WINDING-UP AND DISSOLUTION OF BUSINESS AND NON-BUSINESS ORGANIZATION IN NIGERIA: PRINCIPLES AND

PROCEDUREBy

Akin Olawale Ogundayis LL.B, B.L, ACIArb.

INTRODCUTIONWinding up is the process whereby the company is liquidated and dissolved

and its assets administered for the benefit of creditors, members and

employees. The winding-up process terminates the corporate identity of a

company and all its attribute of perpetual succession, which is one of the

ways to dissolve a registered company under the Act. Upon winding-up of a

company or the appointment of liquidator, it does not exist any longer

except for a just cause.

It should be noted that a company wound-up is not dead for it is still alive; it

only dies on dissolution. See C. S. (Nig.) Plc v. Mbakwe (2002) 3 NWLR

(Pt. 755) 523 at 527 – 528. During the winding-up process, the assets of

the company are realized, sold and applied to pay off its debts and whatever

is left as the surplus is distributed to the shareholders in accordance with the

provisions of the memorandum and articles of association.

The terms “winding-up” and “liquidation” are usually regarded as being

synonymous and are consequently used interchangeably. In Musa v.

Ehidiamhen (1994) 3 NWLR (Pt. 334) 544, it was stated that both terms

refer to the process whereby an end is put to the “life” of a company and its

property administered for the benefit of its creditors and members.

JURISDICTION OF COURT

The Federal High Court has jurisdiction to wind up a company. This is

because Companies and Allied Matters form part of the items under section

251(1) of 1999 Constitution (as amended), which is exclusive of the court.

There are certain circumstances where by administrative institutions or

corporations established by law are vested with certain responsibilities in the

winding up process. For example, in the winding up of financial institutions

that has gone bankrupt or insolvent, the National Deposit Insurance

Corporation (NDIC) may be involved in the process. Section 407 CAMA;

section 7(1)(c)(g)) Federal High Court Act, Cap F12 LFN 2004.

MODE OF WINDING-UP

Generally, winding up may be either voluntary or involuntary. It is

involuntary winding up where it is initiated by the court by virtue of its

statutory power to do so. On the other hand, the members, creditors or

contributories of the company may willingly meet with a view to wind up the

company- this is said to be voluntary . Thus, winding up may be effected by:

    (a)      the court (compulsory); or

    (b)      voluntarily by member; or

    (c)      Subject to supervision of court.

See Section 401 CAMA

WHO MAY WIND-UP

Depending on the mode of petition, any of the following persons may present

or file a petition for winding up, that is:

a. the company

b. a creditor, including a contingent or prospective creditor;

c. the official receiver,

d. a contributory;

e. a trustee in bankruptcy to, a personal representative of a

creditor or contributory;

f. the Commission (Corporate Affairs Commission) under sections

323, 410(2)(d) of CAMA;

g. a receiver if authorized by the instrument under which he was

appointed, or

h. by all or any of the parties, together or separately.

See Section 410 of CAMA

It should be borne in mind that Section 32 Insurance Act No.1 of 2003 

provides that petition to wind up an insurance company may be presented

by not less than 50 policy holders and the National Insurance Commission.

WINDING-UP BY THE COURT

A company may be wound-up by an order of the court. We have mentioned

that the Federal High Court has jurisdiction to do so. However, care must be

taken in choosing the appropriate venue of the court where the company

registered address is situated. Thus, in Medicore (Nigeria) Ltd. v.

Labwares (Nigeria) Ltd. (1985) FHCR 240, a company’s registered office

is in Ilorin, Kwara State. A petition was brought in a Lagos court to wind-up

the company. It was held that the court that had jurisdiction to wind-up the

company is the court within whose area of jurisdiction the registered office of

the company is situated, which is the court in Ilorin. Therefore, the Lagos

court was incompetent to hear the petition. In addition, in IMB Nigeria Ltd.

v. Lomay Nigeria Ltd. (1986) FHCR 28, where a petition was brought for

convenience in Lagos against a company whose registered office is in Jos,

the petition was struck out.

Where a company is being wound-up by the court, any attachment,

sequestration, distress or execution put in force against the company after

the commencement of the winding-up shall be void by virtue of section 414.

