KAEDC: The Principles of Corporate Corporate Insolvency Through the Lens of KAEDC

As an alternative to a share sale or the search for a replacement core investor, ( See Paragraph 29(c), NERC Order No. NERC/2026/086 (Order on the Transition Management of Kaduna Electricity Distribution Plc), NERC could instead pursue a statutory sale or transfer of the undertaking as a going-concern business, structured to preserve the operating enterprise while isolating KAEDC’s legacy liabilities. The transaction could be implemented through an accelerated resolution process, with proceeds flowing into KAEDC’s liquidation estate.

Under this structure, commercial lenders would be subject to the applicable insolvency waterfall, while statutory and market obligations owed to entities such as NBET and NiSO would be accorded priority to the extent permitted or required by applicable law. We believe such priority is justified because market obligations are integral to the continued functioning of the electricity market. Additionally, prioritising commercial lenders over critical market counterparties could trigger systemic defaults among Generation Companies, with potentially serious consequences for the stability of the national grid.

A going-concern transfer into a clean vehicle would provide incoming investors with a clean slate. This opportunity could equally be seized by the Kaduna State Government, operating through a state-backed vehicle.

Rationale for Going-Concern Business Transfer

1. Enterprise Value vs. Corporate Shell: A fundamental objective of corporate insolvency and restructuring is to preserve enterprise value where possible, rather than allowing value to be destroyed by an unsustainable capital structure. While electricity distribution across Kaduna is an essential public service, operational continuity does not necessarily require preservation of the particular corporate entity currently delivering it.

2. Going-Concern Business Transfer: The transfer can be structured on a pre-agreed basis, with an independently determined valuation, appropriate creditor protections and a transparent, competitive process, allowing the operating business to transfer to a clean vehicle immediately upon completion of the resolution. The business could be transferred directly to a private investor or, where necessary, to an interim bridge vehicle such as MOFI to warehouse the business pending the assumption of long-term ownership by a private investor or state-backed entity. The transaction could permit bidders to propose the assumption of specified liabilities as part of their consideration, subject to NERC approval and the applicable statutory framework.

3. Eradicating Moral Hazard: Repeated restructurings in Nigeria’s power sector can create a moral-hazard problem if commercial lenders reasonably expect that the Federal Government will ultimately prevent the failure of a utility. Requiring lenders to bear an explicit portion of restructuring losses, subject to the applicable statutory waterfall, would restore greater credit discipline to utility lending.

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