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What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?
The following entities are entitled to initiate liquidation procedures in Nigeria under the Companies and Allied Matters Act:
- the company;
- a creditor;
- a contributory;
- the official receiver;
- a trustee in bankruptcy to, or a personal representative of, a creditor or contributory;
- the Corporate Affairs Commission under Section 323 of the Companies and Allied Matters Act, as approved by the attorney general;
- a receiver authorised by an instrument under which he or she was appointed; or
- all or any of these parties together or separately.
Under Section 41(2) of the Nigeria Deposit Insurance Corporation Act, the liquidator of a failed financial institution has the power to:
- realise the assets of the failed insured institution;
- enforce the individual liability of the shareholders and directors thereof; and
- wind up the affairs of such failed institution as provided in the act.
Pursuant to the Asset Management Corporation of Nigeria Act, a liquidator can be appointed over a debtor company, whose eligible bank asset has been bought from a financial institution, if it fails to pay a judgment debt against it within 90 days.
The following entities are barred from initiating liquidation procedures in Nigeria:
- policy holders of fewer than 50 in number; and
What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?
The primary procedures to liquidate an insolvent company are:
- winding up by the court or court-ordered winding up;
- winding up voluntarily by members or company creditors; and
- winding up subject to the supervision of the court or court-supervised winding up (see Section 401 of the Companies and Allied Matters Act).
Winding up by court Under section 408 of the Companies and Allied Matters Act, a company may be wound up by the court if:
- the company has, by a special resolution, resolved that the company be wound up by the court;
- default is made in delivering the statutory report to the Corporate Affairs Commission or in holding the statutory meeting;
- the number of members of the company has reduced to below two;
- the company is unable to pay its debts; and
- the court is of the opinion that it is just and equitable that the company should wind up.
Winding up voluntarily by members or by members and creditors of the company Under section 457 of the Companies and Allied Matters Act , a company may be wound up voluntarily:
- when the period, if any, fixed for the duration of the company by its articles of association expires, or the event, if any, occurs, on occurrence of which the articles provided that the company is to be dissolved and the company has passed a resolution in a general meeting requiring the company to be wound up voluntarily; or
- if the company resolves by a special resolution that it should be wound up voluntarily.
Under Sections 472 and 473 of the Companies and Allied Matters Act , the company can insist that a meeting of the creditors be held in addition to the meeting of the members and creditors, and at the respective meetings the company may nominate a person to be liquidator for the purpose of winding up the company.
Winding up subject to supervision of the court Under Section 486 of the Companies and Allied Matters Act , a company passes a resolution for its voluntary winding up and, based on a petition filed, the court orders that the voluntary winding up continues subject to court supervision.
How are liquidation procedures formally approved?
Formal approval depends on the procedure adopted:
- In a winding up by the court, a petition for winding up is presented to the court seeking that the company should be wound up on any of the grounds provided under Section 408 of the Companies and Allied Matters Act. However, where it is a winding up by the court commenced voluntarily by the company itself, a special resolution, passed by the company before filing the petition, is required.
- In a members’ voluntary winding up, the company will pass a board or company resolution to wind up its affairs and appoint one or more liquidators for the purpose of winding it up, after which the notice of the resolution will be given by advertising the same in the Gazette or two daily newspapers. A copy of the resolution, a statutory declaration of solvency and all other required documents must be filed with the Corporate Affairs Commission, following which the procedure will be approved by the Registrar General of the Corporate Affairs Commission on the requisite documents and regulatory requirements being submitted and met.
- Winding up voluntarily by members and creditors also requires a special resolution passed by the company, in addition to a meeting of the creditors, at which meeting a person will be nominated as liquidator for the purpose of winding up the affairs and assets of the debtor company.
- Winding up subject to the supervision of the court requires the filing of a petition seeking for the court’s supervision of a voluntary winding up.
What effects do liquidation procedures have on existing contracts?
Liquidation procedures generally have no effect on existing contracts, except if such contracts relating to property are deemed a fraudulent preference, rendering them invalid.
However, the terms of any existing contract may determine its outcome on the commencement of liquidation proceedings, as they may expressly stipulate that the contract would be determined on the commencement of liquidation procedures.
Also, a liquidator can disclaim contracts which are onerous to the company in liquidation. On the completion of the liquidation procedure, the company's contracts are deemed terminated.