See N.D.I.C v. Ifediegwu (2003) NWLR (Pt. 800) 56.

GROUNDS FOR WINDING-UP

The grounds for winding up of a company may defer due to the mode of its

winding up. However, there appears to be a common ground applicable to all

modes either by the court, subject to supervision of court, members

voluntary or creditor’s voluntary winding up. The grounds can be any or all or

a combination of the following grounds:

a. the company has by special resolution resolved that the

company be wound up by the court

b. default is made in delivering the Statutory Report to the

Commission or in holding the statutory meeting.

c. The number of members is reduced below two.

d. The company is unable to pay its debts.

e. the court is of opinion that it is just and equitable that the

company be wound up.

(a) By Special Resolution:

All that is required for a company to be wound-up under this ground is that

the resolution must be duly passed at a meeting duly and properly convened

and it should require that the company be wound-up by the court. Such

instances are rare because a company would rather pass a special resolution

to wind-up the company voluntarily under section 457(b) of CAMA.

(b) Default made in delivering Statutory Report:

This can only be brought by a shareholder and it must be before the

expiration of fourteen (14) days after the last day on which the meeting

should have been held under section 410(2)(b) of CAMA. The court may,

instead of making a winding-up order, direct that a meeting be held or the

report be delivered, and make orders as to costs as it thinks fit. See section

411(3) of CAMA. This ground is only applicable to public companies. See

section 211(1) of CAMA.

(c) Reduction of Members below Two:

A company cannot be incorporated with less than two persons which is the

legal requirement – section 18 of CAMA. A company which is in default of

this would be wound-up by the court in addition to other sanctions as to

liability. See section 93 of CAMA. This is one of the cases where a

contributory is expressly authorized to bring a petition for winding-up. See

section 410(2) of CAMA.

(d) Inability to pay debt:

This is just one of the grounds a company is wound up. Section 409 of CAMA

makes provision in relation to when a company is deemed to be unable to

pay debts. These are:

1. If the company owes a creditor a sum exceeding N2,000 (Two

thousand naira) which is due for payment and a demand has been

made on the company for payment with the company not being able to

pay, secure or compound the debt to the satisfaction of the creditor for

three (3) weeks after the demand has been made.

2. Where execution has been levied or other process issued against the

company in respect of a judgment debt and it is returned unsatisfied in

whole or in part.

3. If the court is satisfied that the company is unable to pay its debts

after taking into account any contingent or prospective liability of the

company.

The courts often apply strict rules in granting an application for winding-up

based on the ground since it is often abused. Thus, the debt must be

disputed. In Re London & Paris Banking Corporation (1874) LR 19 Eq

444 at 644, per Jessel M. R stated thus:

“... I should be bound to hold that if the debt is bona fide contested

and there is no evidence other than non-compliance with the statutory

notice to show that the company is insolvent, and the company denies

this insolvency, I ought to dismiss the petition”.

In such a case, a petition based on inability to pay debt was dismissed

because the debt was disputed. Also, in Re Brighton Club & Norfolk Hotel

Co. Limited (1865) 35 Beav. 205, a petition for winding-up was based on

failure to pay debt after a demand has been made for same. The petition

was not granted because there was no bona fide dispute as to the exact

amount that was due. In Tandy and Freeman v. Harmony House

Furniture Co. Ltd. (1972) NCLR 163, the Supreme Court granted a

petition for the winding-up of a company based on her inability to pay her

debt.

For a petition for winding-up to be successful on the ground of inability to

pay debt, a demand must have been made on the company after which the

company defaults in settling same within three weeks after the demand. In

Nigerian Commercial & Industrial Enterprises Ltd. v. Registrar of

Companies (1973) 1 FRCR 249, it was held that a demand made by the

solicitor to a company for payment of debt was not a demand by an officer of

the company.

(e) Just and Equitable ground:

This ground is based entirely on the discretion of the court and is also

popular with applicants. However, the courts would consider a lot of factors

before coming to the conclusion that a company should be wound-up on just

and equitable ground. Whether it is just and equitable to wind-up, a company

depends on the facts, which are available to the court at the time of hearing

of the application as set out in the petition. See Re Wondoflex Textiles

Property Ltd. (1951) VLR 458.

