By Isochukwu
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.
:: The grant of a winding up petition does not ipso facto 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-Progress Bank Nigeria Ltd V O.K Contact Point Holdings Ltd.
:: 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.
In England the procedure is contained in the English Insolvency Act.
TYPES OR INSTANCES OF WINDING UP:
– By Court (Compulsory Winding Up): See Section 408.
– Voluntary Winding up: Provided under Section 459 CAMA. e.g. where the co 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 FHC (withing the area of the company’s registered or head office) that has jurisdiction-Section 407(1)CAMA, 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 held to be incompetent.
When can a company be wound up by the Court?
Section 408 provides (the provisions shall be in bold and italicised):
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; 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. Lord Dennning in UAC V MacFoy
(b) default is made in delivering the statutory report to the Commission or in holding the statutory meeting; which is in default of Section 211 and 212 CAMA. A contributory (or even creditor) can bring a petition for the winding up of the co. Note that statutory meeting only applies to public companies. Guardian Express Bank Plc V Odukwu and Antoher .
(c) the number of members is reduced below two: Section 18 COMPANIES AND ALLIED MATTERS ACTrequires at least 2 persons to form a company.
(d) the company is unable to pay its debts: Professor Olawoyin San believes this to be the most popular provision regarding winding up of a co. Section 409 tells us what “inability to pay debts” means. In essence when the co is unable to pay its debt (which must be more than #2,000) after due demand to pay has been made by the creditor himself . The co has a grace period of 3 weeks-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 . For a company, 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 .
This Section is not meant to be abused for malevolent intention when the petitioner is just seeking to recover debt-Air Via Ltd V Oriental Airlines Ltd Also the case of In the matter of Yanju International Motel Ltd where the court noted that doing so would amount to an anomaly.
(e) 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 Section 312 which gives the court wide discretion to grant alternative remedies where winding up would be too fatal. See the earlier discussion on Majority Rule and Minority Protection. General and Aviation Services Ltd V Thahal . Companhia Brazileria Des Infrastructura V COBEC Nigeria Ltd .
When can a Company be Voluntarily Wound Up?
Section 457 COMPANIES AND ALLIED MATTERS ACTprovides Any company may be wound up voluntarily‐ (a) when the period, if any, fixed for the duration of the company by the articles expires, or the event, if any, occurs, on occurrence of which the articles provided that the company is to be dissolved 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 and references in this Act to a “resolution for voluntary winding up” means a resolution passed under any of the paragraphs of this section.
This resolution must be published in a Gazette within 14 days of making the resolution-Section 458. The voluntary winding up shall be deemed to commence from the time the resolution is made-Section 459 CAMA.
Note also that the BOD must pass a declaration of solvency before the co can resolve to be wound up. Declaration of solvency means that it has enough money to pay its debts and meet up with liabilities-CAC V Davies .
A liquidator is then appointed with powers to do such things as he can to ensure a smooth winding up and settlement of claims-Section 425 CAMA.
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 co without the leave of the court.
4. The employees of the co are ipsofacto dismissed.
5. The co maintains it corporate status and powers until a formal act of dissolution by the court.
CONFLICT OF INTEREST