Introduction:
Nigeria’s Insolvency practice takes its origin from
English principles but unlike in England, Nigeria’s insolvency practice from
over the years has been largely liquidation – focused. Hence, the believe that immediately
a Receiver Manager is appointed over the affairs of a company, one is sure to
say that the company has entered a ‘black hole’ that it may never come out
from.
Quite curiously, most of Nigeria’s insolvency
practitioners are litigation lawyers. The challenging implication being that
insolvency is approached with the force of a litigation, which does not account
as the best business method.
Interestingly, as far as precedents from other
jurisdictions go, there is a more business and financial side to the practice.
Thankfully, the new Companies and Allied Matters Act[1] (“CAMA”)
has introduced robust business sustaining procedures in the face of potential
and actual insolvency.
These procedures are the Company Voluntary
Arrangements and Administration (“CVAs and A”). Again, speaking to Nigeria’s
Insolvency practice’s heritage in English law, these CVAs and A are modelled
after the CVAs and A under the United Kingdom Insolvency Act, 1986.
Also, the new CAMA has made provisions for the
regulation of the Insolvency practice by requiring licencing of practitioners
by the Corporate Affairs Commission and has recognised the Business Recovery
and Insolvency Practitioners Association of Nigeria (BRIPAN) as a professional
body and makes its certification a requirement for licencing.
CVAs and A;
The latest change in Nigeria’s insolvency Practice
Despite the robust practice, there is no Insolvency
Act in Nigeria. The last attempt to enact one was unsuccessful.[2]
The laws relating to insolvency are included in the Companies and Allied
Matters Act.[3]
To this end, we will review the CVAs, and A now provisioned in the CAMA, with a
view to illuminating on its innovation in the practice of insolvency in
Nigeria.
Company
Voluntary Arrangements
Although the CAMA does not define the term ‘Company
Voluntary Arrangements’, in practice, it refers to formal arrangements made by
an insolvent company with its creditors. It is said to be contractual in nature
and is aimed at allowing companies pay a proportion of their debts over a
period.
v Who can propose a CVA?
There are three (3) categories of persons that can
make this proposal and they are dependent on the status of the company. They include; the directors of a company; an Administrator, where the company has an existing
administration
order
in relation to its affairs;
and by a Liquidator,
where the
company is being wound up.
For the proposal to be made by the directors, a nominee must be selected who
will supervise the implementation and such a person must be qualified to act as
an insolvency practitioner.
v
Procedure
where nominee is not the liquidator or an administrator
A nominee is required to give notice of the proposal
for a voluntary arrangement to the Court within 28 days or such a longer period
as the Court may allow. Such a report will include his opinion on whether a
meeting of the company and its creditors should be called. Please note that
where a nominee is a liquidator or an administrator, there is no need to make a
report to the Court as such a nominee can proceed to summon a meeting.
v
Consideration
and Implementation of Proposal
The meeting summoned shall decide whether to approve
the proposed arrangement with or without modifications. However, it must be
noted that the meeting cannot approve an arrangement which affects the rights
of a secured creditor, except there is a concurrence of such a creditor. This
could be a serious challenge because it is not common for a secured creditor to
abandon enforcement of his security and accept an arrangement. It is simply too
risky. The implication could be that all secured creditors may refuse to
participate and, where a company does not have significant assets outside what
it has used to secure a facility, its capacity to make a meaningful arrangement
is deeply diminished.
v Threshold for approval
The provision is not specific on the voting threshold
at the meetings summoned for the approval of the arrangement. It simply states
that each of the meetings shall be conducted in accordance with the rules.[4]
This appears to be a lacuna on the part of the framers of the law. But ‘rules’
has meaning under the Act[5].
It is recommended that the CAC steps up to fill this lacuna by making rules
specifying the voting threshold for CVAs.
v Effect of an approval of a scheme
An arrangement at approval takes effect as though it
was made by the company at the Creditors’ meeting. It binds every person,
(creditor) who is entitled to vote at that meeting (whether he was present or
represented at it) or would have been entitled to vote as if he had notice of
it, as though he were a party to the voluntary arrangement.[6]
v Who can challenge the use of a CVA
The CVA is not an absolute procedure. The CAMA[7]
makes provision for a challenge of a decision regarding any arrangement but
such a challenge must be brought to the Federal High Court within 28 days of
the decision sought to be challenged.