In The Matter of the Stevedoring (Nig.) Co. Ltd. (1962) LLR 164, it

was held that it was just and equitable to wind-up a small company where

there was a disagreement between the members and directors and

disagreement has adversely affected the business of the company. However,

a petition on just and equitable ground should not be dismissed basically

because the petitioner has some other remedies since the motive of the

petitioner is irrelevant. The petitioner is not entitled to a winding-up order on

the just and equitable ground if his object is not a company purpose but the

pursuit of a selfish advantage in a question between himself and other

shareholders.

PROCEDURE FOR PETITION FOR WINDING UP BY THE COURT

1. In case of petition by the company Call Board Meeting to approve

special resolution that the company be wound up by the Court Call

EGM to pass special resolution

2. File Resolution with the Commission and forward copies to SEC and the

Stock Exchange (if public company).

3. In other cases notify company of intention to apply for winding up.

4. Prepare petition and other documents and file at Registry of Federal

High Court.

5. Prepare Statements of Affairs unless otherwise ordered by the court.

6. Official Receiver's makes reports to the meetings of Members,

Creditors and Contributories.

7. Appointment and advertisement of Liquidator

8. Appointment of Committee of Inspection where applicable.

9. Winding up by Liquidator

10. Dissolution

It should be noted that every petition should be in any of the Forms Nos 2, 3,

or 4 in the Appendix to the Rules with such variations as the circumstances

may require. The petition must be verified by an affidavit referring to it. On

the making of a winding up order, a copy shall be forwarded by the company

to the Commission. Section 416 CAMA

WINDING-UP SUBJECT TO SUPERVISION OF COURT

Ground

Where a company passes a resolution for voluntary winding up, the court

may on petition order that the voluntary winding up shall continue subject to

the supervision of court. See section 486 CAMA

 

Effect:

A petition for winding up subject to the supervision of the court operates for

most purposes as a petition for winding up by the court. sections 487,

490(2).

  Presentation:

The petition may be presented by anyone or more of the parties entitled to

petition for compulsory winding up of the company.

COMMENCEMENT OF WINDING UP

Winding up is deemed to have commenced at the time of the passing of the

resolution, where a special resolution has been passed before the

presentation of petition for winding up by the court. In any other case, the

winding up by the court is deemed to commence at the time of the

presentation of the petition for the winding up. Section 415 CAMA; see

also section 413 of CAMA.

VOLUNTARY WINDING-UP PROCEDURE

This is a winding up, where the company has made a declaration of solvency

and delivered the same to the Commission for registration.

The procedure for winding up a company voluntarily depends on whether it

is members' winding up. Section 463 of the Companies and Allied Matters

Act provides that sections 464 to 470 of the Companies and Allied Matters

Act shall, subject to the alternative provisions of section 469, apply in

relation to a members' voluntary winding up. Section 471 on the other hand,

provides that sections 472 to 478 of the Companies and Allied Matters Act

shall apply in relation to creditors' voluntary winding up. Section 479

provides that sections 480 to 485 shall apply to both.

PROCEDURE        

1. The company should call a general meeting and appoint one or more

liquidators for the winding-up affairs.

2. After the appointment of a liquidator(s), all the power of the Directors

shall cease except so far as the company in general meeting or the

liquidator sanctions the continuance thereof.

3. The liquidator should summon a meeting in the event of the winding-

up continuing for more than one year. The meeting should be at the

end of each years but subject to section  469 of the Act which makes

alternative provisions as to annual and final meetings in insolvency

cases.

4. The meeting should be called by notice published in the Gazette and in

some newspapers printed in Nigeria.

5. The liquidator should prepare an account for the winding-up showing

how the winding-up has been conducted and property of the company

has been disposed.

6. The liquidator should lay the account before the general meeting to be

called by him and give explanation thereof. The liquidator shall within

7 days send a copy of the account to the Commission.

7. If a vacancy occurs by death, resignation or otherwise in the. office of

the liquidator, call a general meeting to fill up the vacancy.

