By Isochukwu Michael
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. Li equitation usually comes after winding up. That means that the grant of a winding up petition does not automatically 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.
Kindly note that winding up is not the same as Bankruptcy. 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.
TYPES OR INSTANCES OF WINDING UP:
– By Court (Compulsory Winding Up).
– Voluntary Winding up (here the company 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 Federal High Court (FHC) (within the area of the company’s registered office) that has jurisdiction over winding up – 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 was held to be incompetent.
When can a company be wound up by the Court?
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; Note that 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.
(b) default is made in delivering due returns to the Corporate Affairs Commission or prolonged failure to hold company’s meeting. Note that statutory meeting only applies to public companies. Guardian Express Bank Plc V Odukwu and Anr .
(c) the company is unable to pay its debts after due demand has been made: This is believed to be the most popular provision regarding winding up of a company. By Law “inability to pay debts” means when the co is unable to pay a debt that is more than #2,000; after due demand to pay has been made by the creditor himself . The company has a grace period of three weeks to pay up its debt where a demand has been made. See 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 . Generally, 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 .
Although winding up proceedings can be brought against a debtor company, the Court requires that it should not be abused for a malevolent intention when the petitioner is just seeking to recover debt-Air Via Ltd V Oriental Airlines Ltd. The court noted that doing so (bringing an unwarranted winding up proceeding) would amount to an anomaly.
(d) The fourth situation where a winding up petition may be ordered is if 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 that in practice, the law gives the court wide discretion to grant alternative remedies where winding up would be too fatal. See General and Aviation Services Ltd V Thahal . Companhia Brazileria Des Infrastructura V COBEC Nigeria Ltd .
When can a Company be Voluntarily Wound Up?
By law, any company may be wound up voluntarily‐ (a) when the period, if any, fixed for the lifetime of the company expires, or where a determining event occcurs 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.
To avoid hasty winding ups. The winding up resolution must be published in a Gazette within 14 days of making the resolution. The voluntary winding up shall be deemed to commence from the time the resolution is passed by the members of the company.
Note also that the Board of Directors must pass a “declaration of solvency” before the company can resolve to be “voluntarily” wound up. Declaration of solvency means that it has enough money to pay its debts and meet up with liabilities-Corporate Affairs Commission V. Davies .
A liquidator is then appointed to ensure a smooth winding up and settlement of claims.
LEGAL CONSEQUENCE OF WINDING UP.
1. The directors power of management lapses while the liquidators take over.
2. The company is divested of the beneficial ownership of its assets.
3. No action can commence against the company without the leave of the court.
4. The employees of the company are ipsofacto dismissed. Necessary arrangements should be made for their settlement.
5. The company maintains it corporate status and powers until a formal act of dissolution by the court.
