Companies are incorporated for various reasons among which includes to generate profit and staying a going concern in order to ensure Return on Investment (ROI) for its investors and shareholders by way of dividends. However, down-the line, due to various reasons such as non-profitability, bankruptcy, etc. it may become pertinent for such companies to bring an end to its operations and cease to be in existence. This can be done through the process of winding up.
The winding up of a company can be defined as a decision which is agreed on to bring an end to the company’s corporate existence. Consequently, the company’s assets will be distributed for the benefits of the creditors and members of the company. This article shall aim to explore and examine the procedure for winding up of companies under the provisions of the recently enacted Companies and Allied Matters Act, 2020.
The Laws relating to the Procedure of Winding up of Companies in Nigeria
- Companies and Allied Matters Act, 2020
- Federal High court (Civil Procedure) Rules 2019
- Federal High court (Amendment) Act, 2005
- Companies proceeding rules
- Companies’ regulation 2021
- Companies winding up Rules
- Investment and Securities Act, etc
For the purpose of this article, we shall focus mainly on the procedure for winding up of a company under the provisions of Companies and Allied Matters Act, 2020.
Procedure for Winding up of Companies under the CAMA
By virtue of Section 564 (1) of the CAMA, there are 3 specified modes by which the winding up of a company may be carried out;
- By court
- Voluntary winding up
- Subject to the supervision of the court
1. By Court
By reason of Section 570 of the CAMA, the Federal High Court has the jurisdiction to wind up a company in certain circumstances which includes; inability to pay its debt (as defined under section 572 of CAMA), where the number of the members of the company reduced below 2 in the case of companies with more than one shareholder, failure to hold statutory meeting or delivering of statutory report and where in the opinion of the court, it is just and equitable that the company should be wound-up.
The application shall be made by petition to the court for the winding up of the company together or separately by:
- The company or a director
- A creditor (including their trustees or personal representatives)
- An official receiver
- A contributory (including their trustees or personal representatives)
- The corporate affairs commission
- A receiver
The petition is to contain a concise statement of the nature of the claim made and the relief sought and attached to the petition is an affidavit of non-multiplicity of action on the same subject matter. The petition is to be served not less than 7 days before the day fixed for hearing of the petition.
This mode of winding up is deemed to commence at the time when the said winding up petition is presented to the court, however, this does not extend to situations where a resolution of the company has been passed for voluntary winding up. In such instances, the winding up is deemed to have commenced upon the passing of the resolution.
Upon hearing the petition, the court may either dismiss it, adjourn the hearing conditionally or unconditionally or make an interim order or any other order it deems fit. The court shall however not refuse to make a winding up order on the ground solely that the assets of the company have been mortgaged to an amount equal to or in excess of those assets or that the company has no assets.
When a winding up order is made, a copy of the said order shall be forwarded by the company (or any other prescribed entity) to the Corporate Affairs Commission which shall make a minute of the winding up in its books which it maintains in relations to that company.
2. Voluntary Winding up
This is a mode of winding up of a company which the company voluntarily imposes on itself. It is generally of two (2) types.
a. Members Voluntary winding up
b. Creditors’ Voluntary winding up
a. Members Voluntary winding up
The procedure for Members Voluntary winding up of a company is as follows:
i. The company passes a special resolution requiring the company to be wound up voluntarily. At the meeting the company would appoint one or more liquidators for the process.
ii. Once a liquidator is appointed, all powers of the directors cease unless the company in a general meeting or liquidator allows for its continuance
iii. Within 14 days of passing the resolution, the company shall give notice to the special resolution passed to the Corporate Affairs Commission and also advertise it in official gazette or two national daily newspapers
iv. A statutory declaration of solvency must be made by the directors or majority of the directors within 5 weeks immediately preceding the date of passing the special resolution for the winding up of the company
v. Where the process of winding up last more than a year, the liquidator is to hold a general meeting of the company at the end of each year or at the convenient date within three (3) months from the end of the year. The notice of the meeting should be published in an official gazette and in 2 (two) newspapers printed in Nigeria.