8. The liquidator should keep proper records and books of account with

respect to his acts and dealings and of the conduct of the winding-up

and of all receipts and payments by him and so long as he carries on

the business of the company, shall keep a distinct account of the

finding.

9. As soon as the affairs of the company are fully wound-up, the liquidator

should prepare and send to every member of the company financial

accounts of the winding-up showing how the winding-up has been

conducted, the result of the trading during such time as the business

of the company has been disposed of.

10. The account should be audited by the auditor of the company

prior to being laid before the company in general meeting and the

auditors should state in a report annexed thereto whether, in their

opinion and to the best of their information that-they have obtained all

the information and explanations necessary for the purpose of the

audit and that proper books and records have been maintained by the

liquidator and such accounts are in accordance with the books and

give all the information required by the Act in the manner therein

required and give a true and fair view of the matters stated in such

accounts.

11. Convene a general, meeting of the company for the purpose of

laying before it such accounts ' and giving an explanation thereof.

12. Within 28 days after the meeting, the liquidator should send to

the Commission for registration copies of the accounts and a

statement of the holding of the meeting and its date.

13. The liquidator shall preserve the books and papers of the

company and of the liquidator for a period of 5 years from the

dissolution of the company but thereafter may destroy such books  and

papers unless the Commission shall otherwise direct in which event he

shall not destroy the same until the Commission consents in writing.

CREDITOR’S VOLUNTARY WINDING UP-PROCEDURE

This is voluntary winding-up where no declaration of solvency has been filed

with the Commission. Separate meetings of creditors and of members are

held. See Section 472-476, 491 CAMA

Procedure

1. The company should summon a meeting of the creditors of the

company for the day, or the day next following the day, on which the

company is to hold the meeting at which it is to propose the resolution

for voluntary winding up.

2. The notices of the meeting of the creditors should be sent by post to

them simultaneously with the sending of the notices of the meeting of

the company.

3. The notices of the meeting should be published once in the Gazette

and at least once in two newspapers published in Nigeria and

circulating in the district where the registered office or principal place

of business of the company is situated.

4. The meeting should be presided over by the directors of the company.

The directors should cause a full statement of the position of the

company' s affairs together with a list of the creditors of the company

and the estimated amount of their claims to be laid before the

meeting. Note that a breach of section 472(1) and (2) is an offence.

5. The meeting may also appoint a liquidator and a Committee of

Inspection. If different persons are nominated as liquidators at the

separate meetings of the creditors and of the company, then the

person nominated by the creditors will be the liquidator, and if no

person is nominated by the creditors, the company's nominee will be

the liquidator.

6. Any director, member or creditor may apply to court, within seven

days after the date on which the nomination was made by the

creditors, for an order that the person nominated by the company shall

be the liquidator instead of or jointly with the creditors' nominee, or

that another person be appointed.

7. If a vacancy occurs in the office of a liquidator, it may be filled by the

creditors unless the liquidator was appointed by the company or by the

direction of the court.

8. The liquidator should, within 14 days after his appointment, publish in

the Gazette and in two daily newspapers and deliver to the

Commission, a notice of his appointment.

9. An extraordinary general meeting of the company should be called to

pass the winding up resolution in accordance with section 457 of the

Act.

10. The notice of winding up resolution must be advertised in the

Gazette or two daily newspapers within 14 days and a copy of the

resolution must be filed with the Commission within that same period.

11. If the winding up continues for more than one year, the liquidator

should summon a general meeting of the company and a meeting of

the creditors within three months after the end of the first and every

succeeding year and lay before the meeting, an account of his acts

and dealings and of the conduct of the winding up during the

preceding year.

12. As soon as the affairs of the company have been fully wound up,

the liquidator must prepare an account of the winding up, showing how

the winding up has been disposed of. He should then call a general

meeting of the company and a meeting of the creditors and lay the

account before themThe notice of each of the meetings must, at least

one month before the meeting, be published in the Gazette and in

some newspapers printed in Nigeria and circulating in the locality

where the meeting is being called.

13. After the meetings, the liquidator must, within 7 days, send a

copy of the account to the Commission and also make a return to the

Commission of the holding of the meetings or the fact that they were

summoned but not held because a quorum was not formed as the case

may be. On receipt of the account and the return, the Commission will

register them.