The following are the persons who can bring an application
to challenge a decision;
i.
persons entitled, in accordance with the
rules, to vote at either of the meetings;
ii.
persons who would have been entitled, in
accordance with the rules, to vote at the creditors’ meeting if they had had
notice of it;
iii.
the nominees or persons who replaced
them under section 435 (4) or 437 (2); and
iv.
The
liquidator or administrator if the company is being wound up or
is in administration
respectively.
v Grounds to challenge a CVA
To sustain a challenge on an arrangement, an Applicant
would need to show that the arrangement unfairly prejudices the interests of a creditor, a member, or a contributory of the company on the one hand; or that there has been some material
irregularity at or in relation to either of the meetings for its passage, on the other hand. For clarity, these grounds are not
conjunctive but disjunctive, which means that either of them will suffice to
ground a successful challenge of an arrangement.
v Why companies should use it
It is a better alternative to liquidation and can be
used to stem off winding up proceedings. The directors who have the best
interest of the company may retain control of the company.
Administration
Company administration is a formal procedure where a
person qualified[8],
is appointed to act as the administrator and take control of a company with a
view to achieving business rescue.
Features:
The following features makes administration a suitable
business rescue option:
i.
Conditions
for the appointment of an Administrator
An administrator is appointed over the affairs of a company,
where it is satisfied that the
subject company
is unable to pay its debt or
is likely to become unable to pay its debts. This is a very important innovation because under
administration, a company needs not wait to be insolvent, but it can be applied
to address an impending insolvency. All an applicant needs to satisfy the Court
is that an administration order is likely to achieve the purpose of
administration.
ii.
Who
can appoint or apply for the appointment an administrator?
a. An administrator can be appointed by the Court through
an application[9] and such an application
once made, cannot be withdrawn without the permission of the Court.
b. Also, in recognition of the place of a floating charge
holder, holders of floating charges over the properties of a company are
allowed to appoint an administrator.[10]
Of course, it accords with the practice that such a floating must be
enforceable.
c. Owing to its voluntariness, a company or its directors
may also appoint an administrator, without recourse to Court. However, it is
suggested that in practice, to give the administrator more legal backing, the
administrator may still have a recourse to the Courts to affirm his
appointment, this would be akin to the practice of Receiver/Mangers resorting
to the courts to affirm their powers. Its not legally necessary but it is the
practice.
iii.
Moratorium
on other legal processes
This feature makes administration more desirable for
insolvent companies because unlike in CVAs, where a company
is in administration, no
step can be taken to
enforce
security over the company’s property except with the
consent of the administrator, or
the
permission of the Court.
In fact, no legal process, including legal proceedings,
execution, distress, and diligence shall be instituted or continued against the
company or property of the company
except
with the consent of the administrator
or permission of the Court. And even where the Court gives
permission for a transaction
on the property of a company in administration, it may impose
conditions
or requirements
in connection with the transaction., to ensure that the company is not prejudiced.
Winding Up Proceedings
Winding-up
proceedings refers to the varying legal processes involving in dissolving a
company. In Nigeria, winding-up proceedings are largely regulated by the
Companies and Allied Matters Act, 2020 (CAMA 2020) which spells out the different
modes of winding-up. A consideration of the key players in winding up
proceedings shall be made below/
The Court
Under the
CAMA 2020, the Court plays a vital role in winding-up proceedings[11].
The Court with the requisite jurisdiction to entertain winding-up proceedings
is the Federal High Court within whose area of jurisdiction the registered
office or head office of the company is situate[12].
A company may only be wound-up by the Court in the following instances[13]:
·
The company has by special resolution resolved that
the company be wound up by the Court; or
·
The number of members is reduced below two in the case
of companies with more than one shareholder; or
·
The company is unable to pay its debt; or
·
The condition precedent to the operation of the
company has ceased to exist; or
·
The Court is of the opinion that it is just and
equitable that the company should be wound up.
The powers
of the Court in this regard may be largely categorized into pre-winding-up and
post-winding-up.
