Debt recovery procedures are the legal ways an individual or organisation can recover debts or unpaid invoices. Most debt recovery cases in Nigeria arise from unpaid invoices or breaches of commercial agreements.
While there are different debt recovery procedures in Nigeria, not all of them are lawful. For instance, resorting to self-help or involving law enforcement agencies usually has long-term negative consequences. Some procedures are also slow and cumbersome and achieve little or no result.
Different types of debt require different approaches. The debt recovery procedure suitable in any situation depends on the parties involved, the amount or value of the debt, the type of debt and other relevant factors.
In this article, we explain how to recover a debt in Nigeria and share a few tips for effective debt recovery. We explain the different types of debt and the debt recovery procedure that best suits each one. We also cover how banks and foreign companies recover debts, how judgements are enforced and how a debtor's assets are traced.
Debt recovery procedures and practices in Nigeria
Debt recovery procedures are dispute resolution mechanisms that can be used to resolve a debt recovery dispute. In other words, where money is due to you, whether under a transaction or as repayment of a loan or investment with interest, and the other party has either refused to pay or denies that it owes you, a dispute has arisen that must be resolved through legal means.
Methods of recovering debts in Nigeria
A debt can be recovered in Nigeria through any of the following methods.
Negotiation
Negotiation is an informal, non-adversarial way to recover a debt. It involves engaging with the debtor and discussing how the debt will be paid. In most cases, negotiation leads to some form of compromise, such as a payment plan, partial forgiveness of the debt, or an exchange of services for money. The main aim of negotiation is an amicable settlement. Negotiation works where the debtor does not dispute the debt and is willing to pay.
One advantage is that it saves time and cost, because both parties want to reach an amicable resolution.
The disadvantage is that negotiation may fail or be unnecessarily prolonged by the debtor. Also, if the debtor fails to honour the agreement, the dispute remains unresolved and another debt recovery procedure will be needed. For this reason, any settlement should be put in writing. See our mediation and ADR service.
Mediation
Mediation is a more formal way of recovering a debt. Like negotiation, it is non-adversarial, but it is presided over by a trained neutral third party, the mediator, whose job is to guide the sessions. The mediator does not make decisions for the parties; he or she only guides, directs and moderates the sessions. The parties air their grievances and try to reach an agreement. If they cannot agree, the mediation is closed and the parties must find another way to resolve the dispute. In other words, mediation is a structured negotiation.
If the parties reach an agreement, its terms are put in writing and signed by both parties. If there is a breach, the agreement can be enforced through the court, for example, where it has been filed in court as a consent judgement.
One benefit of mediation is that it allows the parties to discuss the dispute openly and reach a settlement. One disadvantage is that each party usually bears its own costs. It is also difficult to obtain damages, interest or other compensation for the other party's breach. And because mediation is voluntary, it can end up being a futile effort.
Like negotiation, mediation is best suited to cases where the debtor does not dispute the debt or the amount owed and is willing and able to pay but needs an extra push. It is less suitable if you also intend to claim interest, costs or damages.
Arbitration
Arbitration is a formal and technical debt recovery procedure. The parties submit the dispute to a tribunal, usually of one to three arbitrators. The arbitrators are usually highly skilled professionals who preside over the proceedings. At the end of the arbitration, the tribunal issues an award, which is binding and can be enforced like a court judgement.
In most cases, arbitration is used because the contract between the parties requires disputes to be resolved by arbitration. Highly technical matters that need the expertise of a specialist arbitrator are also often referred to arbitration, as are disputes involving cross-border parties or transactions. Arbitration in Nigeria is governed by the Arbitration and Mediation Act 2023. See our arbitration service.
One drawback of arbitration is that it can be expensive. It is best used where the value of the debt is high and the matter needs a highly qualified expert because of its complexity. Arbitration is usually not the right choice where the debt is small or where the debtor does not dispute the debt and is willing to pay.
Litigation
Litigation is the most formal way of resolving disputes. It involves filing a claim in court and having a judge decide the dispute, usually on the basis of the documents and evidence presented. Litigation is a very effective debt recovery procedure in Nigeria.
In Lagos State, a debt of up to ₦5 million can be recovered through the Small Claims Court procedure. A fixed or undisputed debt can also be recovered quickly through the undefended list procedure (in courts such as the High Court of the Federal Capital Territory) or the summary judgement procedure (in the High Court of Lagos State). Other claims are commenced by writ of summons, originating summons or other originating processes.
The right procedure depends on the value of the debt, the nature of the contract, the parties involved and whether or not the debtor disputes the debt. See our commercial litigation and breach of contract claims services.
Types of debts recoverable in Nigeria
Secured debt
A secured debt is a debt backed by an asset. An example is a loan agreement in which the borrower agrees that, if he fails to repay the loan, the asset can be sold to repay it. Debtors commonly secure loans with fixed assets such as land, buildings, plant or machinery. In other cases, a loan may be backed by a negotiable instrument or a post-dated cheque.
Unsecured debt
An unsecured debt is a loan that is not backed by collateral. The loan is granted simply on trust that the borrower will repay it on the due date.