14. The company is deemed to be dissolved three months after the

account and returns are registered by the commission.

WINDING-UP OF UNREGISTERED COMPANY

An unregistered company may be wound up under CAMA if:

(a) the company is dissolved or has ceased to carry on business or is

carrying on business only for the purpose of winding up its affairs (or)

the company is unable to pay its debts which is and is more than N100

and after a demand of such amount has been made (or)

(b) An execution issued on judgement is obtained in favour of a creditor

against the company (or)

(c) It is otherwise proved to the satisfaction of the court that the company

is unable to pay its debts. Section 532-536 CAMA

In the event of winding-up, every person shall be deemed to be a

contributory who is liable to pay or contribute to the payment of any debt or

liability of the company. All contributories shall be liable to contribute to the

company all sum due from him in respect of any such liability as aforesaid.

STRIKING OFF OF A DEFUNCT COMPANY

1) Where the Commission has reasonable cause to believe that a

company is not carrying on business or in operation, it may send to the

company by post a letter inquiring whether the company is carrying on

business or in operation.

2) If the company does not answer the letter within one(1) month, the

Commission shall within 14 days after the expiration of the month

send to the company by post a registered letter referring to the first

letter and stating that no response has been made to the first letter

sent to it by the Commission.

3) Notice shall be published in the official Gazette with a view to striking

the name of the company off the register.

4) A notice at the end of 3 months of the notice published above can be

sent to the company that the name of the company be struck off and

the company be dissolved where it receives answer confirming that the

company does not carry on business or in operation or where the

Commission does not receive any answer after sending the second

letter except where it shows cause to the contrary.

DISSOLUTION OF PARTNERSHIP

This can be caused by any of the partners in the following ways –

1. By act of the parties. This can be done either –

(i) By giving notice of intention to dissolve the partnership if

provided for in the agreement; or

(ii) By reason of ill-health making a partner permanently

incapacitated and the partnership not being able to continue; or

(iii) Where a partner creates a charge on his or her share of the

partnership property; or

(iv) By providing for a clause like power of expulsion in the

agreement.

2. By operation of law if:

(i) It is for a fixed term at the expiration of the term.

(ii) It is for an undertaking at the performance of the undertaking

(iii) It is supervening illegality.

(iv) It is for death or bankruptcy of a partner.

3. By order of Court, in which a partner can apply that the partnership

be dissolved based on:

(i) Mental ground; or

(ii) Breach of agreement; or

(iii) Permanent incapacity; or

(iv) Carrying on the business at a loss or on any equitable ground

See generally section 33-36 of Partnership Law of Lagos State.

Procedure for Dissolution

1. Notice of requirement, dissolution, or expulsion is served on another

partner referring to the appropriate clause in the partnership

agreement.

2. The partners prepare the dissolution agreement.

3. Notice of dissolution is given to Corporate Affairs Commission, if

registered.

4. Notice of dissolution is published in the gazette and national

newspapers.

5. Notice of dissolution is given to clients or customers.

DISSOLUTION OF BUSINESS NAMES

These are names registered by individuals and partners when carrying out

business. Such business names are to be registered with the Companies and

Allied Matters Act, Cap C 20 LFN 2004.The registration of business names is

administered by the Corporate Affairs Commission. Section 570 of CAMA

provides that “there shall be established in each State of the Federation, a

register office of business names where there shall be kept a register in the

prescribed form in which shall be entered such matters as are required by

this Act or any regulation made thereunder to be entered in it.”

Procedure

The Registrar has power to remove a business name from the register if the

firm, individual or company is no longer carrying on business under the

following circumstances:

1. If the firm, company or individual ceases to carry on business in the

business name.

2. A notice shall be delivered or posted to the Registrar within three (3)

months after the business has ceased to be carried on, stating that the

firm or individual has ceased to carry on business. See section

578(1) of CAMA.

3. Upon delivery of the notice to the Registrar, the Registrar may remove

the firm, company or individual from the register.

4. If the Registrar has reasonable cause to believe that the firm, company

or individual is not carrying on business, the Registrar may send a

notice to the firm, company or individual enquiring whether or not the

business is being carried on. Where there is no response within two (2)

months, or the answer to this is that there is no business being carried

on, the Registrar may remove the business name from the Register.

