1. INTRODUCTION
A Company is a legal entity by incorporation. In law, an entity could either be a natural or artificial person. A company is an artificial person at incorporation with the Corporate Affairs Commission (CAC) according to the provisions of the Companies and Allied Matters Act, 2020. Companies are incorporated for various reasons which may include profit-making for investors and shareholders by way of dividends.
A human being, known as a natural person in law, can fall sick, suffer an accident or be prone to disaster and will eventually die. This is also true of an artificial person like a company. A company can be sick, can suffer an accident, can be in coma and if not properly taken care of ‘can die’. Reason for the death of a company could include non-profitability, bankruptcy or expiration of its purpose amongst others.
This paper purports to examine the legal process by which a Company can die, in legal terms, it is known as ‘winding up’. As earlier stated, just as inadequate care and attention of a natural person can lead to the person’s death, the same equally applies to a company. It is for this reason that we shall be examining the various types of winding up processes and how CAC conducts the same in ‘killing a company’.
2. LEGAL FRAMEWORK FOR WINDING UP OF A COMPANY
The Laws relating to the procedure of Winding up of companies in Nigeria are succinctly discussed below:
- Companies and Allied Matters Act, 2020
- Federal High court (Civil Procedure) Rules 2019
- Federal High court (Amendment) Act, 2005
- Companies Proceeding Rules
- Companies’ regulation 2021
- Companies winding up Rules
- Investment and Securities Act
- Insolvency regulation 2022, etc
3. WINDING UP OF COMPANY
Winding up is among the prominent mechanisms for enforcement of proprietary security, and realization of debt in Nigeria[1]. Winding up means a company can no longer carry on business and chooses to put an end to an already registered business. During winding up, a company will close its operation, by putting its assets up for sale to interested purchasers, in order to offset their liability and/or debt, and then if there is any surplus, the same would be shared amongst the company’s shareholders according to their shares percentage in the company. This can be effected by the court, or voluntarily, or subject to the supervision of the court[2], depending on the circumstances. It is essential to note that winding up is a legal process guided by law to ensure fairness and transparency. The government agency in charge of the winding-up process is the Corporate Affairs Commission (CAC).
4. PROCEDURE FOR WINDING UP OF COMPANIES UNDER THE CAMA
By Section 564 (1) of the CAMA, there are 3 modes by which the winding up of a company may be carried out;
- By the court;
- Voluntarily; or
- Subject to the supervision of the court.
- Winding-up by the Court
Winding up by court[3] otherwise known as ‘Compulsory winding up’ refers to circumstances where an application is brought by way of petition by any person entitled to present a winding up petition. Section 570 of the CAMA, confers jurisdiction on the Federal High Court to wind up a company in certain circumstances which includes: Special resolution[4]; inability to pay its debt[5] (as defined under section 572 of CAMA); where the number of the members of the company reduced below 2 in the case of companies with more than one shareholder[6]; failure to hold statutory meeting; or delivering of statutory report and where in the opinion of the court, it is just and equitable that the company should be wound-up[7].
The application shall be made by petition to the court for the winding up of the company together or separately by[8]:
- The company or a director[9]
- A creditor (including their trustees or personal representatives)[10]
- An official receiver[11]
- A contributory (including their trustees or personal representatives)[12]
- A trustee in bankruptcy[13]
- The Corporate Affairs Commission[14]
- A receiver[15]
The petition is to contain a concise statement of the nature of the claim made and the relief sought and attached to the petition is an affidavit of non-multiplicity of action on the same subject matter. The petition is to be served not less than 7 days before the day fixed for hearing of the petition.
This mode of winding up is deemed to commence at the time when the said winding up petition is presented to the court, however, this does not extend to situations where a resolution of the company has been passed for voluntary winding up. In such instances, winding up is deemed to have commenced upon the passing of the resolution.
