AN APPRAISAL OF CREDITORS VOLUNTARY WINDING UP IN NIGERIA
Whatever comes to life also has to die; it is no different in corporate practice either. A company which is an artificial person with the powers and rights of a living person can also die, and winding-up is the process by which a company is liquidated and dissolved, its assets are distributed in accordance with certain rules of priority, for the benefit of its creditors, members and the employee.
In the Companies and Allied Matters Act 1990(CAMA), winding up was defined as:
“The liquidation or winding up of a company is the process whereby its life is ended and property administered for the benefit of its creditors and members. The process resembles the administration of a deceased’s estate.”
Also since we will be focusing on winding up by a creditor in this article, it is relevant to know who a creditor is. A creditor is a person to whom debt is owed by another person, called the debtor. the aforementioned definition is the strict legal sense of the term; but in the wider sense it means one who has a legal right to demand and recover from another a sum of money on any account whatever, hence may include the owner of any right of action against another, whether arising on contract or for a tort, a penalty, or a forfeiture.
The term creditors winding up is thus a process where a company is dissolved by a person to whom debt is owed, usually where the company is unable to pay the debt.
MODES OF WINDING UP
By virtue of Section 401 of CAMA, there are three (3) ways by which a company’s life comes to an end namely;
- By Court
- Voluntary and
- Subject to the supervision of Court.
Whatever mode is adopted, it is for the realization of some objectives i.e: to sell the assets of the company and distribute the net proceeds to the creditors and to the members.
VOLUNTARY WINDING UP UNDER S. 401 CAMA
As earlier mentioned, there are various modes of winding up a company, amongst which includes the voluntary winding up.
Under the voluntary winding up of a company we also have two types;
- Members voluntary winding up, and
- Creditors’ voluntary winding up.
The creditors’ voluntary winding is the issue for discussion in this paper, however below is a brief discussion on members’ voluntary winding up.
MEMBERS VOLUNTARY WINDING UP
A member of a company is generally any person who holds a share in that company. He subscribes to the memorandum of a company and possesses some rights i.e the right to notice of meetings, right to attend meetings, right to vote in a meeting and others as conferred by CAMA.
In the instance where the members of a company are of the opinion that the company be wound up, a resolution is passed that the company be wound up voluntarily and a declaration of solvency by the directors is made. Consequently, the foregoing is registered at the Corporate Affairs Commission.
A company is wound up voluntarily 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. i.e a company incorporated for the sole purpose of promoting an art exhibition
- If the company resolves by special resolution that the company be wound up voluntarily.
CREDITORS VOLUNTARY WINDING UP
In this regard, Creditors’ voluntary winding-up is a voluntary winding-up for which a statutory declaration of solvency was not made by the directors of the company.
The term declaration of solvency is a statutory requirement that at a meeting of directors declare that they have made a full inquiry into the affairs of the company and have formed the opinion that the company will be able to pay its debt in full within such period, not exceeding 12 months from the commencement of the winding up.
In differentiating between members’ voluntary winding-up and creditor’s voluntary winding-up, the difference is that in the former a declaration of solvency by the directors is made before the passage of the resolution for winding-up by members and the company stating that the company can indeed pay its debts within time; whereas creditors’ voluntary winding-up is actually members voluntary winding-up that was not preceded by a declaration of solvency by the directors or which despite the declaration, the liquidator is of the opinion that the company will not be able to pay as declared in the statutory declaration of solvency. Therefore the ground for winding up here is that the company is unable to pay its debts.
RELEVANT LAWS FOR WINDING UP
- COMPANIES AND ALLIED MATTERS ACT
- COMPANIES REGULATION 2012
- WINDING UP RULES.
OFFICIALS IN WINDING UP
- Official Receiver
- Receiver/ Manager
- Special Manager
The aforementioned factors are relevant to initiate and conclude the creditors’ voluntary winding up process as provided by section 471 of CAMA.
REQUIREMENTS FOR CREDITORS’ VOLUNTARY WINDING UP
In line with the provisions of Reg.45 of the Companies Regulation 2012, the requirements of creditors’ voluntary winding up include:
- Publication of notice of creditors’ meeting in the gazette and two daily newspapers
- Resolution for the voluntary winding up, to be filed with CAC within 14 days of passing,
- Appointment of liquidator
- Publication of notice of appointment of liquidator in the gazette or two newspapers
- Notice of appointment of liquidator to be filed with CAC within 14 days of the appointment
- Liquidator’s notice of his appointment
- Publication of notice of final meeting in the gazette and at least two daily newspapers circulating in the locality where the meeting is being called
- Return of final meeting and account of liquidation as laid before and approved by the meeting
- Original certificate of registration for cancellation
- Updated annual return
- Updated statement for filing where applicable( for every banking company or an insurance company or a deposit, provident or benefit society)
- Payments of fees.
- For failure to cause a meeting of directors
- For appointing a liquidator
- For appointing a committee of inspection
In conclusion, the creditors voluntary winding up is the right of the creditors by virtue of section 472 of CAMA, needless to say that the supervision of the Court is not required before exercising such right. However, unlike the members voluntary winding up where the members of a company are of the opinion that the company be wound up, and a resolution is passed to that effect, for the creditors of a company to be able to exercise this right of winding up, they must show that a statutory declaration of solvency was not made by the directors of the company or despite the declaration, the liquidator is of the opinion that the company will not be able to pay as declared in the statutory declaration of solvency.
- THE COMPANIES AND ALLIED MATTERS ACT 1990
- SAMUEL A. OSAMOLU, CORPORATE LAW PRACTICE IN NIGERIA (2018) ABUJA, Law Lords Publications.
- MAYATI CHAMBERS COMPENDIUM OF LAWS UNDER THE NIGERIAN LEGAL SYSTEM ( Second Edition 2008) Lagos, Tama productions.
- COMPANY REGULATIONS 2012