship financing loan documentation must address:

Maritime-specific representations and warranties
Vessel insurance and classification maintenance obligations
Specialized default provisions for maritime risks
Comprehensive event of default provisions addressing vessel-specific contingencies

ENFORCEMENT CHALLENGES

Jurisdictional Considerations

Maritime jurisdiction in Nigeria involves:

Exclusive jurisdiction of the Federal High Court under Section 251(1)(g) of the Constitution
Complex enforcement procedures due to vessel mobility
International dimensions governed by reciprocal enforcement frameworks

Arrest Procedures

Vessel arrest serves as a primary enforcement mechanism:

Procedural requirements under the Admiralty Jurisdiction Act 1991
Admiralty Jurisdiction Procedure Rules 2023 prescribing specific arrest application requirements
Judicial sale procedures conferring clean title to purchasers

Enforcement Impediments

Key challenges to enforcement include:

Procedural delays and institutional inefficiencies
Competing claims from maritime lienholders, crew members, and statutory authorities
Priority rights of crew claims under the Maritime Labour Convention 2006
Administrative inefficiencies within enforcement agencies

Enforcement Risk Mitigation

Effective enforcement risk mitigation involves:

Alternative dispute resolution mechanisms, particularly arbitration
Comprehensive security packages with multiple enforcement options
Cross-border coordination mechanisms leveraging international conventions

CURRENCY AND EXCHANGE RISKS

Exchange Control Regulations

Currency considerations are paramount in ship financing:

Compliance with the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act
CBN regulations requiring approval for substantial outward remittances
Regulatory discretion in foreign exchange administration

Currency Volatility Management

Strategies for managing currency volatility include:

Currency hedging mechanisms (forward contracts, currency swaps)
Local currency financing alternatives through specialized institutions
Foreign currency escrow arrangements with authorized dealer banks

Contractual Protections

Contractual mechanisms address currency-related risks:

Material adverse change clauses with currency-specific triggers
Force majeure provisions encompassing exchange control restrictions
Exchange rate reset mechanisms for long-term contracts

INSOLVENCY AND RESTRUCTURING IMPLICATIONS

Insolvency Framework

Nigeria’s insolvency regime applicable to ship financing includes:

Companies and Allied Matters Act 2020
Companies Winding Up Rules
Investment and Securities Act 2007
Corporate rescue mechanisms including administration proceedings and company voluntary arrangements

Cross-Border Insolvency Considerations

Cross-border insolvency complexities arise from:

Vessel mobility and multi-jurisdictional operations
Common law principles of comity influencing judicial cooperation
The Cape Town Convention provisions on secured creditor rights

Restructuring Strategies

Effective restructuring approaches include:

Pre-insolvency restructuring through debt rescheduling and covenant modifications
Specialized asset acquisition structures including Islamic finance arrangements
Asset Management Corporation of Nigeria (AMCON) interventions for non-performing loans

Insolvency Risk Mitigation

Key mitigation strategies for insolvency risks include:

Special purpose vehicle (SPV) structures isolating vessel ownership
Cross-collateralization arrangements leveraging multiple assets
Credit enhancement through third-party guarantees from international financial institutions

CONCLUSION

Successfully navigating ship financing in Nigeria requires sophisticated legal strategies and comprehensive risk mitigation measures. Key success factors include:

Regulatory Compliance: Meticulous planning and proactive engagement with multiple authorities
Documentation Expertise: Specialized knowledge of maritime financing documentation requirements
Enforcement Strategy: Strategic consideration of procedural nuances and cross-border implications
Currency Risk Management: Structural protections and contractual safeguards against exchange fluctuations
Insolvency Planning: Advanced restructuring preparation and bankruptcy remote structures

For stakeholders in Nigeria’s maritime sector, success depends on comprehensive risk assessment, informed strategy formulation, and adaptive implementation. By anticipating common pitfalls and developing targeted solutions, parties can effectively navigate the complex waters of ship financing in Nigeria.