Pre-winding-up
Before a
company is wound up, the Court may do any of the following:
·
Upon application, supervise the voluntary winding up
of a company[14].
·
Assess damages against delinquent directors during
winding-up proceedings.
Post-winding-up
The powers
exercisable by the Court after a winding-up order has been made include:
·
Power to Stay winding-up – The Court may stay a
winding-up order upon being satisfied that the winding up order ought to be
stayed[15].
·
Settlement of list of contributories and application
of assets – the Court shall, where necessary, settle a list of contributories
and cause the assets of the company to be collected and applied in discharge of
its liabilities[16].
·
Delivery of property to liquidator[17] and/or
payment of money into liquidation account[18].
·
Powe to order payments by contributory to company or
set-off contributory’s allowance[19].
·
Power of the Court to make calls[20] – The
Court may make calls on all or any of the contributories to the extent of their
liability, for the payment of any money which the Court considers necessary to
satisfy the debts and liabilities of the company.
·
Power to exclude creditors who fail/neglect to prove
their debts or claims, from participating in the company’s assets[21].
· Power to order the inspection of the company books and
papers by its creditors or contributories[22].
·
Power to order costs of winding-up to be paid out of
company’s assets – Where a company’s assets is insufficient to satisfy its
liabilities, the Court may make an order as to the payment of cost, charges,
and expenses out of the assets of the company in their order of priority.
·
Power to summon person suspected of having property of
company[23].
·
Power to order public examination of Promoters and/or
Directors where an official receiver reports the commission of fraud by the
company[24].
·
Power to order the arrest of an absconding
contributory[25].
·
Power to appoint and remove liquidator[26].
The official Receiver
For the
purpose of winding-up of companies by the Court, an official receiver is the
Deputy Chief Registrar of the Federal High Court, or an officer designated for
the purpose by the Chief Judge of the Court, to carry out its duties as spelt
out in the CAMA-[27].
It is
notable that the duty of the Official Receiver is to investigate the affairs of
a wound-up company and thereafter report to the Court[28].
The Official Receiver’s report to the Court must disclose the following[29]:
·
The amount of capital issued, subscribed, and paid up,
and the estimated amount of assets and liabilities; and
·
If the company has failed, as to the causes of the
failure; and
·
Any issue regarding the promotion or formation of the
company; and
In addition
to the above, the Official Receiver may, if he thinks fit, make further reports
on whether, in his opinion, fraud has been committed by any person in its
promotion or formation of the company[30].
Instances where Official Receiver may act as
Liquidator
The Official
Receiver acts as liquidator where there is any such vacancy in the role, until
the vacancy is filled[31].
Also, if no liquidator is appointed on the making of a winding-up order, the
Official Receiver shall become the liquidator[32].
In this capacity, the Official Receiver may summon meetings of creditors and
contributories of the company to be held separately for the purpose of
determining whether an application is to be made to the court for appointing a
liquidator in place of the Official Receiver[33].
The Liquidator
Simply put,
a Liquidator is an officer who is specifically appointed to wind-up the affairs
of a company. The role of a Liquidator in winding-up proceedings is to ensure a
fair distribution of the company’s assets for the benefit of its creditors
and/or shareholders. A Liquidator may be appointed by any of the following:
·
The Court; or
·
Members of the company; during Members’ voluntary
winding-up; or
·
Creditors of the company, during Creditors’ voluntary
winding-up.
Appointment of Liquidator by the Court
The Court
may appoint a liquidator or liquidators for the purpose of conducting the
proceedings in winding-up a company and performing such duties as may be
imposed by the Court[34].
It is notable that the appointment of a liquidator by the Court in this regard
is provisional[35]. The
functions of a liquidator appointed by the Court may be broadly categorized
into two (2), viz:
Powers only exercisable with leave of court
·
Taking into his custody, or under his control, all the
property and choses in action to which the company is to be entitled[36].
·
Bring or defend any action or other legal proceeding
in the name and on behalf of the company[37].
·
Carry on the business of the company so far as may be
necessary for its beneficial winding-up[38].
·
Delegate its powers to a legal practitioner or other
professionals[39].
