COMPANY LAW 2.8 WINDING UP AND LIQUIDATION
Definition of Winding up: Winding up signifies the process by which the existence of a company is brought to an end. Black’s Law Dictionary sees it as the process of settling accounts and liquidating assets in anticipation of a corporation’s dissolution.
Liquidation is the process of determining the liabilities and distributing the assets of an entity especially in bankruptcy and dissolution.
Winding up and liquidation are synonymous but the latter (liquidation) refers to settling all obligations by payment to extinguish a debt.
:: The grant of a winding up petition does not ipso facto terminate the life of the company the company ceases to exist in law only by the formal act of dissolution which occurs after winding up is completed-Progress Bank Nigeria Ltd V O.K Contact Point Holdings Ltd.
:: The distinction between winding up and Bankruptcy lies in the fact that the former applies to companies while the latter is concerned with individuals and only applies to a debtor who is usually insolvent.
:: The Broad distinction between a liquidator and receiver is that a liquidator is someone that is appointed to manage the winding up of a company (when the life of the company is being brought to an end). He gathers the assets to pay off creditors and shareholders. A receiver on the other hand is one that takes over the affairs of a co with a view to using the profit derived therefrom to settle the creditor that had appointed him.
In England the procedure is contained in the English Insolvency Act.
TYPES OR INSTANCES OF WINDING UP:
- By Court (Compulsory Winding Up): See Section 408.
- Voluntary Winding up: Provided under Section 459 CAM e.g. where the co was set up for a particular purpose which has been concluded.
- Winding up under supervision of the court: usually done when some people are not happy with the way winding up proceedings are being conducted. They then apply to the court for it (the court) to supervise the winding up process. See Section 407 CAMA.
Jurisdiction for Winding Up by the Court?
It is the FHC (withing the area of the company’s registered or head office) that has jurisdiction-Section 407(1)CAMA, Section 251(e) of the 1999 Constitution. Section 407(2) defines these. In Medicore Nigeria Ltd V Lasbwares Nigeria Ltd, the registered office was in Illorin while the Winding up petition was filed in the Lagos Division of the FHC. Petition was held to be incompetent. Also, in IMB V Lomay Nig Ltd. A petition was brought in Lagos whilst the registered office was in Jos. Petition held to be incompetent.
When can a company be wound up by the Court?
Section 408 provides (the provisions shall be in bold and italicised):
A company may be wound up by the court if‐
(a) the company has by special resolution resolved that the company be wound up by the court; The meeting where the special resolution was passed should have been properly constituted (proper quorum) and the resolution should have been passed by ¾ majority. Lord Dennning in UAC V MacFoy
(b) default is made in delivering the statutory report to the Commission or in holding the statutory meeting; which is in default of Section 211 and 212 CAMA. A contributory (or even creditor) can bring a petition for the winding up of the co. Note that statutory meeting only applies to public companies. Guardian Express Bank Plc V Odukwu and Antoher.
(c) the number of members is reduced below two: Section 18 CAMA requires at least 2 persons to form a company.
(d) the company is unable to pay its debts: Professor Olawoyin San believes this to be the most popular provision regarding winding up of a co. Section 409 tells us what “inability to pay debts” means. In essence when the co is unable to pay its debt (which must be more than #2,000) after due demand to pay has been made by the creditor himself. The co has a grace period of 3 weeks-Unifarm Ind Ltd V Oceanic Bank International Nig Ltd. The demand should expressly state the amount being owned and the required payback period-Capital Investments and Trust Ltd V 150 Estates Ltd. For a company, the demand should be sealed and signed by the authorized officer on the company’s behalf-Tate Industries Plc V Devcom Merchant Bank, Also C and I Leasing Plc V Indemnity Finance Company Limited.
This Section is not meant to be abused for malevolent intention when the petitioner is just seeking to recover debt-Air Via Ltd V Oriental Airlines Ltd Also the case of In the matter of Yanju International Motel Ltd where the court noted that doing so would amount to an anomaly.
