Berkeley Legal | The Practice of Upstamping in Nigeria
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18 Aug The Practice of Upstamping in Nigeria


Under Nigerian law and in particular debt financing, security is typically created in favour of a lender by the use of varying security documents inter alia mortgages, share charges, debentures.

In order to perfect the aforementioned security documents, same are required to be stamped at the stamp duties office and subsequently registered at the Corporate Affairs Commission (CAC).  It is a statutory obligation under the Stamp Duties Act (s.23) to stamp any instrument which purports to transfer a proprietary interest in an asset.

In addition to the foregoing, any charge created by a company shall be void against the liquidator and any creditor of a company unless duly registered with the CAC within ninety (90) days of creation.


There is no provision under Nigerian law (i.e. Stamp Duty Act or the Companies and Allied Matters Act (CAMA) that provides that a security document that secures a credit facility must be stamped and registered for the exact amount disbursed to a company or person. However, where a security document is stamped for an amount lower than the facility amount, a lender will only be permitted to prove for and realize the security for the secured amount i.e. the amount for which a lender has stamped and registered its security.

CAMA acknowledges the right of parties to commercially structure their transactions such that the security documents can be stamped for an initial amount and then subsequently up stamped for an additional amount. The foregoing scenario is known as upstamping and is commonly practiced in Nigeria to mitigate against the payment of high stamp duty.

Section 202 of CAMA provides that any additional amount to which a security document is up stamped will be valid and acceptable to the extent of such increased amount. As stated above, a lender would only be enabled to prove and realize the security for the entire facility amount or a higher amount only when additional stamp duty has been paid on the security document to cover the entire facility amount or the higher amount being sought to be recouped.

Risk to a lender in enforcing security

A potential risk to a lender prior to the security document being up stamped for the full facility amount is that there may be 3rd party interests (under any other 3rd party security) which may have emerged. It is not uncommon that this can occur which may give rise to issues surrounding priority of security where another creditor has procured an intervening proprietary interest.

An example of this may be where prior to upstamping, another creditor (2nd creditor) grants a facility to a borrower and perfects its security interest over the same assets of the borrower that form the subject matter of the other lender’s security. In this instance, the 2nd creditor will rank ahead of the other lender’s interest as it relates to the subsequent up stamped additional amount. However, the lenders will still have priority for the original amounts to which the security was perfected.

Upstamping and Insolvency of a Borrower

Another risk to a lender is that any upstamping agreement may be viewed as a “fraudulent preference” in the event of insolvency of the borrower in accordance with Section 495 (1) of CAMA which provides:

“any conveyance, mortgage, delivery of goods, payment, execution or other act relating to property which would, if made or done by or against individual, be deemed in his bankruptcy a fraudulent preference, shall, if made or done by or against a company, be deemed, in the event of it being wound up, a fraudulent preference of its creditors, and be invalid accordingly”

This is known as the “hardening period” rule and effectively means that any additional/upstamped security interest would be void against the liquidator of the borrower and allow the liquidator either recover any such payments or cancel such acts.

The English courts, in construing English provisions similar to the aforesaid sections of CAMA and the Bankruptcy Act, have held that the determination of whether a preference is fraudulent or not is based on the motive behind such preference. Thus where the substantial and dominant motive of the insolvent company, acting through its directors, is to prefer certain creditors to the detriment of others, Nigerian courts relying on English authorities and the approach adopted by English courts, would deem such a preference as a fraudulent preference and thus render such obligations unenforceable against a liquidator.

It is important to note that motive, being a question of fact, sufficient evidence would be required to establish it and this will be dependent on the facts and circumstances of each particular case. There is no Nigerian decision on the point, however it is likely that Nigerian courts will follow the English decisions under similar circumstances/applicable laws and deem such a preference not to be a fraudulent preference.

Mitigation of risk in respect of Upstamping

Where parties adopt and upstamping regime, the risks enumerated above can be mitigated in the following ways including but not limited to:

  • the establishment of an upstamping regime in the facility documentation such that it is clear that the obligation arises at the time of granting of the facility to a borrower a the lender;

  • Use of a negative pledge clause which restricts a borrower from creating any additional security over its assets;
  • Utilizing automatic crystallization provisions in the security documents for a floating charge to crystallize into a fixed charge when a borrower attempts to create subsequent third party security during the security period.

  • Obtaining upfront, all documentation required for up stamping so that a lender can up stamp the security documents upon the occurrence of an up stamping event without recourse to a borrower.


Whilst we note that Upstamping is a practice that is commonly being utilized by parties to financing transaction it is germane to attenuate the risk associated with such practice as highlighted above. It is also essential that any lender is advised of such risks and safeguards are put in place to ensure that such risks do not materialize. Our Firm has the requisite expertise and experience in handling financing deals and is able to advise further on debt financing, loan documentation, security documentation and perfection.

The content of this document is solely for information purposes only and should not in any way be construed as a legal opinion. If you require specific legal advice on any of the matters covered in this article please contact