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22 Jan

CORPORATE LAW PRACTICE WEEK 20 WINDING UP AND DISSOLUTION

WEEK 20- WINDING UP AND DISSOLUTION OF BUSINESS AND NON-BUSINESS ORGANIZATIONS

  1. WINDING UP OF COMPANIES:

It is the process by which a company is liquidated and dissolved and its assets is distributed in accordance with the rules of priority for the benefit of the creditors, members and employees-Tate Industries v Devcom MB Ltd. FHC has jurisdiction

:: APPLICABLE RULES GOVERNING THE WINDING UP AND DISSOLUTION OF COMPANIES IN NIGERIA.

– CAMA, WUR, FHCA, ISA, SEC Consolidated Rules, CPR, BOFIA, NCC.

:: TYPES OF WINDING UP UNDER CAMA AND PROCEDURE FOR EACH.

  1. Winding Up By the Court/Compulsory Winding Up: – File petition with affidavit; – Serve and proof; – Advertise the petition with leave of the court; – File Memo of Compliance; – Respondent files notice of intention to appear with affidavit in opposition and affidavit in reply; -Provisional Liquidator is appointed; Filing of List of persons appearing; – Hearing of petition; – Making of Winding up order. By 408 CAMA. It may be done where;
  2. Company by special resolution agrees that it be wound up by the court: the Special Resolution be filed at CAC within 14 days of passing, CTC of Court Order for Winding Up, Publication of notice of appointment of Liquidator in gazette or two dailies, Liquidator’s notice of his appointment to CAC within 14 days of appointment; – Liquidator’s account of receipts and payments at least twice a year (with verifying statutory declaration), CTC of Court Order for dissolution of the Company, Updated Annual Return, Original Certificate of Incorporation, payment of fees-Reg 43 CR 2012
  3. Default is made in holding the Statutory Meeting or delivering the statutory report to the CAC: only shareholder(s) may bring petition within 14 days from default (i.e. when the meeting should have held)[1].
  4. The number of Members is reduced below 2.
  5. The Company is unable to pay its debts: which by 409 CAMA means where it has neglected to pay due debt to (or secure or compound for it) a creditor (to the tune of more than N2,000) for more than three weeks after service of formal demand letter notice[2] by the creditor (in co’s registered office).

The debt must be due and undisputed-Tate Industries Plc v Devcom M B Ltd 2004. Persons entitled to bring petition for compulsory winding up are the Company, Creditor[3] or contributory[4] or their PR, Official or authorised Reciever, CAC (Director cannot petition) it appears shareholder too cannot petition.

  1. The court (FHC within jurisdiction of company’s registered office) is of the opinion that it is just and equitable for the company to be wound up: i.e. that the company is formed for fraudulent purposes, is a bubble, unfairly prejudicial/discriminatory to minority or if a small going concern; that circumstances that would warrant dissolution of partnership exists in it.

:: SIGNIFICANCE AND LEGAL EFFECT OF WINDING UP AND DISSOLUTION OF COMPANY.

Upon commencement of winding up, there can be no disposition of the company’s assets/shares except with court sanction. Floating charge created within 3 months of commencement shall be invalid.

There can be no attachment, distress, executing or sequestration where co is in the process of court winding up-414 CAMA.

After winding up order, court may still stay the winding up process on such terms and conditions as it deems fit.

  1. Voluntary Winding Up by Creditors or Members[5]: where the period fixed for the duration of the co has lapsed or a determining event has occurred (then resolution would be used to wind up) OR if the company resolves by special resolution that the co be wound up.

For members; first there is a statutory declaration of solvency (duly signed by all/majority of directors accompanied by statement of assets and liabilities) to the effect that the company would be able to pay its debts in full within such period not exceeding 12 months from the commencement of the Winding Up[6];

– The Statutory Declaration of Solvency should be filed at CAC alongside statement of company’s assets and liabilities;

– Within 5 weeks from the DOS Members should pass a special[7] resolution for voluntary winding up signed by the director and secretary/two directors. This be filed with CAC within 14 Days of making.[8])

– Resolution for appointment of Liquidator (published in Newspaper and notified to CAC within 14 days of appointment;

-Liquidator gives notice of his appointment too;

– Liquidator to lay report of account before Members yearly same filed with CAC within 7 days after meeting (up till the final dissolution meeting where the final report and account on winding up is presented);

– Original Certificate of Registration is returned to CAC for cancellation… updated Annual Return and payment of fees. Check 467 and 470 CAMA.

For Creditors Winding Up;

– Publication of notice of Creditor’s meeting in Gazette and 2 National Dailies;

– Creditor meeting held

– Directors are to lay a full statement of the company’s affairs before the meeting.

– Resolution for voluntary winding up may be passed;

– The resolution is filed with CAC within 14 days;

– Liquidator is appointed and notice of his appointment is published in Gazette or 2 National Dailies[9].