(e) the court is of opinion that it is just and equitable that the company should be wound up: under this provision, you need not be saying that the company is unable to pay its debts. Any person under Section 410 can petition the court to wind up a company where he can prove that it would be just and equitable to do so. Ebrahimi V Westbourne Galleries. Note however Section 312 which gives the court wide discretion to grant alternative remedies where winding up would be too fatal. See the earlier discussion on Majority Rule and Minority Protection. General and Aviation Services Ltd V Thahal. Companhia Brazileria Des Infrastructura V COBEC Nigeria Ltd.
When can a Company be Voluntarily Wound Up?
Section 457 CAMA provides Any company may be wound up voluntarily‐ (a) when the period, if any, fixed for the duration of the company by the articles expires, or the event, if any, occurs, on occurrence of which the articles provided that the company is to be dissolved and the company in general meeting has passed a resolution requiring the company to be wound up voluntarily; (b) if the company resolves by special resolution that the company be wound up voluntarily and references in this Act to a “resolution for voluntary winding up” means a resolution passed under any of the paragraphs of this section.
This resolution must be published in a Gazette within 14 days of making the resolution-Section 458. The voluntary winding up shall be deemed to commence from the time the resolution is made-Section 459 CAMA.
Note also that the BOD must pass a declaration of solvency before the co can resolve to be wound up. Declaration of solvency means that it has enough money to pay its debts and meet up with liabilities-CAC V Davies.
A liquidator is then appointed with powers to do such things as he can to ensure a smooth winding up and settlement of claims-Section 425 CAMA.
LEGAL CONSEQUENCE OF WINDING UP.
- The directors power of management lapses while the liquidators take over.
- The company is divested of the beneficial ownership of its assets.
- No action can commence against the co without the leave of the court.
- The employees of the co are ipsofacto dismissed.
- The co maintains it corporate status and powers until a formal act of dissolution by the court.
ADAMU MOHAMMED GBEDU V JOSEPH I. ITIE. 2010 10 NWLR PT 229 CA. gbedu V itie
Facts: 3rd Respondent petitioned for a winding up on 18th March 2005 on the grounds of the 2nd Respondent’s inability to pay debts. The following principles were reiterated:
- The making of a winding up order meant that the servants/employees of the 2nd respondent were ipso facto dismissed.
- Upon the order of winding up, the Liquidator’s powers supplants the power of the Board of Directors.
Held: Reliefs granted. Liquidator (1st respondent) appointed.
MOS ENGINEERING SERVICES LTD V FOOTWEAR AND ACCESSORIES MANUFACTURING AND DISTRIBUTION PLC. 2010 4 CLRN FHC.
Facts: The appellants (MOS Engineering Services Ltd) commenced a winding up proceeding against the respondent (Footwear Accessories Manufacturing and Distribution) by filing a petition at the FHC. The respondent filed a preliminary objection noting that the financial officer who signed the petition was not a principal officer within the contemplation of the law.
The principles Reiterated Include:
- A winding up petition made by a company must be verified by an affidavit made by the company’s director, secretary or other principal officer or agent of the company. (Relying on Rule 18(1) Companies Winding Up Rules 2004, Re Farmart Produce and Shipping Line, Melwani V Feed Nation Industries Ltd, Section 77 and 650 CAMA, SPDCN V Alla PUFA).
- Rules of courts cannot override statutory provisions. “they are mere handmaids for a smooth administration of justice” Okaroh V
Held: Finance officer can pass as principal officer. Therefore, objection overruled (i.e. Held in favour of the petitioner).
OCEANIC BANK INTERNATIONAL NIGERIA LIMITED V SUNGOLD INTERNATIONAL LIMITED. 2007 2 CLRN HC.
Oceanic bank commenced a Winding Up proceeding (on 13th August, 1996) against Sungold Int. on the ground that the company had become insolvent and unable to pay debt.
- Nwodo J: The petitioner must establish that there is in fact a particular sum being owed as debt. The petition must be brought in good faith. In this case, the petitioner failed to prove these therefore the petition was incompetent. (Relying on Hansa Inter Construction Ltd V Mobil Producing Nigeria, Oriental Airlines Ltd V Air Via Ltd, Onocie V Alan Dick and Co).
- Where the debt is disputed, the court cannot proceed until the debt is ascertained (Relying on Weide and Co Nigeria V Weide and Co Hemburg and Hansa International Construction Ltd V Mobil Producing Ltd). Notwithstanding that in this case, the Chairman had offered to use his personal property to repay because of threats of arrest and detention by using military.