Upon hearing the petition, the court may either dismiss it, adjourn the hearing conditionally or unconditionally[16] or make an interim order or any other order it deems fit. The court shall not refuse to make a winding up order on the sole ground that the assets of the company have been mortgaged to an amount equal to or above those assets or that the company has no assets
When a winding up order is made, a copy of the said order shall be forwarded by the company (or any other prescribed entity) to the Corporate Affairs Commission which shall make a minute of the winding up in its books which it maintains in relation to that company[17].
- Voluntary Winding up
This is a mode of winding up of a company which the company voluntarily imposes on itself. It is generally of two (2) types.
a. Members Voluntary winding up
b. Creditors’ Voluntary winding up
a. Members’ Voluntary winding up
The procedure for Members Voluntary winding up of a company is as follows:
i. Special Resolution: A special resolution is passed by the members at a general meeting[18], indicating their intent to wind up the company voluntarily; such resolution passed usually requires a 75% majority vote.
ii. Statutory Declaration of Solvency: A declaration of solvency must be made by the directors within 5 weeks, stating that the company can pay its debt in full within a specified time[19]. This declaration must accompany the special resolution.
iii. Appointment of Liquidator: Once the resolution and declaration are made, a liquidator is appointed by the members[20]. The liquidator is responsible for overseeing the winding-up process, realizing assets, and distributing proceeds. Only an accredited insolvency practitioner can be appointed as a liquidator.
iv. Publication in Two Newspapers: The special resolution appointing the liquidator will then be published in at least two national newspapers, which are circulating in areas where the company head is located.
v. Notifying the Corporate Affairs Commission (CAC): The Company must notify the Corporate Affairs Commission (CAC) within 14 days of passing the special resolution and filing the statutory declaration of solvency.
vi. Commencement of Liquidation: The liquidator will then commence the liquidation process[21] by first notifying the CAC of its appointment. The liquidator may also notify any other relevant agency where necessary. The liquidator may order the preparation of an interim account of the company.
vii. Realization & Distribution of Assets: The liquidator must ensure he/she realizes the company’s assets and may dispose of some assets if necessary. Since there are no creditors and the company is not indebted or it has paid its debt, the remaining assets realized must be distributed to members in accordance with the ratio of shares held by each of them.
viii. Final Account: The liquidator must ensure a final account is prepared upon the conclusion of the entire process and notify the commission appropriately[22].
ix. Final Meeting: The liquidator must hold a final meeting where he/she will brief the members of the company on his findings and furnish them with the account[23]. The liquidator must ensure the minutes of the final meeting are published in another two national newspapers[24] and notify the CAC before the exercise can be completed[25].
b. Creditors’ Voluntary Winding up
The procedure for creditors’ Voluntary winding up of a company is as follows:
i. Board Meeting: The directors convene a board meeting to assess the company’s financial situation and propose the winding-up resolution[26].
ii. Creditors’ Meeting: A meeting is convened with creditors[27], and they are given the opportunity to appoint a liquidator of their choice[28].
iii. Notice to CAC and Publication: The Company must notify the CAC within 14 days of passing the winding-up resolution. Additionally, a notice of the resolution must be published in the official gazette and two national newspapers circulating in the district where the registered office or the principal place of business of the company is[29] located.
iv. Creditors’ Committee: In some cases, a creditors’ committee may be formed to work with the liquidator in overseeing the winding-up process.
Upon appointment of the liquidator, all the powers of the directors shall cease except there is a committee of inspection. See Adamu Gbedu v Joseph Itie and Ors.[30]
v. The process must follow the pattern for voluntary winding up except the fact that the creditor must follow a statutory hierarchy of payment in distributing the assets of the company before it is finally wound up.
vi. As soon as the affairs of the company are wound up, the liquidator shall prepare an account of the winding up to be laid before and approved by the final meeting.
vii. The liquidator shall within seven (7) days of the meeting send a copy of the account and return holding of the meeting to the Corporate Affairs Commission.
viii. The company is deemed to be dissolved after three (3) months of the registration of the accounts and return to the Corporate Affairs Commission.
