UNIT 13

WINDING UP BY THE COURT

Winding up, also known as liquidation, is the process through which a company's existence is brought to an end. The assets of the company are collected and sold to pay its debts, and any surplus is distributed among the shareholders. In Nigeria, the winding-up process is governed by the Companies and Allied Matters Act (CAMA) 2020. See the case of Olufosoye v. Fakorede (1993) 1 NWLR (Pt. 272) 747 and the case of Kano State Oil and Allied Products Ltd. v. Kofa Trading Co. Ltd. (1996) 3 NWLR (Pt. 436) 244. Under Section 572 of CAMA 2020, a company may be wound up by the court under the following circumstances:

1. Inability to pay debts: this happens if a company is unable to pay its debts, it can be wound up. A company is deemed unable to pay its debts if a creditor, to whom the company owes a sum exceeding ₦200,000, has served a demand for payment, and the company fails to pay within three weeks, execution or other process issued on a judgment, decree, or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part, it is proven to the satisfaction of the court that the company is unable to pay its debts.
2. Just and equitable grounds: this is where the court may order the winding up of a company if it is of the opinion that it is just and equitable to do so. This is a broad ground that covers various situations, such as loss of substratum, deadlock in management, or oppression of minority shareholders.
3. Statutory declaration: this happens if the number of members of the company is reduced below the statutory minimum (two for private companies and seven for public companies).
4. Special resolution: this happens if the company has by special resolution resolved that it be wound up by the court.
5. Failure to commence business: this happens if the company does not commence its business within a year of its incorporation, or suspends its business for a whole year.

PROCEDURE FOR WINDING UP BY THE COURT

1. Petition: this is where the process begins with the presentation of a petition to the court. The petition can be presented by the company, a creditor, a contributory (a shareholder), the Corporate Affairs Commission (CAC), or a receiver if authorized by the instrument under which he was appointed.
2. Hearing: this is where the court will fix a date for the hearing of the petition. Notice of the petition must be advertised in the official Gazette and in at least two national newspapers.
3. Provisional liquidator: this is where the court may appoint a provisional liquidator to manage the affairs of the company pending the hearing of the petition.
4. Winding-up order: this happens if the court is satisfied that a winding-up order should be made, it will issue the order and appoint an official liquidator.

VOLUNTARY WINDING UP

Voluntary winding up occurs when the company itself decides to cease operations and dissolve. This can be initiated by the members or the creditors of the company. Voluntary winding up can happen by Members Voluntary Winding Up which is initiated when the company is solvent. The company passes a special resolution to wind up and appoints a liquidator and by Creditors Voluntary Winding Up which is initiated when the company is insolvent. The creditors and the company agree to wind up the company, and a liquidator is appointed. See the case of Re Weare & Co. Ltd. (1953) 1 WLR 938 and the case fo Re BCCI (No. 8) (1998) AC 214.

PROCEDURE FOR MEMBERS VOLUNTARY WINDING UP

1. Declaration of solvency: this is where the directors must make a declaration of solvency stating that the company can pay its debts in full within a specified period not exceeding 12 months.
2. Resolution: this is where a special resolution for voluntary winding up must be passed by the members of the company.
3. Appointment of liquidator: this is where the members appoint one or more liquidators to manage the winding-up process.
4. Notice of resolution: this is where the resolution must be advertised in the official Gazette and in two national newspapers.

PROCEDURE FOR CREDITORS VOLUNTARY WINDING UP

1. Meeting of creditors: this is where a meeting of the creditors must be held within 14 days of the resolution for voluntary winding up.
2. Statement of affairs: this is where the directors must present a statement of affairs of the company to the meeting of creditors.
3. Appointment of liquidator: this is where the creditors and members nominate and appoint a liquidator. If there is a disagreement, the creditors nominee takes precedence.
4. Committee of inspection: this is where a committee of inspection may be appointed to oversee the liquidation process.

WINDING UP SUBJECT TO COURT SUPERVISION

This type of winding up occurs when a company is already in the process of voluntary winding up, but the court intervenes to supervise the process. See the case of Re Bayo & Sons Ltd. (1961) NCLR 337. The procedure for winding up includes the following;

1. Application to court: An application for the court’s supervision can be made by the liquidator, a creditor, or a contributory.
2. Court order: This is where the court may make an order that the voluntary winding up continue under its supervision. The court may also appoint an additional liquidator.
3. Powers of court: This is where the court retains the power to give directions on any matter arising in the winding-up process and may also remove or replace the liquidator if necessary.

MAJOR OFFICERS OF THE WINDING UP

1. Liquidator: The liquidator is the person responsible for managing the winding-up process. Their duties include collecting and realizing the company's assets, paying the company’s debts and distributing any surplus among the shareholders. See the Re Peacemaker Nigeria Ltd. (1971) NCLR 233
2. Official receiver: The official receiver is a government official who may act as a liquidator in compulsory winding up. They play a supervisory role in voluntary winding up under court supervision.
3. Committee of inspection: This committee is appointed in creditors voluntary winding up to oversee the liquidator's actions. It consists of creditors and contributories who ensure the liquidation process is conducted properly.

CONCLUSION

This guide provides a comprehensive overview of the winding-up process in Nigeria, detailing the procedures, types, and roles involved. It includes references to relevant Nigerian cases and statutory provisions to ensure clarity and applicability to the Nigerian legal context.