TATE INDUSTRIES PLC V DEVCOM MERCHANT BANK LIMITED. (2004) 17 NWLR (PT 901) 182 CA.
Facts: Winding up petition filed on the grounds that the appellant was unable to pay 48,498, 672.47k being owed to the respondent. The debt was incurred by overdraft facilities granted to the appellant which the appellant was unable to pay despite repeated demands. The appellant however contended that he has paid 9million as partial fulfilment and by agreement, the respondent conceded to forego 45 percent of the interest. He also noted that they have not been able to work out the real balance of the loan since then.
Trial Court Held: For the respondent. (I.e. That the appellant be wound up).
Court of Appeal: (Quoting Section 77, 408 and 409 CAMA and heavily relying on Oriental Airlines Limited V Air Via Ltd). Highlighted the following principles:
- A winding up order (though not a mere remedy for the recovery of debt only) is predicated on a debt being owed. When a debt is disputed (as in this case), an order for winding up would not be made. The dispute about the debt amount should first be resolved before the court can proceed to consider the winding up petition.
- A demand for the debt owed must be made by the creditor himself not his agent. For a company, it would suffice if the demand is made by persons so authorised and signed with the seal of the company. In this instant case, the demand letter was not written by the creditor himself but his solicitor.
- Winding up is a very serious matter and requires strict compliance-Jaber V Basma, Warner V Warner International Associates, Nigerian Breweries V Adetoun Oladeji.
Held: non-compliance with the above rendered the petition incompetent.
PROGRESS BANK OF NIGERIA PLC V O.K. CONTACT POINTS HOLDINGS LIMITED. (2008) 1 NWLR (Pt. 1069) 514 CA.
Winding up petition brought also… The following principles were laid:
- The fact that a winding up has been decreed or a liquidator has been appointed does not automatically mean that the company is dead. “it is alive but perhaps sick… it can sue and maintain an action in court but no action or proceeding can be brought against it except with leave of the court”. (At page 517 relying on Co-operative and Commerce Bank Plc V Mbakwe).
- It is only when the affairs of a company have been fully wound up and the liquidator intimates the court in that regard that the court shall order the “dissolution” of the company. “A company dies once the court orders the dissolution of a company”-(at page 518 relying on Section 454(1) Nzom V Jinadu).
ADO IBRAHIM AND CO LTD V BENDEL CEMENT COMPANY LIMITED. (2007) 15 NWLR (Pt. 1058) 538 SC.
Facts: The appellant filed a petition in 1995 for winding up of the respondent. The appellant averred that it held 20 percent of the share capital of the respondent while the government of former Bendel had 80 percent. The appellant averred that it later acquired the respondent’s shares. It further averred that since it acquired the respondent’s shares in 1976 it had not been paid any dividend because the respondent operated at a colossal loss. The respondent filed a counter affidavit that it had always declared profit whenever any profit was made.
At Trial Court: Since the debt was in dispute and uncertain, the petition was incompetent. At Court of Appeal: The trial court’s contention was upheld and was also confirmed at the Supreme Court. (relying on Section 408, 410). It suggested that the appellant could have brought the petition as a contributory as in the Ebrahimi’s case rather than on the basis of a debt being owed. However, a party would not be granted a relief it did not seek.
GENERAL AVIATION SERVICES LTD V CAPTAIN PAUL THAHAL (2004) 10 NWLR (PT. 880) 50 SC.
Respondent petitioned for winding up of the appellant on the ground of oppression by his co shareholder (the managing director of the appellant company) who has been running the business as his private business to the exclusion of the respondent. The respondent also alleged that the MD was dissipating resources and members of his family occupied top posts. He also changed the name of the Co from General Aviation Services to Gen Air.
The Respondent thus petitioned that it would be just and equitable to wind up the company on the basis of the alleged oppression.
The managing director (appellant) filed a counter affidavit denying the allegation and alleging that he tried to encourage participation of the respondent and served notices of meetings.
The trial court (holding for the respondent) granted the orders sought and this was affirmed at the Court of Appeal. At the Supreme Court where the following were laid out:
- The affidavit contained bare allegations not supported/established by facts or documents as required by Rule 21 of the Companies Winding Up Rules 1983.