·
Pay any classes of creditors in full[40].
·
Effect any compromise or arrangement with creditors or
persons claiming to be creditors[41].
Powers
exercisable suo motu
·
Sell the property of the company[42].
·
Do all acts and to execute all deeds, receipts, and
other documents, when necessary[43].
·
Appoint an agent to do any business which the
liquidator is unable to do himself[44].
Appointment of Liquidator under members’ voluntary
winding-up
During
members’ voluntary winding-up, 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[45].
The functions of the liquidator appointed in this regard, include:
·
To keep proper record and books of account with
respect to his acts and dealings, the conduct of the winding-up and all receipts
and payments by him[46].
·
To summon a general meeting at the end of each year,
for the purpose of giving account of his acts and dealings as it relates to the
winding up of the company[47].
·
To summon a final meeting as soon as the affairs of
the company are fully wound up, for the purpose of reporting how the winding-up
has been conducted and the property of the company has been disposed of[48].
·
To furnish the Corporate Affairs Commission with a
copy of the report made at the final meeting, within Seven (7) days after the final
meeting was held[49].
Appointment of Liquidator under creditors’ voluntary
winding-up
At the
creditors’ meeting held pursuant to Section 635(1) of the CAMA 2020, the
creditors may nominate a person to be liquidator for the purpose of winding-up the
affairs and distributing the assets of the company.[50]
Where the liquidator nominated by the creditors is different from that
nominated by the company, the person nominated by the creditors shall be the
liquidator[51]. Any
of the functions of the liquidator detailed in the case of members’ voluntary
winding-up above, may well be exercised by a liquidator appointed by the creditors
during creditors’ voluntary winding-up[52].
The Committee of Inspection
The
Committee of Inspection (“CoI”) is appointed by the Court after a
winding-up order is made by the Court, albeit on the directive of the creditors
and/or contributories of the company[53].
The CoI consists of creditors and contributories of the company in the
proportions as may be agreed on by the meetings of creditors and contributories
or as, in case of difference, may be determined by the Court[54].
The CoI is required to meet, at least, once in every month during its
existence.
The CoI’s
remit is to checkmate the activities of the liquidator and may fix the
remuneration to be paid to the liquidator(s)[55].
The Corporate Affairs Commission
The
Corporate Affairs Commission (“the Commission”) is a body corporate duly
established by the extant CAMA[56]
and conferred with supervisory powers over the affairs of a company, including its
dissolution[57].
The Commission plays a pivotal role in the winding-up company and may petition
for the winding-up of a company on public policy grounds pursuant to Section
366 of the CAMA 2020.It is imperative to note that failure of a public company
to hold the statutory meeting or filing statutory report with the Commission,
may serve as a ground for the winding-up of the company[58].
In addition
to the above, the liquidator and other key players during winding-up
proceedings are required under the CAMA 2020 to keep the Commission abreast of
their affairs as it relates to the winding-up of a company registered under the
CAMA. This includes their appointment[59]
and conduct of the affairs of the company.
The
Commission maintains an account known as the Companies Liquidation Account,
into which the liquidator pays moneys received by him[60].
Relatedly, the liquidator is to send to the Commission an account of his
receipts and payments as liquidator, not less than twice in each year[61].
Also, the Commission may at any time during winding-up, require the production
of, and may inspect, any book or account kept by the liquidator[62].
The
Commission is empowered to advise on the penalty for a breach of the provisions
of the CAMA 2020 relating to winding-up[63].
Conclusion
It could be said that Nigeria’s insolvency practice
from over the years has been unduly creditor friendly. The innovation under
CAMA 2020 promises a more balanced opportunity for interested parties who would
like to preserve businesses. Clearly, the CVAs and A which are contractual in
nature and largely demands agreements through various compromise with the
creditors, could go a long way to help insolvent companies.
Also, the innovation as it regards the qualification
and regulation of insolvency practice, will likely see the practice lean more
towards business rescue.
In all, insolvent or even potentially insolvent
entities now have a renewed inspiration to stay afloat. Since these provisions
are novel to our practice, we will hope that practitioners and business
entities will leverage on the excitement and that if followed, the perspectives
could go a long way to change the face of insolvency practice in Nigeria.
