Winding Up Processes in Companies and Insolvency Proceeding in Nigeria
According to investopedia.com, “Winding up a business is a legal process, regulated by corporate laws as well as a company’s articles of association, or the partnership agreement, in the case of a partnership. Winding up can be compulsory or voluntary and can apply to both public and privately-held companies”:
Winding Up may either be voluntary or compulsory. Compulsory Winding Up
Writing further, investopedia.com says “Compulsory winding up happens when laws, or court orders, force a company to appoint a liquidator who sells assets and distributes the proceeds to creditors. A company’s creditors will often trigger the process. In time, creditors will realize that a company is insolvent due to unpaid bills. Winding up, or liquidation is sometimes part of a bankruptcy proceeding. In some cases, a company may not have sufficient assets to satisfy all its debtors entirely, and then these creditors will face an economic loss”
In similar fashion investopedia.com summarizes voluntary liquidation as follows “Shareholders or partners may trigger a voluntary winding up. Voluntary liquidation is usually brought on through a resolution. The company may or may not be insolvent. If solvent, the reason for winding up may be that the shareholders feel their objectives were met and that it is time to cease operations and distribute company assets. Sometimes market situations may paint a bleak outlook for a particular business. If the stakeholders decide the company will face insurmountable challenges, they may call for a resolution to dissolve the organization.
While section of 401(1) of Companies and Allied Matters Act(CAMA) 2004, declares:
(1) The winding up of a company may be effected –
(a) by the court; or
(b) voluntarily; or
(c) subject to the supervision of the court.
We shall restrict our discussion to Voluntary Winding Up
Section 457 of CAMA guide, “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;
Section 458 of the same CAMA provides:
. (1) If a company passes a resolution for voluntary winding up it shall, within 14 days after the passing of the resolution give notice of the resolution by advertisement in the Gazette or two daily newspapers and to the Commission.
Commencement of Members Voluntary Winding Up
PROCEDURE FOR MEMBERS’ VOLUNTARY WINDING-UP
Declaration of Solvency
A meeting of the Board of Directors is convened with them passing with a declaration that they have made an enquiry into the affairs of the Company and that, having done so, they have formed the opinion that the company has no debts or that it will be able to pay its debts in full from the proceeds of the assets sold in voluntary winding up of the company. [See Section 462 CAMA, Form 82, Companies Winding Up Rules] This resolution must be filed within 5weeeks of making it with the Corporate Affairs Commission.
Issue of Notice of General Meeting
The Company may issue notice of general meeting which provides for 21days notice before the meeting day(See Section 217 of CAMA 2004) specifying place, date, time and the general nature of the business to be transacted, this case, voluntary winding up.
At the general meeting, the shareholders will propose and pass a special resolution in accordance with section 457(b) the company be wound up voluntarily.
Section 459 of CAMA informs
“A voluntary winding up shall be deemed to commence at the time of the passing of the resolution for voluntary winding up”.
Publication of notice of resolution in the Gazette or two daily Newspapers within 14days after passing the resolution. See Section 458 of CAMA
Appointment of Liquidator
The company in general meeting shall appoint one or more liquidators for the purpose of winding up the affairs and distributing the assets of the company, and may fix the remuneration to be paid to him or them. If a liquidator is appointed under this section, all the powers of the directors shall cease, except so far as the company in general meeting or the liquidator sanctions the continuance thereof.(Section 464(1) & (2) of CAMA
The resolution for winding up and liquidator and distribution of assets can be put up in a single meeting.
The liquidator shall, within 14 days after his appointment publish in the Gazette and in 2 daily newspapers and deliver to the Commission for registration a notice of his appointment in such form as the Commission may from time to time approve. [Section 491 of CAMA] for requirement to publish appointment and 464 of CAMA for powers of the company to appoint liquidator.
Wind up affairs of the company and prepare the liquidators account of the winding up of the company and get the same audited.
The Liquidator complete winding up the affairs of the company, prepares liquidator account of the winding up of the company and may get the account audited if he is not a qualified accountant.
Step 8-(May be skipped)
In the event of the winding up continuing for more than one year, the liquidator shall summon a general meeting of the company and a meeting of the creditors at the end of the first year from the commencement of the winding up, and of each succeeding year, or at the first convenient date within 3 months, from the end of the year or such longer period as the Commission may allow, and shall lay before the meetings an account of his acts and dealings and of the conduct of the winding up during the proceeding year.
Final Meeting and dissolution
“As soon as the affairs of the company are fully wound up, the liquidator shall prepare an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon he shall call a general meeting of the company and a meeting of the creditors for the purpose of laying the account before the meetings and giving any explanation thereof.
Each such meeting shall be called by notice published in the Gazette and in some newspapers printed in Nigeria and circulating in the locality where the meeting is being called, specifying the time, place and object thereof, and published one month at least before the meeting.[2 Newspapers]
Within 7 days after the date of the meeting, or if the meetings are not held on the same date, after the date of the later meeting, the liquidator shall send to the Commission a copy of the account, and shall make a return to it of the holding of the meetings and of their dates,”
“The Commission on receiving the account and in respect of each such meeting, either of the returns mentioned above, shall forthwith register them, and on the expiration of three months from the registration thereof the company shall be deemed to be dissolved”: Section 478(1), (2) (3),& (4) of CAMA
Contact a Certified Insolvency Practitioner now
Qeeva Advisory is the Nigeria’s certified insolvency practitioners. We help you navigate the legal requirements in a winding up situation whether voluntary or compulsory. Our experts have several years of experience with companies. We are versed in the requirements of the Companies and Allied Matters Act 2004 and the Winding Up Rules 2001.