See section 578(3) and (4) of CAMA.

REMOVAL OF PARTNERSHIP NAME UNDER PART B FROM

REGISTER

a) Where a firm registered under part B of CAMA ceases to carry on

business or the individual making up the firm dies, a notice can be sent

to the Registrar by the personal representatives of the individual. On

receipt of such notice, the registrar may remove the firm from the

register.

b) Where the registrar reasonably believe that the firm is not carrying on

business, he may send notice of removal to the firm and unless an

answer is received to such notice within 2 months from the date

thereof, the firm name may be removed from the register.

DISSOLUTION OF INCORPORATED TRUSTEES UNDER PART C OF

CAMA

A corporate body formed under this part may be dissolved by the court on a

petition brought by the governing body, one or more trustees, members of

the association constituting not less than 50 per cent of the total

membership or the commission. Section 608 CAMA

Grounds for Dissolution include:

a. That the aims and objects for which the organization was established

have been fully realized and no useful purpose would be served by

keeping the corporation alive.

b. That the corporate body is formed to exist for a specified period, that

period has expired, and it is not necessary for it to continue to exist.

c. That all the aims and objects of the association have become illegal or

contrary to public policy.

d. That it is just and equitable in all circumstances that the corporate

body be dissolved.

At the hearing of the petition, all persons whose interest or rights may in the

opinion of the court be affected b the dissolution shall be put on notice. In

the event of a winding-up or dissolution of the corporate body there remains

any property after the satisfaction of all its debts and liabilities shall be given

or transferred to some other institutions having objects similar to the objects

of the body such institution to be determined by members of the association

before dissolution. If there is no institution agreed upon, the remaining

property shall be transferred to some charitable object.

DIFFERENCE BETWEEN WINDING-UP AND DISSOLUTION

Winding-up is the process of liquidating and dissolving a company. While

dissolution is that act of administering the assets of a company for the

benefit of creditors, members and employees. Section 454 provides that

where the affairs of the company have been fully wound-up and the

liquidator makes an application in that behalf, the Court shall order the

dissolution of the company and the company shall be dissolved accordingly

from the date of the order. This simply explains when dissolution is deemed

to have taken place when a company is wound-up by the court.

Similarly, where the winding-up is one by creditor’s voluntariness, a

company is deemed to be dissolved three months after the account and

returns are registered by the commission. Thus, while it can be said that

winding-up is the process, dissolution is actually the completion of winding-

up process. However, a company can be dissolved without actually passing

through the process of winding-up just as we have seen in the case of

striking out of a company from the register of CAC.

MAJOR OFFICERS IN LIQUIDATION AND INSOLVENCY

A. Official Receiver

The Deputy Chief Registrar of the Federal High Court or any other Officer

designated for the purpose by the Chief Judge of that court is the Official

Receiver. His duty is to receive the Statement of Affairs of the company and

to collate information about the company e.g. the capital, assets and

whether there is need for further enquiry concerning the promotion,

formation or failure of the company. He becomes the liquidator when the

winding order is made in a compulsory winding up until the appointment of a

liquidator, and acts as such whenever there is a vacancy. See Section 421

CAMA

B. Provisional Liquidator

A liquidator is a person who is appointed by the company or the court to

wind up the affairs of a company and to distribute its assets, if any, among

creditors and contributories in accordance with the articles. He represents

the interests of all creditors, especially the unsecured creditors. Upon his

appointment, all the powers of the directors cease. Section 422(9) CAMA

C. Receiver

A receiver is appointed by secured creditors under power contained in

agreement between the company and the creditors. Accordingly he

represents the interest of the creditors and his main concern is to release the

assets of the company and payoff the debt due to the creditors. When

satisfactory discharge of his duty requires that he manages the affairs of the

company, he is called a "Receiver and Manager."

D. Special Manager

Where the Official Receiver becomes the liquidator of a company, he may

apply to the court for an order appointing a Special Manager with such

power, including those of Receiver or Manager as the court may invest on

him. The Official Receiver himself may be appointed Special Manager.

Section 436 CAMA