However, the much praise can only come in the practice, and we will await.
Introduction:
Nigeria’s Insolvency practice takes its origin from
English principles but unlike in England, Nigeria’s insolvency practice from
over the years has been largely liquidation – focused. Hence, the believe that immediately
a Receiver Manager is appointed over the affairs of a company, one is sure to
say that the company has entered a ‘black hole’ that it may never come out
from.
Quite curiously, most of Nigeria’s insolvency
practitioners are litigation lawyers. The challenging implication being that
insolvency is approached with the force of a litigation, which does not account
as the best business method.
Interestingly, as far as precedents from other
jurisdictions go, there is a more business and financial side to the practice.
Thankfully, the new Companies and Allied Matters Act[1] (“CAMA”)
has introduced robust business sustaining procedures in the face of potential
and actual insolvency.
These procedures are the Company Voluntary
Arrangements and Administration (“CVAs and A”). Again, speaking to Nigeria’s
Insolvency practice’s heritage in English law, these CVAs and A are modelled
after the CVAs and A under the United Kingdom Insolvency Act, 1986.
Also, the new CAMA has made provisions for the regulation of the Insolvency practice by requiring licencing of practitioners by the Corporate Affairs Commission and has recognised the Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN) as a professional body and makes its certification a requirement for licencing.
CVAs and A;
The latest change in Nigeria’s insolvency Practice
Despite the robust practice, there is no Insolvency
Act in Nigeria. The last attempt to enact one was unsuccessful.[2]
The laws relating to insolvency are included in the Companies and Allied
Matters Act.[3]
To this end, we will review the CVAs, and A now provisioned in the CAMA, with a
view to illuminating on its innovation in the practice of insolvency in
Nigeria.
Company
Voluntary Arrangements
Although the CAMA does not define the term ‘Company
Voluntary Arrangements’, in practice, it refers to formal arrangements made by
an insolvent company with its creditors. It is said to be contractual in nature
and is aimed at allowing companies pay a proportion of their debts over a
period.
v Who can propose a CVA?
There are three (3) categories of persons that can
make this proposal and they are dependent on the status of the company. They include; the directors of a company; an Administrator, where the company has an existing
administration
order
in relation to its affairs;
and by a Liquidator,
where the
company is being wound up.
For the proposal to be made by the directors, a nominee must be selected who
will supervise the implementation and such a person must be qualified to act as
an insolvency practitioner.
v
Procedure
where nominee is not the liquidator or an administrator
A nominee is required to give notice of the proposal
for a voluntary arrangement to the Court within 28 days or such a longer period
as the Court may allow. Such a report will include his opinion on whether a
meeting of the company and its creditors should be called. Please note that
where a nominee is a liquidator or an administrator, there is no need to make a
report to the Court as such a nominee can proceed to summon a meeting.
v
Consideration
and Implementation of Proposal
The meeting summoned shall decide whether to approve
the proposed arrangement with or without modifications. However, it must be
noted that the meeting cannot approve an arrangement which affects the rights
of a secured creditor, except there is a concurrence of such a creditor. This
could be a serious challenge because it is not common for a secured creditor to
abandon enforcement of his security and accept an arrangement. It is simply too
risky. The implication could be that all secured creditors may refuse to
participate and, where a company does not have significant assets outside what
it has used to secure a facility, its capacity to make a meaningful arrangement
is deeply diminished.
v Threshold for approval
The provision is not specific on the voting threshold at the meetings summoned for the approval of the arrangement. It simply states that each of the meetings shall be conducted in accordance with the rules.[4] This appears to be a lacuna on the part of the framers of the law. But ‘rules’ has meaning under the Act[5]. It is recommended that the CAC steps up to fill this lacuna by making rules specifying the voting threshold for CVAs.
v Effect of an approval of a scheme
An arrangement at approval takes effect as though it
was made by the company at the Creditors’ meeting. It binds every person,
(creditor) who is entitled to vote at that meeting (whether he was present or
represented at it) or would have been entitled to vote as if he had notice of
it, as though he were a party to the voluntary arrangement.[6]
v Who can challenge the use of a CVA
The CVA is not an absolute procedure. The CAMA[7]
makes provision for a challenge of a decision regarding any arrangement but
such a challenge must be brought to the Federal High Court within 28 days of
the decision sought to be challenged.
