Winding a company in Nigeria is an important decision that involves a structured legal process known as ‘winding up’. The Companies and Allied Matters Act (CAMA) 2020 and Insolvency Regulations 2022 govern the procedure for winding up a company. The government agency in charge of the winding-up process is the Corporate Affairs Commission (CAC), since the company originated from them the closing down is from them also.
In this write-up, we are going to show you the types of winding up in Nigeria, procedure or steps involved in each type of Winding up.
Winding up in company Law, refers to the process of bringing its operations to an end, liquidating its assets, and distributing the proceeds among creditors and shareholders. This can occur voluntarily or involuntarily, depending on the circumstances. It is essential to note that winding up is a legal process guided by law to ensure fairness and transparency.
Types of Winding Up
There are two major types of winding up in Nigeria and they are:
- Voluntary Winding- Up
- Involuntary Winding-Up
This Winding-Up occurs when the members or shareholders of a company agree to close the company down voluntarily. This Voluntary Winding-Up can further be classified into two categories:
- Member’s Voluntary Winding-Up
- Creditor’s Voluntary Winding-Up
Member’s Voluntary Winding-Up: As the name implies, the members of the company also known as the shareholders of the company agrees to wind-up the company. This occurs When the company is solvent, and its members believe it can pay its debts within a specified period. This is one of the most common and easiest types of liquidation process. The process can be concluded within 4 to 6 months provided there is no any unexpected challenge to the process.
Creditor’s Voluntary Winding-Up: This is when the creditors of a company decide to wind-up a company so as to sell off the company’s assets to pay off the creditors. When the company is insolvent, and its directors make a declaration of insolvency. A creditor’s voluntary winding up could last for years depending on how quickly the liquidator, the creditors, and members can resolve financial issues facing the company since the company is insolvent.
Compulsory Winding Up
In this case it’s not the intention of the owners of the company to Wind-up the company but they are compelled or ordered to do so. This is initiated by an order of the court, usually due to the company’s inability to pay its debts. Creditors, shareholders, or regulatory authorities may petition the court for a compulsory winding-up order.
VOLUNTARY WINDING UP PROCESS
- The following are the applicable steps for the Member’s voluntary winding up of a company in Nigeria.
Special Resolution: The members pass a special resolution at a general meeting, indicating their intent to wind up the company voluntarily. A special resolution typically requires a 75% majority vote.
Statutory Declaration of Solvency: The directors must make a statutory declaration of solvency, stating that the company can pay its debts in full within a specified time. This declaration must accompany the special resolution.
Appointment of Liquidator: Once the resolution and declaration are made, a liquidator is appointed by the members. The liquidator is responsible for overseeing the winding-up process, realizing assets, and distributing proceeds. Only an accredited insolvency practitioner can be appointed as a liquidator.
Publication in Two Newspapers: The special resolution appointing the liquidator will then be published in at least two national newspapers, which are circulating in areas where the company head is located.
Notifying the Corporate Affairs Commission (CAC): The company must notify the Corporate Affairs Commission (CAC) within 14 days of passing the special resolution and filing the statutory declaration of solvency.
Commencement of Liquidation: The liquidator will then commence the liquidation process by first notifying the CAC of its appointment. The liquidator may also notify any other relevant agency where necessary. The liquidator may order the preparation of an interim account of the company.
Realization & Distribution of Assets: The liquidator must ensure he/she realizes the company’s assets and may dispose of some assets if necessary. Since there are no creditors and the company is not indebted or it has paid its debt, the remaining assets realized must be distributed to members(Shareholders) in accordance with the ratio of shares held by each of them.
Final Account: The liquidator must ensure a final account is prepared upon the conclusion of the entire process and notify the commission appropriately.
Final Meeting: The liquidator must hold a final meeting where he/she will brief the members of the company on his findings and furnish them with the account. The liquidator must ensure the minutes of the final meeting are published in another two national newspapers and notify the CAC before the exercise can be completed.
- The following are the applicable steps for the Creditor’s voluntary winding up of a company in Nigeria.
Board Meeting: The directors convene a board meeting to assess the company’s financial situation and propose the winding-up resolution.
Creditors’ Meeting: A meeting is convened with creditors, and they are given the opportunity to appoint a liquidator of their choice. Unlike the case of Member’s Voluntary Winding-Up, the creditor’s are ones fully in charge of the process.
Notice to CAC and Publication: The company must notify the CAC within 14 days of passing the winding-up resolution. Additionally, a notice of the resolution must be published in the official gazette and two national newspapers.
Creditors’ Committee: In some cases, a creditors’ committee may be formed to work with the liquidator in overseeing the winding-up process.
The process must follow the pattern for voluntary winding up except the fact that the creditor must follow a statutory hierarchy of payment in distributing the assets of the company before it is finally wound up.
- The following are the applicable steps for the Compulsory Winding-Up of a company in Nigeria.
Petition to the Court: The winding-up process is initiated by filing a petition with the court. The petition can be filed by the company, creditors, members, or regulatory authorities. This petition is usually filed in the Federal High Court of the state where the company is situated.
Court Hearing: The court will schedule a hearing to consider the petition. If the court is satisfied that grounds for winding up exist, it may issue a winding-up order.
Appointment of Official Receiver: Upon the winding-up order, the court may appoint the official receiver or a liquidator to take charge of the winding-up process.
Notice to Corporate Affairs Commission (CAC): The official receiver or liquidator must notify the CAC of the winding-up order within 14 days.
In conclusion, closing down a company in Nigeria is a legally intricate process that demands careful adherence to the provisions of CAMA and the Insolvency Regulations. Whether through voluntary or compulsory means, the process involves multiple steps, including resolutions, appointments, notifications, and court involvement. Legal advice and the services of a qualified and accredited liquidator are crucial to navigate this complex procedure successfully. As companies face different challenges, understanding the winding-up process becomes essential for stakeholders.
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