Guaranteed debt
A guaranteed debt arises where a third party, the guarantor, promises to pay the debt of another if that person defaults. Banks and lenders commonly use guarantees to secure their loans in part. The advantage is that, if the debtor fails to pay, you can pursue the guarantor and recover the debt from them.
Please note that debts do not arise only from loans or lending transactions. A debt can also arise from a breach of contract. For example, in a contract for the purchase of goods or services, one party may have performed all or part of its obligations while the other has not. The debtor may be the party who failed to deliver goods or services that were paid for, or the party who failed to pay for goods or services that were delivered.
In such cases, the debt is a money claim that one party to the transaction is seeking to recover. Asking the other party to perform an obligation other than the payment of money is not debt recovery. For example, if you paid someone to deliver goods and they refused to deliver, a debt recovery situation only arises if you ask them to refund the money you paid. If you are demanding that they deliver the goods, that is not debt recovery.
When does an obligation become a debt?
An obligation must meet several requirements to be classified as a debt: it must be a fixed, set or liquidated sum of money; its due date must have passed; and it usually arises from an agreement between the parties, called the debtor and the creditor.
Recovery is the action or process of regaining possession or control of something lost.
Debt recovery is therefore the process of compelling individuals or companies to pay the amounts they owe to their creditors.
How to recover a debt in Nigeria: step-by-step
Debt recovery lawyers in Nigeria use a number of legal options to recover debts from companies and individuals. However, there is a time limit for recovering a debt. Under the Limitation Law of Lagos State and the limitation laws of the Federal Capital Territory and most other states, an action to recover a debt arising from a simple contract must be brought within six (6) years. Time generally runs from the date the cause of action arose, which is usually the date payment fell due and was not made.
These are the usual steps taken to recover a debt from an individual or business in Nigeria:
Make an effort to reach a mutually agreeable resolution with the debtor and obtain payment.
Seek legal advice from a lawyer, and bring supporting documents to the meeting, such as invoices, delivery notes, contracts, letters, emails and memos.
The lawyer or law firm reviews and assesses the claim and the evidence.
A letter of demand is sent to the debtor, stating the amount due (including any interest that has accrued), the person on whose behalf the debt is being recovered, and other relevant information.
If the debtor does not pay, the lawyer files a claim in court, using the undefended list procedure or the summary judgement procedure where available. These are two fast-track court procedures for debt recovery. Other procedures provided for under various statutes may also be used.
The appropriate court depends on the amount of the debt, the location of the debtor and where the transaction took place. In Nigeria, a debt recovery claim may be brought before the Federal High Court, a State High Court or a Magistrates' Court.
Debt recovery for banks and lenders
Commercial banks, microfinance banks, finance companies and other lenders have additional tools for recovering non-performing loans, most of which depend on how well the loan was documented and secured at the start.
Realising security. Where a loan is secured by a mortgage, the lender may exercise its power of sale over the property, subject to the notice requirements in the mortgage and applicable law. Where it is secured by a debenture, the lender may appoint a receiver to take over and sell the charged assets.
Calling on guarantees. Personal and corporate guarantees allow the lender to pursue the guarantor once the borrower defaults and a proper demand has been made.
Registered security. Charges should be registered with the Corporate Affairs Commission and, for movable assets, with the National Collateral Registry under the Secured Transactions in Movable Assets Act 2017. Unregistered security can be lost against other creditors.
Global Standing Instruction (GSI). Under the Central Bank of Nigeria's GSI framework, a lender can recover a defaulted loan from the borrower's accounts in other Nigerian banks where the borrower signed a GSI mandate when the loan was granted.
Credit reporting. Defaults are reported to licensed credit bureaux, which affects the borrower's ability to borrow elsewhere and often prompts payment.
Court action and insolvency. Fast-track court procedures, garnishee proceedings and winding-up petitions are available to lenders as to any other creditor.
Restructuring. Where the borrower's business is viable, a negotiated restructuring often recovers more than enforcement. See our debt restructuring and workouts service.
Lenders must recover debts lawfully. Consumer and digital lenders in particular must comply with Federal Competition and Consumer Protection Commission (FCCPC) rules, which prohibit harassment and debt shaming.
Enforcing a judgment debt in Nigeria
A judgment is only valuable if it is paid. If the debtor does not pay after judgment, the creditor can enforce it under the Sheriffs and Civil Process Act and the rules of the court:
Writ of attachment and sale (fieri facias). The court's sheriffs seize and sell the debtor's movable property, and in some cases land, to satisfy the judgment.
Garnishee proceedings. The court orders a bank or other third party holding money for the debtor to pay it to the creditor instead. A garnishee order can be served on several banks at once and the banks are obligated to disclose information regarding the debtor's account and available balance. Where the money is held by a government body, the consent of the relevant Attorney-General is usually required.
Charging orders. A charge or a lien is placed on the debtor's land, shares or other assets until the judgment is paid.
Judgment debtor summons. The debtor is summoned to court to be examined about their means and ordered to pay, including by instalments.
Winding-up. A company that cannot pay its debts can be wound up. The threat of a winding-up petition often leads to payment.
