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22 Jan

CORPORATE LAW PRACTICE WEEK 17 RESTRUCTURING 1 (INTERNAL OPTIONS)

WEEK 17: CORPORATE RESTRUCTURING 1 (INTERNAL OPTIONS)

:: REGULATORY BODIES IN CORPORATE RESTRUCTURING. SEC, CAC, NSE, CBN, FHC, other Sector Specific Regulators.

Operators Involved here are: Financial Advisers/Issuing House. Solicitors, Auditors, Registrars, Stockbrokers (deal with the NSE area), Reporting Accountants, etc.

DOCUMENTATIONS INVOLVED: Exclusivity Agreement, MOU, Confidentiality Agreements, Scheme of Merger.

:: INTERNAL RESTRUCTURING OPTIONS. The options available for internal restructuring include

Arrangement on Sale Section 538: here, the company sells its assets for the purpose of winding up and reviving itself to a new company. There is need for the company to make a declaration of solvency.

Arrangement and Compromise with Creditors and Shareholders-Section 540 respectively.

:: STEPS AND PROCEDURES FOR INTERNAL CORPORATE RESTRUCTURING.

  1. Arrangement on sale Under Section 538

Usually embarked upon to windup and resurrect the company into another form. Usually where it has enough assets which outweigh its liabilities.

There is first a Member’s Voluntary Winding Up and then the proceeds of sale of the assets is used to revive a new company.

In essence; Directors pass a statutory declaration of solvency.  Notice of meeting is issued by secretary. Then MGM pass a special resolution for member’s voluntary winding up and appoint a liquidator to give effect to the resolution[1]. After sale of assets, it is revived into a new company or arrangement.

  1. Arrangement and Compromise with Creditors and Shareholders-Section 540. (For a company facing difficulty and wants creditors and shareholders to grant some concession to it).

First; the scheme of arrangement is prepared by the company or member or creditor or liquidator.

Second; summary application is made to the FHC for an order to call a meeting of those that would be affected by the scheme of arrangement.

Third; the meeting is called as directed by court.

Fourth; a special resolution sanctioning the scheme is passed in the meeting.

Fifth: the report of the meeting shall be made to the FHC.

Sixth: The FHC refers the scheme to the SEC.

Seventh; SEC appoints inspectors to investigate the fairness of the scheme and make reports thereon which shall be forwarded to the FHC.

Eight; if the FHC is satisfied that the compromise is fair, it may sanction it[2]Re Liption of Nigeria Ltd.

Ninth; a copy of the court order approving the scheme should be delivered to the CAC for registration and a copy of the order must be annexed to every copy of the Memorandum of Association of the company issued subsequently.

:: ETHICAL ISSUES INVOLVED.

 

[1] A dissenting member may deposit notice at the company’s head/registered office (within 30 days from resolution) requiring the liquidator to abstain from putting the resolution into effect OR to purchase his shares at a price to be determined by agreement or by SEC if aliens participate in the co. An application may be made to the court under 310-312 on the ground that the affairs of the co are being conducted illegally, oppressively or in an unfairly prejudicial manner.

An application may also be made to the court where an order is obtained for a creditor’s voluntary winding up instead.

[2] Forthwith the scheme shall become binding on the affected parties-Re Liption of Nigeria Ltd.

Isochukwu

Quite eccentric really

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