Winding up is the process whereby a company’s assets are:

• Liquidated
• Dissolved

The benefit of creditors. Members & employees

Winding up goes beyond insolvency, it covers solvency and insolvency. But more often than not its insolvency that leads to the winding up of companies.

 

PART A

 There are different types of winding up

• Winding up by the court/compulsory winding up
• Voluntary winding up: There are two types – creditors voluntary winding up, members’ voluntary winding up.

In creditors voluntary winding up two meetings are held

 

Compulsory winding up – S408

A special resolution is needed for a compulsory winding up. Note that in some circumstances, voluntary winding up can be by ordinary resolution

• Default of statutory returns – public companies have statutory meetings
• Member below 2
• Inability to pay debt
• Just & equitable ground

 

When can an official receiver bring a petition for voluntary winding up. See s 410(3)

 

PETITIONERS

• Company
• Creditor
• Official receiver
• Contributory
• Trustees in bankruptcy
• CAC
• Receiver under an instrument

 

Contributory

See definition section of CAMA - S92(4). It can include past shareholders of up to one year

ADO IBRAHIM v B.C.C Ltd – includes fully paid shareholder e.g. company has surplus assets over liabilities.

S 410(4) – surplus assets not mandatory

 

Inability to pay debt s.408 (d), 409 CAMA

• Debt – there must be a debt and the debt must be due, and the person must have demanded for it. They must also be given three weeks to pay
• Demand must be under the hand of the creditor. So you have to draft as the creditor, you cannot draft as solicitor unless the question says so. The law says the creditor has to make the demand by himself
• Failure
• ORIENTAL AIRLINES V AIR VIA LTD

When can the commission bring a petition for compulsory winding up?

 

DEBT

• What if debt is disputed? This doesn’t mean that the statutory letter of demand will not be valid or that the court will not grant an order for a winding up petition
• Bonafide dispute –
• ONACHIE V ALAN DICK – (2003) 1 NWLR (PT 832) P.451
• TATE INDUSTRIES V DEVCOM – (2004) 17 NWLR (pt 901) CA 182
• The case of ADO IBRAHIM V BCC says except the debt is colossal and the assets of the company would not be able to settle it , then in that instance the court would consider the issue of the debt being disputed

 

 

Draft the statutory letter of demand – this is popular question under winding up.

See pg 187 in the handbook

 Diamond bank borrowed abc plc N5,000,000

 

DIAMOND BANK

15 Adeola Odeku Road, Victoria Island

Lagos State

www.diamondbankng.com 08134758901, 09078190270

RC No: 96785

 

Our Ref:                                                                                  Your Ref:

 

Managing Director,

ABC plc,

12 Ikoyi Road

 

Dear Sir,

DEBT OF N5,000,000.00

…….(Intro paragraph)

Take notice that unless payment of this money is received in our office at the above address within three weeks after the service of this letter on you, winding up proceedings may be taken against your company. Any communication you may wish to make in respect of this demand may be sent to the above address.

This demand is made pursuant to section 409(a) of the Companies and Allied Matters Act, 1990.

 

Yours faithfully,

DIRECTOR

 

 

 

JUST & EQUITABLE GROUNDS

• Failure of substratum/ acting outside the intention or common understanding of members
• Co is bubble
• Fraud
• EBRAHIMI V WESTBOURN GALLERIES

 

COMMENCEMENT – S415 CAMA

 

WINDING UP OF THE COURT

 

MAJOR STEPS IN WINDING UP

• Special resolution
• Filing
• Verifying affidavit
• Service of process
• Advertisement
• Filing of memo of compliance
• Notice of intention to appear
• Provisional liquidator
• Affidavit in opposition & reply
• Summons for security for costs
• List of those appearing
• Hearing
• Winding up order

 

Committee of inspection: e.g. special manager, officers that can assist the liquidator in doing his work of winding up.

 

Dissolved – s 454

 

Voluntary winding up

• Ordinary resolution – s457
• Special resolution
• Notice of resolution to be published – 14 days
• Commencement – passing resolution

 

Draft special resolution

Abc plc passed a specialresolution for members voluntary winding up

 

Effect of voluntary winding up

• Cease to carry on business
• No transfer of shares without
• 460 & 461 CAMA

 

Creditors voluntary winding up – s.472

It is the members that must pass a resolution to say that the company should be wound up by creditors voluntary winding up

• No declaration of solvency: after this the directors would make a proposal that the company be wound up by creditors voluntary winding up
• Separate meetings of creditors & members – s.472
• Notice of meeting of creditors published: the members are the ones that must pass the resolution and their meeting would come first before the creditors have a meeting which must be published
• Appointment of liquidators: this is not compulsory
• Creditors liquidator takes priority

 

Differences between members voluntary winding up and creditors voluntary winding up

The only differences are 1) there is no declaration of solvency and 2) there are two meetings – meetings of members and meetings of creditors

 

In what instance can the liquidator appointed by member take priority over creditors liquidator – see s473

Liquidator to call meetings

Notice of final meetings in newspaper

Final meeting

Forward account to CAC – 7 Days

 

CAC – reg. 45

Subject to court supervision – s.486 CAMA

• Resolution for voluntary winding up
• Petition by persons entitled to voluntary winding up
• Effect – compulsory winding up

 

OFFICERS

• Official receiver s. 401 (3), 419 , 422 (2)
• Provisional liquidator – s 422 (2),
• Liquidator – s 422
• Committee of inspection – s 4333, 434
• Special manager – s 436

 

LIQUIDATOR

• Who may be appointed – s 509. Only natural person can be appointed as liquidators, a company cannot be a liquidator.
• Control – s.423
• Vesting of property of the company – 424
• Powers – 425, 463 – 470, 477-478
• Duties

 

DEFUNCT COMPANIES – s.525

• Not carrying on business
• Liquidator bot acting
• Company wound up
• Notices by CAC

See s 525 as regards to striking up names from the register of members

 

DISSOLUTION OF PARTNERSHIPS

• Partnership act
• Act of the parties – notice of illness, power of expulsion
• Operation of law – death, retirement
• Court

 

Removal of name business name register

• 578 CAMA
• Cessation of business – form 5
• Defunct business – CAC/BN/B6
• 578 (1)

 

DISSOLUTION OF INCORPORATED TRUSTEES

• 608 CAMA
• Governing body
• One or more trustees
• Members- 50 %
• Commission

 

GROUNDS

• Realization of aim
• Expiration of period
• Illegality/ public policy
• Just & equitable