Last week, we considered the actions required of the current Board of Directors of Union Bank of Nigeria Plc – UBN, following on the judgement of the Investments and Securities Tribunal, IST, in respect of an originating application, case no IST/LA/OA/20/2010, brought by the Securities and Exchange Commission against UBN and 19 others.

The current UBN Board was asked to commence an action for the recovery of the sum of N30.47billion and any interest paid on this sum from the persons who were UBN Directors at the relevant times and who are legally liable for the misapplication of the sum in the purchase/acquisition of 609,852,000 units of UBN shares.

The group of persons who were shareholders of UBN at the time of the Court-Ordered Meeting, COM, on 30 September 2011 should also consider what action they should take. A suit for the recovery of misapplied funds as stated above would be for the benefit of pre-COM shareholders of UBN.

The 2011 Annual Report indicates that UBN was capitalized by N78.35billion by Union Global Partners Limited and Assets Management Corporation of Nigeria, AMCON, subsequent to the COM. If the sum of N30.47billion had not been misapplied and if the sum of N80.838billion had not been introduced into the balance sheet of UBN as Retirement Benefits Obligations, the investment required to recapitalise UBN would not have been up to N78.35billion.

The significance of the amount placed against retirement benefits obligations is that it is simply based on actuarial computations of what would be required if the obligations had to be paid as at the reporting date, the amount has not been expensed. For the 2012 UBN Report, the obligations are put at less than N50billion.

The pre-COM shareholders should not be surprised if the current UBN Board does not start an action for the recovery of misapplied funds. In the first place, the current UBN Board may not want the pre-COM shareholders to have the benefit of additional shares from the recovered funds.

Also, although UBN has identified three directors as being responsible for the transactions leading to the share purchase and for the share purchase, the courts could adopt the position that all the directors at the time of the share purchase have liability for the share purchase.

The current UBN Board may not want to put to another test the directors who share a common position with UBN at the IST. What all of the above lead to is that the pre-COM shareholders of UBN should prepare themselves towards bringing the action for the recovery of the misapplied funds.

The Central Bank of Nigeria, CBN, and AMCON have a role to play in the restoration of the rights of pre-COM shareholders of UBN. The CBN and AMCON have maintained that their role is to repair the balance sheets of the weak banks, that is, banks that were overburdened with non-performing loans.

In the repair process, the shareholders’ funds in these weak banks were wiped out and the shareholders were left with next to nothing of their investments. The Banks and other Financial Institutions Act, BOFIA, provides under Duties of Banks, Sections 16 to 20, for the procedures to be adhered to in the grant of advances and loans by banks. In the situation in which these procedures have not been followed and the loans and advances have to be recovered following on CBN intervention, recovery is usually by criminal prosecution as indicated by BOFIA.

However, criminal prosecution of bank directors and officials have not gone far because anyone facing a criminal charge can ask for the charge to be quashed. If the request to quash the charge is not granted, the person charged can appeal against the decision of the court and the prosecution of the charge is halted until the appeal process is completed.

The CBN and AMCON should therefore consider using civil recovery processes based on the discovery of contraventions of the Companies and Allied Matters Act, CAMA, especially Section 282 subsections 1 and 2 as well as Section 283 subsection 1. The CBN and AMCON, a shareholder of UBN, should therefore encourage the current UBN Board to commence a civil action for the recovery of the misapplied funds.

There have been discussions lately on what should be the moral standard applied to the banks by the CBN and AMCON. AMCON Managing Director was interviewed during an hour long Radio Nigeria Programme on Saturday 27 April 2013. The CBN and AMCON should realise that, given the manner in which shareholders’ funds have been wiped out in the banks in which CBN intervened, the bank directors would believe that shareholders’ funds could be mismanaged so long as the CBN is satisfied that depositors’ funds are not at risk. This is the moral climate in which the business of the banks is being conducted.

……TO BE CONCLUDED NEXT WEEK