By Oyetola Muyiwa Atoyebi, SAN, FCIArb. (UK).

The existence of a company is said to have come to an end when the company is wound up and this is achieved through the process of winding up. There are numerous reasons why a company may decide to wind up. It may be that the purpose of establishing the company has been achieved. This is common with companies that are Special Purpose Vehicle (SPV), or the company is no longer a going concern, or a new government policy, or restructuring of the company.

All registered companies in Nigeria are clothed with a legal personality. This amongst others is the advantage of registering a company with the Corporate Affairs Commission (CAC). This legal personality simply means that, in the eyes of the law, such a company is seen as a human being. Therefore, it has the characteristics of humans. It can acquire and dispose of property, sue and be sued, enter into an agreement, birth new subsidiary companies and like humans, grow (expand), fall sick and recover from it, and finally die.

The existence of a company is said to have come to an end when the company is wound up and this is achieved through the process of winding up. There are numerous reasons why a company may decide to wind up. It may be that the purpose of establishing the company has been achieved. This is common with companies that are Special Purpose Vehicle (SPV), or the company is no longer a going concern, or a new government policy, or restructuring of the company, etc.

This article is aimed at explaining the modes of winding up of a company in Nigeria, in accordance with the provision of the Companies and Allied Matters Act (CAMA) 2020[1]

WHAT IS WINDING UP?

According to Black’s Law Dictionary, winding up is the process of settling accounts and liquidating assets in anticipation of a company’s dissolution[2]. It is the process where the lifespan of a company is brought to an end. According to CAMA, there are 3 modes in which the winding up of a company may be effected. They are:

Winding up by the Court. Voluntarily winding up. Winding up subject to the supervision of the Court. According to Section 570 of CAMA and section 251(e) of the 1999 Constitution of the Federal Republic of Nigeria, the Federal High Court in whose area of jurisdiction the registered address or head office of the company is located, is vested with the jurisdiction to wind up a company.

WINDING UP BY THE COURT

A company may be wound up by the Court in the following instances[3]:

If the company has by special resolution resolved that the company be wound up by the Court. Default is made in delivering the statutory report to the Commission or in holding the statutory meeting[4]. The number of members is reduced to below two in the case of companies with more than one shareholder. The company is unable to pay its debts. A company will be deemed to be unable to pay its debt if it is indebted to a creditor by assignment or otherwise, a sum exceeding ₦200, 000.00, after a request has been made by the creditor to the company requiring it to pay, or if execution or other process issued on a judgment, act or order of any Court in favour of a creditor of the returns unsatisfied in whole or in part, or if the Court, after taking into account any contingent or prospective liability of the company, is satisfied that the company is unable to pay its debts.[5] The condition precedent to the operation of the company has ceased to exist. The Court is of the opinion that it is just and equitable that the company should be wound up. A petition for winding up by the Court may be made by an application to the Court by a company director, a creditor, the official receiver, a contributory, a trustee in bankruptcy, or a personal representative of a contributory or creditor, the Corporate Affairs Commission (CAC), or a combination of any of the above-mentioned persons.[6]

After hearing the petition on winding up, the Court may dismiss the application, adjourn the hearing conditionally or unconditionally, or make any interim order that it deems fit to make in the circumstances.[7] In a case where the petition for winding up was brought pursuant to a default of holding a statutory meeting or delivering a statutory meeting report by a company, the Court may direct that the meeting be convened, or that the report be delivered, and order a cost to be paid by the persons who in the opinion of the Court, are responsible for the default.[8]

Once a winding up order has been made, a copy of the order is forwarded to the company immediately or to CAC, which shall make minutes in its books regarding the company.[9] A liquidator is appointed by the company to liquidate its assets. A winding up order is generally made in favour of the creditors or contributories of the company.[10]

VOLUNTARILY WINDING UP

A company may be wound up voluntarily in the following circumstances:[11]

