By O. G. Ogbom, Esq,
The Companies and Allied Matters Act (CAMA) 2020 and Insolvency Regulations 2022 govern the procedure for winding up a company. Under CAMA 2020, there are two primary types of winding up:
Voluntary Winding Up
This occurs when the members or shareholders of a company decide to close it down voluntarily. It can further be classified into two categories: Members’ Voluntary Winding Up When the company is solvent, and its members believe it can pay its debts within a specified period. This is one of the most common and easiest types of liquidation process. The process can be concluded within 6 months provided there is not any unexpected challenge to the process.
Creditors’ Voluntary Winding Up: When the company is insolvent, and its directors make a declaration of insolvency. A creditor’s voluntary winding up could last for years depending on how quickly the liquidator, the creditors, and members can resolve financial issues facing the company since the company is insolvent.
Compulsory Winding Up
This is initiated by an order of the court, usually due to the company’s inability to pay its debts according to section 571 (d) of CAMA. Creditors, shareholders, or regulatory authorities may petition the court for a compulsory winding-up order.
For want of space, the discussion will be centered on just compulsory winding up.
For Compulsory Winding-Up Process, the winding-up process is initiated by filing a petition with the court. The petition can be filed by the company, creditors, members, or regulatory authorities. The court will schedule a hearing to consider the petition in the requirements rule 19 of CWR have been met. If the court is satisfied that grounds for winding up exist, it may issue a winding-up order. Upon the winding-up order, the court may appoint the official receiver or a liquidator to take charge of the winding-up process. The official receiver or liquidator must notify the CAC of the winding-up order within 14 days. It is important to state that winding up by the court is mostly invoked on ground of insolvency, and the court exclusive jurisdictions to entertain and determine a winding- up petition is the Federal High Court in accordance with section 570 of CAMA 2020.
A creditor who has petitioned for the winding up of a company is required to meet the salient requirement in section 572(a) of CAMA which is a demand by the creditor for the company to pay the sum so due where the sum exceeds N200,000, and the demand letter served on the company by leaving it at its registered office address or head office. The company must for three weeks neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor. It is important to also state that where the debt is not disputed by the company, the determination of insolvency, and consequential winding-up, is often straightforward and uncomplicated.
As established in the case of Hansa International Construction Limited v Mobil Producing Nigeria [1994] 9 NWLR (pt 366) 77 at 86 para F; the demand for payment of debt sum is usually challenged and opposed with vigor. Hansa v Mobil (supra), defined debt as a definite sum of money fixed by the agreement of the parties as payable by one party in return for the performance of a specified obligation by the other party or upon the occurrence of some specified event or condition. It is proved by showing its existence. The Supreme Court of Nigeria in Unifam Ind. Ltd v Ecobank (Nig) Ltd, stated that for a company to be wound up on the ground of inability to pay its debts, the following ingredients must be present:
There must be a debt exceeding N2,000(now 200,000).
The debt must be due;
The creditor served the company with a demand letter requiring it to pay the sum due;
The company has, for three weeks after the demand, failed or neglected to pay the sum or
to secure or compound it to the reasonable satisfaction of the creditor.
The issue usually encountered in winding up proceedings is the correctness of the petition where the debt is disputed. It may be the exact amount owed or an outright denial of the debt.
The law is well settled that where a debt is disputed in good faith or substantial ground, the court is enjoined to decline the making of a winding up order, and dismiss the petition as was held in Oriental Airlines Limited v Air Via Ltd [1998] 12 NWLR (pt 577) 271 at 280-281; (n7); Onochie v Alan Dick & Co Ltd [2003] 11 NWLR (pt 832) 451 at 460, para G.. The dismissal of a winding up petition may be premised on a dispute of the debt bonafide or substantial ground.
having outlined the steps required by law to commence winding up petition, it is also important to state that a challenge to a winding up petition, is usually by an Affidavit by the Respondent in opposition to the Petition, within ten days of service of the petition or within fifteen days of the date on which the petition was advertised, and notice of the filing of every affidavit in opposition to such a petition given to the petitioner in accordance with r. 25 of the Companies Winding Up Rules, 2001.
There have been instances where a verifying affidavit sworn to by a law firm secretary or counsel who are not parties to the suit, has been filed alongside a petition.
By virtue of rule 18 (1) (2) of Companies Winding Up Rules. It must be noted that compliance with the provisions of the CWR 2001 in respect of form and time within which to file verifying affidavit is strict. According to the r. 18 CWR, 2001, a verifying affidavit shall not be filed alongside the petition but shall be filed within four days after the presentation of the petition and the affidavit sworn by the petitioner or by one of the petitioners if more than one or, in case the petition is presented by a company, by some directors, secretary, or other principal officers and thereof. See also the case of Gateways Holdings Ltd V Sterling Asset Management & Trustees Limited (n37) at 517, paras E-G; 518, paras D-E.
In Unifam Ind. Ltd v Oceanic Bank Int’l (Nig) Ltd, the Court of Appeal pronounced on the need to properly commence winding up petition in the following manner:
It held that it is a term generally applied to proceedings which are wanting in bona fide in the sense that they are brought mainly to annoy, irritate or harass the opponent or are calculated to impede the administration of justice. The abuse lies in the inconvenience and inequities appurtenant to the aim and purpose of the action. The term also connotes that the powers of the court must be used bona fide and properly and must not be abused. Let me further say that a court of law which is as well a court of justice will always prevent the improper use of its machinery and will not allow it to be used as a means of vexatious and oppressive behavior in the process of litigation.The non-compliance with the provisions of r. 18 of the Companies Winding Up Rules will rob a court of jurisdiction to adjudicate or determine the matter. This is because it is a settled law that the proceedings and judgement of a court which lacks jurisdiction result in a nullity.
The Supreme Court in the case of Madukolu V. Nkemdilim,(1962) 2. SCNLR 341, laid down the requirements that will cloth a court with jurisdiction in the following manner:
The court or tribunal must be properly constituted with respect to the number and qualification of its members.
The subject matter of the action must be within its jurisdiction.
The action is initiated by due process of law.
Any condition precedent to the exercise of its jurisdiction has been fulfilled.
Notwithstanding the provisions of r. 18 of CWR and the cases cited to buttress the points, r 182 of CWR states that; no proceedings under that Act or Rules shall be invalidated by any formal defect or by any irregularity, unless the court before which the objection is made to the proceedings, is of the opinion that injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by any order of the Court. The law also states that a winding-up petition can be amended including a verifying affidavit attached to the petition, relying on the provisions of the Federal High Court (Civil Procedure) Rules, where the purpose for an amendment of a petition is to clarify issues in controversy between the parties or to prevent any possible injustice in the matter, and is not to overreach the adverse party. See the case of Makinde v Orion Engr. Services (U.K) Ltd, [2014] 11 NWLR (pt 1417) 1. Where the amendment is for a petition fundamentally defective, such defective petition or process cannot be amended. This is in accordance with the case of N.N.B Plc v Denclag [2005] 4 NWLR (pt 916) 549.
For further information, please
contact:
Ogbom, Esq, a senior Partner at Law Freight Attorneys and a Ph.D researcher.
He can be reached via ogbomgoodluck@gmail.com or ogbomg@lawfreightattorneys.ng
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