The following are the persons who can bring an application
to challenge a decision;
i.
persons entitled, in accordance with the
rules, to vote at either of the meetings;
ii.
persons who would have been entitled, in
accordance with the rules, to vote at the creditors’ meeting if they had had
notice of it;
iii.
the nominees or persons who replaced
them under section 435 (4) or 437 (2); and
iv.
The
liquidator or administrator if the company is being wound up or
is in administration
respectively.
v Grounds to challenge a CVA
To sustain a challenge on an arrangement, an Applicant
would need to show that the arrangement unfairly prejudices the interests of a creditor, a member, or a contributory of the company on the one hand; or that there has been some material
irregularity at or in relation to either of the meetings for its passage, on the other hand. For clarity, these grounds are not
conjunctive but disjunctive, which means that either of them will suffice to
ground a successful challenge of an arrangement.
v Why companies should use it
It is a better alternative to liquidation and can be
used to stem off winding up proceedings. The directors who have the best
interest of the company may retain control of the company.
Administration
Company administration is a formal procedure where a
person qualified[8],
is appointed to act as the administrator and take control of a company with a
view to achieving business rescue.
Features:
The following features makes administration a suitable
business rescue option:
i.
Conditions
for the appointment of an Administrator
An administrator is appointed over the affairs of a company,
where it is satisfied that the
subject company
is unable to pay its debt or
is likely to become unable to pay its debts. This is a very important innovation because under
administration, a company needs not wait to be insolvent, but it can be applied
to address an impending insolvency. All an applicant needs to satisfy the Court
is that an administration order is likely to achieve the purpose of
administration.
ii.
Who
can appoint or apply for the appointment an administrator?
a. An administrator can be appointed by the Court through
an application[9] and such an application
once made, cannot be withdrawn without the permission of the Court.
b. Also, in recognition of the place of a floating charge
holder, holders of floating charges over the properties of a company are
allowed to appoint an administrator.[10]
Of course, it accords with the practice that such a floating must be
enforceable.
c. Owing to its voluntariness, a company or its directors
may also appoint an administrator, without recourse to Court. However, it is
suggested that in practice, to give the administrator more legal backing, the
administrator may still have a recourse to the Courts to affirm his
appointment, this would be akin to the practice of Receiver/Mangers resorting
to the courts to affirm their powers. Its not legally necessary but it is the
practice.
iii.
Moratorium
on other legal processes
This feature makes administration more desirable for
insolvent companies because unlike in CVAs, where a company
is in administration, no
step can be taken to
enforce
security over the company’s property except with the
consent of the administrator, or
the
permission of the Court.
In fact, no legal process, including legal proceedings,
execution, distress, and diligence shall be instituted or continued against the
company or property of the company
except
with the consent of the administrator
or permission of the Court. And even where the Court gives
permission for a transaction
on the property of a company in administration, it may impose
conditions
or requirements
in connection with the transaction., to ensure that the company is not prejudiced.
Winding Up Proceedings
Winding-up
proceedings refers to the varying legal processes involving in dissolving a
company. In Nigeria, winding-up proceedings are largely regulated by the
Companies and Allied Matters Act, 2020 (CAMA 2020) which spells out the different
modes of winding-up. A consideration of the key players in winding up
proceedings shall be made below/
The Court
Under the CAMA 2020, the Court plays a vital role in winding-up proceedings[11]. The Court with the requisite jurisdiction to entertain winding-up proceedings is the Federal High Court within whose area of jurisdiction the registered office or head office of the company is situate[12]. A company may only be wound-up by the Court in the following instances[13]:
· The company has by special resolution resolved that the company be wound up by the Court; or
·
The number of members is reduced below two in the case
of companies with more than one shareholder; or
·
The company is unable to pay its debt; or
·
The condition precedent to the operation of the
company has ceased to exist; or
·
The Court is of the opinion that it is just and
equitable that the company should be wound up.
The powers
of the Court in this regard may be largely categorized into pre-winding-up and
post-winding-up.