- In winding up matters, the court is to act with circumspection… the appointment of a liquidator by the trial court was uncalled for.
- A judgment given in contravention of the law or without jurisdiction can amount to a nullity-Madukolu V
Held: decisions of the trial and Court of Appeal overturned.
AIR VIA LTD V ORIENTAL AIRLINES LTD. 2004 0 NWLR PT 878 298 SC
The appellant filed a petition at the Federal High Court Lagos seeking for the respondent company to be wound up on the ground that it was unable to pay its debt of USD $823, 545. The respondent however averred that it was the appellant that was indebted to him to the tune of USD $100,280.
The trial court held for the appellant while the Court of Appeal struck out the claim since the debt was disputed (i.e. it held for the respondent). The appellant was dissatisfied and appealed to the Supreme Court.
The Supreme Court noting the following: (that)
- There must have been a demand for the debt which the debtor can respond to by admitting the debt, denying the debt, counter claiming or setting off the debt… and in this case, the dispute as to who owes who ought to be resolved first before a petition for winding up can be filed. The fact that the respondent had paid part of the debt does not translate to proof of indebtedness.
- The court should not hastily grant an order winding up a company-Union Bank of Nigeria Ltd V Tropic Foods Ltd.
Held: Appeal Struck out.
COMPANHIA BRASILERIA DE INFRASTRUTUTIRA V COBEC NIG LTD. (2004) 13 NWLR (Pt. 890) 379 CA. The following were noted:
- A foreign company can sue and be sued in Nigeria provided it was duly registered and incorporated according to the laws of a foreign state recognised in Nigeria-NBCI V Europa Traders Ltd.
- The court may refuse a winding up petition where there is an alternative and more reasonable remedy.
UNIFAM INDUSTRIES LTD V OCEANIC BANK INTERNATIONAL NIG LTD.
Respondent filed a petition for winding up dated 20th June 2003 against the appellant on grounds that the appellant was unable to pay its debt of #25,941,308.41k plus yearly 38 percent interest. The appellant had already filed an application on the same ground in April 2002 in the High Court of Abia. The petition was struck out for being an abuse of court process. Relying on CBN V Ahmed, African Reinsurance Corp V JDP Construction (Nig.) Ltd, Saraki V Kotoye, Fasakin Food (Nig) Co. Ltd V Shosanya.
GUARDIAN EXPRESS BANK PLC V BENEDICT OKWUEZE ODUKWU.
1ST respondent at the FHC filed an application for winding up on the basis that the appellant did not hold the required statutory meeting after six months of incorporation and they cannot hold the meeting without seeking the leave of court and the statutory report of the company were not properly certified by the appellant’s auditors so as to meet the requirements of Section 212 and 211 CAMA respectively.
The trial court granted the reliefs being sought. Upheld at Court of Appeal and Supreme Court.
COMMERCIAL BANK (Credit Lyonnais Nig. Ltd.) V Rose Okoli
Sequel to the direction by CBN that banks attain a minimum share qualification of #25billion, the applicant (a commercial bank) was taken over by Capital Bank which was subsequently taken over by Access Bank Plc. Meanwhile the applicant had a pending suit.
- A company taking over is fully empowered to deal with the issues pertaining to the company that has been taken over-NDIC V FMB Ltd, NDIC V Okem Enterprises.
Held: Access bank was entitled to be substituted in the pending suit of the appellant.
NIGERIA DEPOSIT INSURANCE CORPORATION V MOHAMMED SABO SHERIFF.
Successors in interest/administrators of a deceased creditor’s estate can claim the debt being owed.
 (2) For the purpose of this section, “registered office” or “head office” means the place which has longest been
the registered office or head office of the company during the six months immediately preceding the presentation
of the petition for winding up.
 1989 FHCLR 280.
 2009 14 NWLR part 1160 at page 43.
 Not his agent or representative.
 2005 3 NWLR Part 91 at page 83.
 1986 FHC at page 158/156.
 2004 17 NWLR Part 901 at Page 182.
 1 FHCL at page 277.
 2004 9 NWLR part 878 at page 298.
 1990-1991 FHCR at page 17.
 2004 10 NWLR part 880. at page 50.
 2004 13 NWLR part 890 at p 376.
 2008 1 NWLR part 1067 at page 60.