Post-judgment interest is also usually awarded, which increases the debtor's incentive to pay.
Asset tracing
Before suing a debtor, and again before enforcing a judgment, it is important to know what the debtor owns and where it is situated. A judgment against a debtor with no reachable assets achieves little. Asset tracing in Nigeria commonly involves:
Corporate searches at the Corporate Affairs Commission to confirm the debtor company's status, directors, shareholders and registered charges.
Land registry searches to identify land and buildings registered in the debtor's name.
National Collateral Registry searches to identify movable assets and existing security interests.
Court searches to find other claims and judgments against the debtor.
Bank accounts, located through garnishee proceedings served on several banks at once after judgment.
Investigations and open-source research, including the debtor's business premises, vehicles, contracts and receivables.
Where there is a real risk that the debtor will move or hide assets before judgment, the court can grant a freezing (Mareva) injunction to preserve them.
Debt recovery for foreign companies and creditors
Foreign companies and individuals can recover debts in Nigeria in the same way as Nigerian creditors. A foreign creditor may:
Sue in Nigeria on the contract, invoices or other evidence of the debt.
Enforce a foreign judgment. A judgment from a country with reciprocal arrangements with Nigeria, including the United Kingdom, can be registered and enforced in Nigeria within strict time limits. Judgments from other countries can be relied on in a fresh action in Nigeria.
Enforce an arbitral award. Nigeria is a party to the New York Convention, so international arbitral awards can be recognised and enforced by the Nigerian courts under the Arbitration and Mediation Act 2023.
How foreign creditors with no presence in Nigeria can recover debts safely
A foreign company does not need an office, subsidiary or employees in Nigeria to recover a debt here. The claim can be run entirely through a Nigerian law firm, with instructions given by email and video call. To do this safely:
Instruct a Nigerian law firm directly. Only lawyers enrolled at the Supreme Court of Nigeria can conduct cases in Nigerian courts. Ask for the lawyers' names and check their enrolment and Nigerian Bar Association membership.
Agree terms in writing. Insist on a written engagement letter setting out the scope of work, fees and how recovered money will be handled.
Pay only into the firm's corporate account. Never pay fees into a personal account, and be wary of anyone who asks for an upfront "release fee" to recover money owed to you.
Ask for proof of progress. You should receive copies of the letter of demand, filed court processes, hearing dates and court orders.
Prepare documents properly. Contracts, invoices, statements of account and correspondence are needed. Some documents signed abroad, such as a power of attorney or sworn statements, may need to be notarised and, where required, legalised. Your lawyer will tell you which.
Plan for costs. A claimant based outside Nigeria may be asked by the court to provide security for the defendant's costs.
Agree how you will be paid. Recovered money should be paid into the firm's client account and remitted to you through the banking system with a full statement, in line with foreign exchange rules.
In most cases, a foreign creditor never needs to travel to Nigeria. Where evidence is required, witnesses can usually give written statements, and courts can in some cases take evidence remotely.
Frequently asked questions
What is the time limit for recovering a debt in Nigeria?
For debts arising from a simple contract, the claim must generally be brought within six years from the date the debt fell due, under the Limitation Law of Lagos State and the limitation laws of the Federal Capital Territory and most other states. A written acknowledgement of the debt or a part payment can restart the period, so take advice early.
Which court should I file a debt recovery claim in?
It depends on the amount, where the debtor is and where the transaction took place. Smaller claims go to the Magistrates' Courts or, in Lagos, the Small Claims Court. Most commercial debts are filed in a State High Court, and some claims, such as those involving federal government agencies, belong in the Federal High Court.
Can I recover interest and legal costs?
Interest can be claimed at the contractual rate if the contract provides for it, and courts also award interest after judgment. Legal costs are at the court's discretion, and contractual costs clauses can help. A letter of demand should always state the interest being claimed.
Can a foreign company recover a debt in Nigeria without an office in Nigeria?
Yes. A foreign company can sue in Nigeria, or enforce a foreign judgment or arbitral award, through a Nigerian law firm without having any presence in Nigeria. The claim is managed remotely, and recovered money is remitted through the banking system.
Can the police help me recover a debt?
No. Debt recovery is a civil matter, and Nigerian courts have repeatedly held that the police are not debt collectors. Using the police or threats to pressure a debtor can expose the creditor to a fundamental rights enforcement claim.
How long does debt recovery take in Nigeria?
Many debts are paid within weeks of a formal letter of demand. Fast-track court procedures such as the undefended list and summary judgment can produce a judgment within months, while contested cases take longer. Enforcement time depends on the debtor's assets.
Conclusion
Before considering legal action, a creditor must first make a formal demand for payment. If the agreement between the parties contains a mediation or arbitration clause, the parties are generally expected to follow that process first, and the court can stay court proceedings in favour of arbitration. It is also important to remember that debt recovery in Nigeria is subject to a six-year time limit under the limitation laws of Lagos State, the Federal Capital Territory and most other states.
If you are owed money in Nigeria, whether you are a business, a bank or a foreign creditor, our debt recovery lawyers in Nigeria can review your claim and advise on the fastest lawful route to payment.