Pre-winding-up
Before a company is wound up, the Court may do any of the following:
· Upon application, supervise the voluntary winding up of a company[14].
·
Assess damages against delinquent directors during
winding-up proceedings.
Post-winding-up
The powers exercisable by the Court after a winding-up order has been made include:
· Power to Stay winding-up – The Court may stay a winding-up order upon being satisfied that the winding up order ought to be stayed[15].
·
Settlement of list of contributories and application
of assets – the Court shall, where necessary, settle a list of contributories
and cause the assets of the company to be collected and applied in discharge of
its liabilities[16].
·
Delivery of property to liquidator[17] and/or
payment of money into liquidation account[18].
·
Powe to order payments by contributory to company or
set-off contributory’s allowance[19].
·
Power of the Court to make calls[20] – The
Court may make calls on all or any of the contributories to the extent of their
liability, for the payment of any money which the Court considers necessary to
satisfy the debts and liabilities of the company.
·
Power to exclude creditors who fail/neglect to prove
their debts or claims, from participating in the company’s assets[21].
· Power to order the inspection of the company books and
papers by its creditors or contributories[22].
·
Power to order costs of winding-up to be paid out of
company’s assets – Where a company’s assets is insufficient to satisfy its
liabilities, the Court may make an order as to the payment of cost, charges,
and expenses out of the assets of the company in their order of priority.
·
Power to summon person suspected of having property of
company[23].
·
Power to order public examination of Promoters and/or
Directors where an official receiver reports the commission of fraud by the
company[24].
·
Power to order the arrest of an absconding
contributory[25].
·
Power to appoint and remove liquidator[26].
The official Receiver
For the
purpose of winding-up of companies by the Court, an official receiver is the
Deputy Chief Registrar of the Federal High Court, or an officer designated for
the purpose by the Chief Judge of the Court, to carry out its duties as spelt
out in the CAMA-[27].
It is notable that the duty of the Official Receiver is to investigate the affairs of a wound-up company and thereafter report to the Court[28]. The Official Receiver’s report to the Court must disclose the following[29]:
· The amount of capital issued, subscribed, and paid up, and the estimated amount of assets and liabilities; and
·
If the company has failed, as to the causes of the
failure; and
·
Any issue regarding the promotion or formation of the
company; and
In addition
to the above, the Official Receiver may, if he thinks fit, make further reports
on whether, in his opinion, fraud has been committed by any person in its
promotion or formation of the company[30].
Instances where Official Receiver may act as
Liquidator
The Official
Receiver acts as liquidator where there is any such vacancy in the role, until
the vacancy is filled[31].
Also, if no liquidator is appointed on the making of a winding-up order, the
Official Receiver shall become the liquidator[32].
In this capacity, the Official Receiver may summon meetings of creditors and
contributories of the company to be held separately for the purpose of
determining whether an application is to be made to the court for appointing a
liquidator in place of the Official Receiver[33].
The Liquidator
Simply put, a Liquidator is an officer who is specifically appointed to wind-up the affairs of a company. The role of a Liquidator in winding-up proceedings is to ensure a fair distribution of the company’s assets for the benefit of its creditors and/or shareholders. A Liquidator may be appointed by any of the following:
· The Court; or
·
Members of the company; during Members’ voluntary
winding-up; or
·
Creditors of the company, during Creditors’ voluntary
winding-up.
Appointment of Liquidator by the Court
The Court
may appoint a liquidator or liquidators for the purpose of conducting the
proceedings in winding-up a company and performing such duties as may be
imposed by the Court[34].
It is notable that the appointment of a liquidator by the Court in this regard
is provisional[35]. The
functions of a liquidator appointed by the Court may be broadly categorized
into two (2), viz:
Powers only exercisable with leave of court
· Taking into his custody, or under his control, all the property and choses in action to which the company is to be entitled[36].
·
Bring or defend any action or other legal proceeding
in the name and on behalf of the company[37].
·
Carry on the business of the company so far as may be
necessary for its beneficial winding-up[38].
·
Delegate its powers to a legal practitioner or other
professionals[39].
·
Pay any classes of creditors in full[40].