vi. The liquidator shall hold the final meeting of the company upon liquidation to render accounts and showing how the winding up procedure was carried out and a copy of same is to be sent to the Corporate Affairs Commission within seven (7) days of the meeting for registration.
vii. The liquidator is to preserve all books, records and documentations of the company relating to his activities as a liquidator for the period of five (5) years before destroying it, subject to the consent of the Corporate Affairs Commission.
viii. The liquidator is required to send to the Corporate Affairs Commission for registration within twenty-eight (28) days after the meeting, copies of the account and a statement of holding of the meetings and its dates
ix. The liquidator shall finally apply for a dissolution order and send same to the Corporate Affairs Commission. The company will be deemed dissolved after three (3) months of the registration of the accounts and returns with the Corporate Affairs Commission.
b. Creditors’ Voluntary Winding up
The procedure for creditors’ Voluntary winding up of a company is as follows:
i. The company and its creditors would hold separate meetings to propose the winding up of the company. The meeting of the creditors shall hold on the same day or the day after the meeting of the company.
ii. The notice of meeting of the creditors shall be published once in a Federal government gazette and at least two (2) daily newspapers circulating in the district where the registered office or the principal place of business of the company is.
iii. At their respective meetings, the company and the creditors shall nominate a liquidator for the purpose of winding up the affairs of the company. In the event that different persons are nominated at the separate meetings, the person nominated by the creditors at their meeting will be the liquidator.
iv. Upon appointment of the liquidator, all the powers of the directors shall cease except there is a committee of inspection. See Adamu Gbedu v Joseph Itie and ors.
v. A committee of inspection consisting of not more than 5 (five) persons may be appointed by the creditors and the company at their respective meetings. However, the creditors have the discretion to reject such persons so appointed by the company.
vi. Where the process of winding up last more than a year, the liquidator is to hold a general meeting of the company at the end of each year or at the convenient date within three (3) months from the end of the year.
vii. As soon as the affairs of the company is wound up, the liquidator shall prepare an account of the winding up to be laid before and approved by the final meeting.
viii. The liquidator shall within seven (7) days of the meeting send a copy of the account and return holding of the meeting to the Corporate Affairs Commission.
ix. The company is deemed to be dissolved after three (3) months of the registration of the accounts and return to the Corporate Affairs Commission.
Where companies do not wish to voluntarily wind up, other options may be available to such companies such as; Corporate restructuring, Mergers, Takeovers, etc.
3. Subject to the supervision of the court
This occurs when the company passes a resolution to voluntarily wind up itself and petitions the court to supervise the winding up process. The processes involved in the voluntary winding up of a company shall also apply, except that the court shall have the liberty to appoint an additional liquidator.
Winding up subject to the supervision of the court shall not amount to winding up by the court and the provisions of the CAMA as listed in the twelfth schedule of the Act shall not apply.
In conclusion, where companies are no longer able to meet up with the statutory requirements required to remain a going concern, they may be wound up and in winding such companies up, it is important to follow the laid down procedures as laid out by the Companies and Allied matter Act. In effect, companies maintain their legal personalities throughout the whole winding up process and only lose their legal personalities when they are fully wound up.
i. Companies and Allied Matters Act, 2020.
iiiAs defined by section 565 of CAMA
ivSection 578 (1) of CAMA
vSection 574 of CAMA
viSection 579 of CAMA
viiSection 627 of CAMA
viii Section 621 of CAMA
ixSection 625(2) of CAMA
xSection 630 of CAMA
xiSection 631 (2) of CAMA
xiiSection 631 (1) of CAMA
xiii Section 631 (3) of CAMA
xivSection 633 (8) of CAMA
xv Section 633 (4) of CAMA
xviSection 635 (1) of CAMA
xviiSection 633 (2) of CAMA
xviiiSection 636 of CAMA
xix(2010) 10 NWLR pt. 1202 at 260
xxSection 640 (1) of CAMA
xxiSection 652 of CAMA
xxii Section 653 (2) of CAMA
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