The repayment date came and went.
There was no transfer, no receipt, no explanation. Nothing. Just silence.
The lender; Unlimited Protection Bank, with furiousness, sent a strong worded email to the security trustee with the statement:
“Enforce the debenture agreement now and protect our money!”
Also Read: You Don’t Need Land to Get That Bank Loan
On paper, everything looked secure. There was already a security trust deed and even a debenture agreement.
But as the trustee was about to apply for enforcement, one harsh reality came to light:
The borrower had walked away with the money, leaving the lender stranded and the trustee’s credibility at risk.
How did this happen?
The answer lies in what wasn’t done.
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The One Safeguard People Usually Miss
In Nigeria’s corporate finance space, there’s an assumption that a few signed documents are enough to protect a trustee.
But if you ask any seasoned business lawyer, they’ll tell you: documents without due diligence are like umbrellas full of holes.
In this case, the security trustee had failed to:
- Conduct physical and online company searches at the Corporate Affairs Commission (CAC).
- Verify if the borrower already had existing charges on its assets.
- Ensure the debenture was properly registered and perfected.
And what was the result?
After the borrower took off, multiple creditors/lenders were already ahead on the queue for loan repayment. The trustee being the last on the queue had no chance of getting the loan repaid or enforcing the agreement.
The Secret Barrier Security Trustees Keep Meeting
Every security trustee knows the pressure which is to:
Protect the lender.
Secure the loan facility.
Step in if the borrower defaults in paying back the loan.
But here’s the secret barrier: weak documentation usually turns trustees into the scapegoats.
When things go wrong, the lender (bank) doesn’t sue the borrower first but turns to the trustee. After all, trustees exist to “hold” security and enforce it. Security in this instance are the properties held in trust pending the time the borrower repays the loan.
And if the trustee failed to secure that position with airtight documents and registration, the consequences can be disastrous.
The Borrower’s Tool For Deception
Here’s the part most trustees don’t see coming.
Borrowers especially repeat financial players know the loopholes.
They know when a trustee hasn’t checked if an All Asset Debenture is already pledged to another bank.
They know when a security deed wasn’t lodged at the Corporate Affairs Commission (CAC).
And they exploit it.
In this case, the borrower kept quiet, secured multiple loan facilities using the same company assets, and vanished.
The trustee was merely holding on to paper while the borrower had vanished with the money.
The Legal Structure Trustees Can’t Afford to Miss
Under the Companies and Allied Matters Act (CAMA) 2020 which is the law guiding corporate matters in Nigeria, it provides that trustees must ensure:
- Charges and debentures are properly created, filed, and registered at CAC.
- Priority ranking is established for who gets paid first if default happens in the case of two or more lenders.
- Insurance-backed security is validly assigned (NIIRA 2025 now makes this a critical tool).
- Debenture Agreements are airtight, with the necessary clauses defining exactly what brings about enforcement such as event of default.
If as a trustee you skip any of these, you may be left holding on to an empty bag.
Inside the Disastrous Scenario
When the borrower failed to repay the loan, the bank asked the trustee to appoint a receiver.
But first, the court asked the trustees one question:
“Where is your perfected registration proving priority over the other debenture agreements?”
The silence was deafening. Another creditor had already registered a prior debenture. The trustee was second in line. It was there it dawned on them that they were in serious trouble.
The bank’s funds was gone.
And the borrower? Unreachable.
What then happened at the end?
The trustee suffered from lawsuits and reputational damage all alonea.
What Every Security Trustee Must Learn
As a trustee, here’s how to never end up in that horrible position:
- Do the Searches: Always run both online and physical CAC searches. This will help you spot red flags early.
- Perfect Every Document: Always register Debentures at CAC. Without perfection, they’re just paper.
- Check for Prior Charges: Ensure your lender is first in line, not competing with hidden creditors that may now surface when it’s time for enforcement of the security agreement.
- Use Protective Clauses: Indemnities, priority clauses, and insurance assignments are what will always protect you. Ensure they are included in your security documents.
- Monitor Continuously: Registration isn’t enough. Ensure to always track ongoing changes in the borrower’s company filings.
The Growth of Risk vs. The Role of Trustees
The truth is that Borrowers will always chase funding and Lenders will always demand for protection.
But when things go wrong, it is the trustees that bear the direct and personal legal liability losing years of credibility in just few days..
Don’t Be the Weak Link
If you’re a security trustee, here’s the real truth:
- Your job isn’t just holding documents.
- It’s ensuring those documents can survive default in loan repayment, dispute, and court scrutiny.
The borrower may vanish. The lender may panic.
But if your paperwork and due diligence are watertight, you will be able to stand strong.
Because in today’s Nigerian finance market, trustees don’t just “hold security” they are “the security”.
Lesson: Borrowers don’t only know and recognise loopholes. They exploit loopholes. Lenders enjoy the protection. But Trustees? They’re the risk carriers.
The only protection you can have as a trustee is Proper documentation and rigorous due diligence.
Your Business Legal Partner
At Charis Legal Practice, we’ve helped many Trustees like you secure airtight security documents that protect the sensitive responsibility of a trustee.
To get started, you can schedule a legal consultation session here to discuss how we can become your legal partner ensuring your reputation is protected and your documents; enforceable now and in the future.
If you have any questions, you can type them in the comments section below. We’d be happy to answer them. Happy reading!
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