·
Effect any compromise or arrangement with creditors or
persons claiming to be creditors[41].
Powers exercisable suo motu
· Sell the property of the company[42].
·
Do all acts and to execute all deeds, receipts, and
other documents, when necessary[43].
·
Appoint an agent to do any business which the
liquidator is unable to do himself[44].
Appointment of Liquidator under members’ voluntary
winding-up
During members’ voluntary winding-up, 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[45]. The functions of the liquidator appointed in this regard, include:
· To keep proper record and books of account with respect to his acts and dealings, the conduct of the winding-up and all receipts and payments by him[46].
·
To summon a general meeting at the end of each year,
for the purpose of giving account of his acts and dealings as it relates to the
winding up of the company[47].
·
To summon a final meeting as soon as the affairs of
the company are fully wound up, for the purpose of reporting how the winding-up
has been conducted and the property of the company has been disposed of[48].
·
To furnish the Corporate Affairs Commission with a
copy of the report made at the final meeting, within Seven (7) days after the final
meeting was held[49].
Appointment of Liquidator under creditors’ voluntary
winding-up
At the
creditors’ meeting held pursuant to Section 635(1) of the CAMA 2020, the
creditors may nominate a person to be liquidator for the purpose of winding-up the
affairs and distributing the assets of the company.[50]
Where the liquidator nominated by the creditors is different from that
nominated by the company, the person nominated by the creditors shall be the
liquidator[51]. Any
of the functions of the liquidator detailed in the case of members’ voluntary
winding-up above, may well be exercised by a liquidator appointed by the creditors
during creditors’ voluntary winding-up[52].
The Committee of Inspection
The
Committee of Inspection (“CoI”) is appointed by the Court after a
winding-up order is made by the Court, albeit on the directive of the creditors
and/or contributories of the company[53].
The CoI consists of creditors and contributories of the company in the
proportions as may be agreed on by the meetings of creditors and contributories
or as, in case of difference, may be determined by the Court[54].
The CoI is required to meet, at least, once in every month during its
existence.
The CoI’s
remit is to checkmate the activities of the liquidator and may fix the
remuneration to be paid to the liquidator(s)[55].
The Corporate Affairs Commission
The
Corporate Affairs Commission (“the Commission”) is a body corporate duly
established by the extant CAMA[56]
and conferred with supervisory powers over the affairs of a company, including its
dissolution[57].
The Commission plays a pivotal role in the winding-up company and may petition
for the winding-up of a company on public policy grounds pursuant to Section
366 of the CAMA 2020.It is imperative to note that failure of a public company
to hold the statutory meeting or filing statutory report with the Commission,
may serve as a ground for the winding-up of the company[58].
In addition
to the above, the liquidator and other key players during winding-up
proceedings are required under the CAMA 2020 to keep the Commission abreast of
their affairs as it relates to the winding-up of a company registered under the
CAMA. This includes their appointment[59]
and conduct of the affairs of the company.
The
Commission maintains an account known as the Companies Liquidation Account,
into which the liquidator pays moneys received by him[60].
Relatedly, the liquidator is to send to the Commission an account of his
receipts and payments as liquidator, not less than twice in each year[61].
Also, the Commission may at any time during winding-up, require the production
of, and may inspect, any book or account kept by the liquidator[62].
The
Commission is empowered to advise on the penalty for a breach of the provisions
of the CAMA 2020 relating to winding-up[63].
Conclusion
It could be said that Nigeria’s insolvency practice
from over the years has been unduly creditor friendly. The innovation under
CAMA 2020 promises a more balanced opportunity for interested parties who would
like to preserve businesses. Clearly, the CVAs and A which are contractual in
nature and largely demands agreements through various compromise with the
creditors, could go a long way to help insolvent companies.
Also, the innovation as it regards the qualification
and regulation of insolvency practice, will likely see the practice lean more
towards business rescue.
In all, insolvent or even potentially insolvent
entities now have a renewed inspiration to stay afloat. Since these provisions
are novel to our practice, we will hope that practitioners and business
entities will leverage on the excitement and that if followed, the perspectives
could go a long way to change the face of insolvency practice in Nigeria.
However, the much praise can only come in the practice, and we will await.
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