3. Subject to the supervision of the court
This occurs when the company passes a resolution to voluntarily wind up itself and petitions the court to supervise the winding up process[31]. The processes involved in the voluntary winding up of a company shall also apply[32], except that the court shall have the liberty to appoint an additional liquidator[33].
Winding up subject to the supervision of the court shall not amount to winding up by the court and the provisions of the CAMA as listed in the twelfth schedule of the Act shall not apply.
Conclusion
The winding up process, also known as liquidation, is the legal process to dissolve a company by selling off its assets to pay its debts and distribute any surplus funds to shareholders. It is usually initiated when a company becomes insolvent and unable to pay its debts.
It can be an arduous process for all stakeholders involved. Secured creditors may not receive the full value owed, employees may lose their jobs, shareholders lose their investment, and company directors may be investigated for misconduct.
However, where companies do not also wish to be wound up alternatives like debt restructuring through recapitalization or voluntary administration may help avoid winding up. These allow the company to negotiate with creditors to restructure debts and continue operating.
REFERENCES
- C A Candide- Johnson & Alex-Adedipe, Debt Recovery; Corporate Solvency-Receivership Winding Up And Other Arrangement In O Olanipekun (Ed), Banking: Theory, Regulation, Law And Practice (Lagos: AU Courant 2016)431,447.
- S.564(1) CAMA 2020
- S.570 CAMA
- S.571 (a) CAMA
- S.571 (b) CAMA
- S.571 (c) CAMA
- S.571(f) CAMA
- S.573(1) CAMA
- S. 573(1)(a) CAMA
- S. 573(1)(b) CAMA
- S. 573(1)(c) CAMA
- S. 573(1)(d) CAMA
- S. 573(1)(e) CAMA
- S. 573(1)(f) CAMA
- S. 573(1)(g) CAMA
- S. 574(1) CAMA
- S. 579 CAMA
- S. 621(1) CAMA
- S. 625(1) CAMA
- S. 627(1) CAMA
- S. 630(1) CAMA
- S. 631(1) CAMA
- S. 631(2) CAMA
- S. 631(4) CAMA
- S. 631(3) CAMA
- S. 635 CAMA
- S. 636(1) CAMA
- S. 635(1) CAMA
- S. 635(2) CAMA
- (2020) 3 NWLR (pt. 1710) 104
- S. 652 CAMA
- S.65 CAMA
- S. 645 CAMA
[1] C A Candide- Johnson & Alex-Adedipe, debt recovery; corporate solvency-receivership winding up and other arrangement in O olanipekun (ed), Banking: Theory, Regulation, Law and practice (Lagos: AU Courant 2016)431,447.
[2] S.564(1) CAMA
[3] S.570 CAMA
[4] S.571 (a) CAMA
[5] S.571 (b) CAMA
[6] S.571 (c) CAMA
[7] S.571(f) CAMA
[8] S.573(1) CAMA
[9] S. 573(1)(a) CAMA
[10] S. 573(1)(b) CAMA
[11] S. 573(1)(c) CAMA
[12] S. 573(1)(d) CAMA
[13] S. 573(1)(e) CAMA
[14] S. 573(1)(f) CAMA
[15] S. 573(1)(g) CAMA
[16] S. 574(1) CAMA
[17] S. 579 CAMA
[18] S. 621(1) CAMA
[19] S. 625(1) CAMA
[20] S. 627(1) CAMA
[21] S. 630(1) CAMA
[22] S. 631(1) CAMA
[23] S. 631(2) CAMA
[24] S. 631(4) CAMA
[25] S. 631(3) CAMA
[26] S. 635 CAMA
[27] S. 636(1) CAMA
[28] S. 635(1) CAMA
[29] S. 635(2) CAMA
[30] (2020) 3 NWLR (pt. 1710) 104
[31] S. 652 CAMA
[32] S.65 CAMA
[33] S. 645 CAMA