What is the typical timeframe for completion of liquidation procedures?
There is no typical timeframe for the completion of liquidation procedures.
This is because the commencement and completion of the liquidation process are dependent on certain factors, including:
- whether the petition is contested and if so, the complexity or difficulty of questions concerned;
- how quick the parties, their counsel and the court are prepared to conclude the hearing and avoid delays;
- how busy the court is;
- how soon the winding-up petition is heard and determined by the court; and
- the acts of the Corporate Affairs Commission, where relevant.
Depending on these factors, a liquidation procedure (including voluntary liquidation) may not be concluded in under 12 months.
Role of liquidator
How is the liquidator appointed and what is the extent of his or her powers and responsibilities?
By virtue of Section 422 of the Companies and Allied Matters Act , a liquidator may be appointed by the court. Such liquidator is empowered to do the following:
- bring or defend any action or other legal proceeding in the name and on behalf of the company;
- carry on the business of the company so far as may be necessary for its beneficial winding up;
- appoint a legal practitioner or any other relevant professional to assist him/herin the performance of his/her duties;
- pay any classes of creditors in full;
- make any compromise or arrangement with creditors or persons claiming to be creditors;
- compromise all calls and liabilities to call, debts and liabilities capable of resulting in debts, and all claims, and take any security for the discharge of any such call, debt, liability or claim and give a complete discharge;
- sell the property of the company by public auction or private contract;
- perform all acts and execute in the name and on behalf of the company, all deeds, receipts and other documents;
- prove, rank and claim in the bankruptcy, insolvency or sequestration any contributory for any balance against the estate, and receive dividends in the bankruptcy, insolvency or sequestration in respect of that balance as a separate debt due from the bankrupt or insolvent;
- draw, accept, make and endorse any bill of exchange or promissory note in the name of and on behalf of the company;
- raise money on the security of the assets of the company;
- take out, in their official name, letters of administration to any deceased contributory and perform, in their official name, any other act necessary for obtaining payment of any money due from a contributory to the estate which cannot be conveniently done in the name of the company;
- appoint an agent to conduct any business which the liquidator cannot do himself or herself ; and
- do all such other things as may be necessary for the winding up of the affairs of the company and distributing its assets.
What is the extent of the court’s involvement in liquidation procedures?
The Federal High Court is particularly and significantly involved in liquidation procedures, from the hearing and determination of winding-up petitions to the appointment of a liquidator. The court:
- makes the order for the delivery of the company’s properties to the liquidator after a winding-up order has been made;
- orders payments to be made to the liquidator’s account; and
- may exclude creditors that failed to prove their claims within the fixed time limit or prevent them from benefitting from any distributions made before the debts are proved.
The Federal High Court has special rules of procedures for winding up, known as the ‘Companies Winding-Up Rules’.
What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?
Under the Companies and Allied Matters Act, any creditor of a debtor company is entitled to file liquidation proceedings in Nigeria and commence a recovery action against the debtor company.
Such creditors also have a representative right in the committee of inspection that may be set up to work with the liquidator.
However, in the course of these liquidator proceedings, a creditor is prohibited from:
- instituting or maintaining any action against such company in any court in Nigeria;
- disposing of the property of the company; and
- attaching, sequestrating, distressing or levying execution on, the company’s property-after liquidation has started, any attachment of or levying of execution against the debtor company’s assets will be void..
Director and shareholder involvement
What is the extent of directors’ and shareholders’ involvement in liquidation procedures?
Members’ voluntary winding up and winding up by and subject to court supervision The directors will pass a board resolution for a shareholders’ meeting. At this meeting, the shareholders will pass a special resolution for the winding up of the company.
At the end of each year from the commencement to the conclusion of the liquidation, the liquidator will also summon a general meeting of the shareholders, informing them of his or her acts and the conduct of the winding-up proceedings.
Creditors’ voluntary winding up The company will cause a meeting of the company’s creditors to be called simultaneously with the notices of the general meeting of the company. This notice must be published in the Gazette and in at least two national newspapers in the district where the company is situated.
In attendance at the creditors’ meeting, the shareholders will pass the resolution for its voluntary winding up and directors will ensure that a full statement of the company’s affairs, together with a list of the creditors of the company and the estimated amount of their claims, are before the creditors at the meeting.
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