Where the duration of the company by the article elapses, or the event if any, occurs, on the occurrence of which the articles provided that the company is to be dissolved, and the company general meeting has passed a resolution requiring the company to be wound up. If the company resolves by a special resolution that the company should be wound up. For a company to be wound up voluntarily, it must pass a resolution to that effect which will commence the winding up process.[12] Such resolution will be published in the Federal Gazette or two daily newspapers, and a notice is given to CAC.[13] If a default is made in the publication, the company and each officer of the company will be held liable to sum as may be specified by CAC.[14] Upon commencement of voluntary winding up, the company shall cease to carry on its business except for business meant for the beneficial winding up and all shares, alteration of the status of the members made after the commencement of the winding up which is not made with the sanction of the liquidator shall be void.[15]

When a voluntary winding up is proposed, the directors of the company shall within 5 weeks before the date of passing of the resolution for winding up, at a general meeting, make a statutory declaration of solvency to the effect that they have made a full inquiry into the affairs of the company, and have formed the opinion that the company will be to pay its debts in full, with a period not exceeding 12 months from the date of the commencement of the winding up. This statutory declaration and resolution will be delivered to CAC within 15 days of passing the resolution.[16] Thereafter, a liquidator will be appointed to wind up the affairs of the company

WINDING UP SUBJECT TO THE SUPERVISION OF THE COURT

According to the provision of Section 649 of CAMA, the Court may make an order for the voluntary winding up of a company to be supervised by the Court, on the terms and conditions as the Court may deem fit and with such liberty for creditors, contributories. When this order is made, the Court may by the same or a subsequent order, appoint an additional liquidator[17] who shall have the same powers, be subjected to the same obligations, and stand in the same position as if he had been duly appointed as in the case of appointment of a liquidator in a voluntary winding up.[18] The Court may also remove such liquidator and fill the vacancy created by such removal, death, or resignation.[19] When appointed, the liquidator is expected to, within 14 days, publish in the Federal Gazette or in two daily newspapers and notify CAC of his appointment in the form approved by CAC.[20]

An order for winding up under the supervision of the Court shall amount to a winding up by the Court, provided that the order was made in relation to creditors voluntarily winding up.[21]

EFFECT OF WINDING UP ON A COMPANY

The powers of the directors to manage the affairs of the company comes to an end and a liquidator takes over. The company is deprived of the beneficial ownership of its assets. No action can be commenced against the company without the leave of the Court. The employees of the company are laid off. The company becomes non-existent upon the formal dissolution of the company. AUTHOR: Oyetola Muyiwa Atoyebi, SAN, FCIArb. (UK).

Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm) where he also doubles as the Team Lead of the Firm’s Emerging Areas of Law Practice.

Mr. Atoyebi has expertise in and a vast knowledge of Corporate and Commercial Law and this has seen him advise and represent his vast clientele in a myriad of high level transactions. He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of a Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng

CONTRIBUTOR: Joy Ayara.

Joy is a member of the Corporate and Commercial Team at OMAPLEX Law Firm. She also holds commendable legal expertise handling Winding-Up petitions.

She can be reached at joy.ayara@omaplex.com.ng.

[1] CAP C20 LFN 2004

[2] Isochukwu ‘Winding Up and Liquidation’ https://isochukwu.com/2017/12/29/company-law-2-8-winding-up-and-liquidation/#:~:text=Definition%20of%20Winding%20up%3A%20Winding,anticipation%20of%20a%20corporation%27s%20dissolution. Accessed 15/07/2022

[3] Section 570 CAMA 2020

[4] 235 CAMA 2020

[5] Section 572 CAMA 2020

[6] Section 573 CAMA 2020

[7] Section 574 (1) CAMA 2020

[8] Section 574 (3) CAMA 2020

[9] Section579 CAMA 2020

[10] Section 581 CAMA 2020

[11] Section 620 CAMA 2020

[12] Section 622 CAMA 2020

[13] Section 621 (1) CAMA 2020

[14] Section 621 (2) CAMA 2020

[15] Section 624 CAMA 2020

[16] Section 625 CAMA 2020

[17] Section 652 (1) CAMA 2020

[18] Section 652 (2) CAMA 2020

[19] Section 652(3) CAMA 2020

[20] Section 654 (1) CAMA 2020

[21] Section 653 CAMA 2020