– Liquidator gives notice of his appointment.

– in the end; publication of final meeting in the gazette or 2ND circulating in the locality of where the meeting is being called;

– Return and account of liquidation is laid in the meeting; Liquidator within 7 days send these to CAC[10] and Original (or CTC) for cancellation; Updated annual Return; Updated Section 533  filing where applicable; payment of fees.

Company CAC and gazette or newspaper should be notified within 14 days of passing the resolution.

  1. Winding Up Subject to Supervision of Court: An interested person may petition that a voluntary winding up should be supervised by the court.

Court may appoint additional liquidator, remove the one so appointment, fill vacancy occasioned by death or removal. Note that order of supervision does not change the date of commencement of the winding up (i.e. the day of resolution).

Note that winding up may be refused where other remedies can avail.

:: OFFICERS INVOLVED IN WINDING UP OF COMPANIES.

– Liquidator (appointed to wind up the affairs of the company (can sell alienate, negotiate bills, raise loans using assets of the co, obtain monies due etc.)… he represents the interest of creditors);

– Official Receiver; is the deputy chief registrar of FHC or other officer designated by the CJ FHC. To collate information about the company in winding up and can act once court order for winding up is made until appointment of liquidator.

– Provisional Liquidator;

– Receiver/Manager; appointed by secured creditors under power contained in the debenture deed to assume managements and collect profits therefrom. A mere receiver can only do the latter. Receiver must not be an infant, unsound, body corporate, undischarged bankrupt, director or auditor of the company, any person that has been convicted of an offence involving fraud, dishonesty, corruption or moral turpitude

– Special Manager: when the official receiver becomes liquidator he may apply to court to appoint a special manager.

First pay up cost of winding up then pay outstanding rates-charges-taxes for the past 1 year then pay junior staff then preferential debts are paid, then other claims would be satisfied in order of priority (secured creditors->unsecured creditors->preferential shareholders -> ordinary shareholders etc.

:: IDENTIFY THE RELATIONSHIP BETWEEN WINDING UP AND DISSOLUTION OF COMPANIES.

:: IDENTIFY ETHICAL ISSUES IN THE WINDING UP OF COMPANIES.

  1. CESSATION OF BUSINESS NAME; DISSOLUTION OF (PARTNERSHIP AND INCORPORATED TRUSTEES).

:: APPLICABLE LAWS/RULES

:: PROCEDURE FOR THE DISSOLUTION OF INCORPORATED TRUSTEE: there should be a petition[11] for dissolution on any of the following grounds;

– Realization of established object or pre-determined time and no useful purpose to keep it alive;

– Aims and objects of the association have become illegal or contrary to public policy;

– Just and equitable that the association be dissolved-608 CAMA.

After satisfaction of debts and liabilities, what remains is transferred to another institution having similar objects or some other charitable object determined by the member at or before the time of dissolution-Section 608

:: PROCEDURE FOR DISSOLUTION OF PARTNERSHIP AND BUSINESS NAME:

Upon – death of sole proprietor/partner or agreement of the parties or order of the court, the business name is deemed dissolved and removed from Register of Business Names at the CAC. Provided that CAC should be notified by a partner or PR of deceased Proprietor of the occurrence of any of the above three facts and that business has ceased to do business. This is by filing notice of cessation of business accompanied by business certificate (to be handed in), Evidence of Annual Returns, Evidence of payment of Filing Fees[12].

:: IDENTIFY ETHICAL ISSUES IN THE WINDING UP AND DISSOLUTION OF INCORPORATED TRUSTEES, PARTNERSHIP/BUSINESS NAME.

[1] Although courts would usually order compliance rather than winding up

[2] Stating these facts and intention to wind up upon default. Signed by creditor or if co with common seal and sign of director and secretary/authorised officer

[3] A contingent creditor needs to fulfil Section 410(2) conditions.

[4] May be required to give sufficient security for cost.

[5] Winding up would be deemed to have commenced at the time of passing the resolution for voluntary winding up or presentation of the petition whichever comes first.

[6] If this is false, the winding up may continue as creditor’s voluntary winding up.

[7] Regulation 44 Companies regulation 2012.

[8] Given to CAC before that date embodying a statement of the company’s assets and liabilities. Costs incurred in the winding up have priority over other claims.

[9] The powers of directors cease here.

[10] After three months from doing this, the company is deemed to have been wound up.

[11] Which can be brought by the governing body/council, one or more of the trustees, members of not less than 50 percent, CAC-See Section 608 CAMA.

[12] Provided that in the case of partnership, the consent of all partners is needed. Then on dissolution of partnership trustees, there is need for petition at FHC (with affected persons put on notice).

Isochukwu

Quite eccentric really

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