In brief: liquidation and reorganisation processes in Nigeria

Types of liquidation and reorganisation processes

What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

A debtor company commencing a voluntary liquidation must pass a shareholders’ resolution for its voluntary winding up, make a statutory declaration of solvency (by the majority of its directors) and appoint a liquidator in a general meeting.

The liquidator takes charge of the process by calling for creditors’ claims, selling assets, paying debts and taxes and distributing any surplus to shareholders. Once completed, the liquidator prepares final audited accounts, convenes a final meeting and files final returns. The company is dissolved three months after the registration by the Corporate Affairs Commission (CAC) of the final returns.

Once a voluntary winding up is commenced, the company ceases to carry on business except as needed for winding up, but its legal existence and powers continue until dissolution, enabling the liquidator to complete all necessary steps.

What are the requirements for a debtor commencing a voluntary reorganisation and what are the effects?

A company may commence a voluntary reorganisation through a voluntary arrangement, which can be either a composition in satisfaction of debts or a scheme of arrangement. The proposal may be made by directors, or by an administrator or liquidator (where applicable), and must nominate a licensed insolvency practitioner (the nominee) to supervise the process. The nominee, if not already the administrator or liquidator, must report to the court within 28 days on whether meetings of the company and creditors should be held. Upon receipt of the report, the court may direct that the meetings be summoned to consider the proposal.

If the nominee recommends meetings, these are convened, notices are sent to creditors, and approval by both shareholders’ and creditors’ meetings is required before the arrangement takes effect. Once approved, it binds all creditors and members entitled to vote, regardless of attendance, voting or notice. It remains effective until fulfilled or terminated. If terminated while debts remain, the company becomes immediately liable. The court may stay winding-up or end administration to enable implementation, but only after 28 days have passed since the submission of the nominee’s report and subject to pending appeals.

The Companies and Allied Matters Act 2020 (CAMA) also allows a company or its directors to voluntarily initiate administration by appointing an administrator or applying to the court for an administration order. Administration aims to preserve the business as a going concern or achieve a better outcome for creditors than liquidation. Where a company is in administration, no resolution shall be passed, and no order shall be made for its winding up. The appointment of the administrator ceases to have effect at the first anniversary of its effectiveness, subject to any extensions.

A members’ voluntary liquidation may also be used as a technique for corporate reorganisations, including solvent mergers and acquisitions.

How are creditors classified for purposes of a reorganisation plan and how is the plan approved? Can a reorganisation plan release non-debtor parties from liability and, if so, in what circumstances?

Creditors in a reorganisation are categorised as secured, unsecured and preferential. Secured and preferential creditors are creditors whose debts are backed by security and creditors entitled to statutory priority, respectively. Secured and preferential creditors’ rights cannot be impaired without their consent.

A voluntary arrangement must be approved at both the shareholders’ and creditors’ meetings. If both approve, it becomes effective. If they fail to agree, the court may, on an application within 28 days, decide which decision prevails or make other appropriate orders. Once approved, the arrangement binds all creditors entitled to vote, regardless of whether they participated.

CAMA does not expressly allow or disallow a voluntary arrangement to release non-debtor parties (eg, guarantors, directors, lenders and advisers) from liability. Releases would require express creditor consent to be enforceable.

What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

A creditor may petition for involuntary winding up if the company is unable to pay its debt in a sum exceeding 200,000 naira. A company will be deemed by law to be unable to pay its debt if:

• it fails to pay the debt within 21 days after a written statutory demand is made for it;
• after the execution of a judgment, the judgment is returned unsatisfied partly or in whole; or
• the court is satisfied that the company is insolvent considering contingent or prospective liabilities.

If the petition is granted, the court appoints an official receiver to whom a verified statement of the company’s affairs is to be delivered. The official receiver submits a preliminary report to the court on the company’s affairs. The court may appoint the official receiver or another person as a liquidator to conduct the winding up. The liquidator takes control of the company’s assets and its distribution. Upon the appointment of an official receiver, the board of directors ceases to have the power to manage the business of the company.

A voluntary liquidation is commenced by the company’s resolution and solvency declaration. In contrast, an involuntary liquidation is commenced by a petition for winding up. The company appoints its liquidator in a voluntary liquidation, while the court appoints one in an involuntary liquidation.

What are the requirements for creditors commencing an involuntary reorganisation and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

Creditors may initiate an involuntary reorganisation through a court-sanctioned scheme of arrangement or compromise. A creditor, member, company or liquidator may apply to the Federal High Court (FHC) for an order to convene a creditors’ or members’ meeting. The scheme must be approved by a majority in number representing at least 75 per cent by value of the shares of the members or interest of the creditors present and voting, then sanctioned by the court and filed with the CAC to become binding on all affected parties, including dissenters.

This differs from voluntary reorganisations in their initiation (voluntary reorganisations are company-led, whereas involuntary reorganisations can be creditor-led without the company’s cooperation), the role of the court and the approval process (voluntary reorganisations need separate members’ and creditors’ approvals, whereas involuntary reorganisations require the creditors’ vote plus court sanction).

Do procedures exist for expedited reorganisations (eg, ‘prepackaged’ reorganisations)?

No, they do not.

How is a proposed reorganisation defeated and what is the effect of a reorganisation plan not being approved? What if the debtor fails to perform a plan?

A proposed reorganisation is defeated if:

• it fails to obtain the statutory 75 per cent majority approval at the court-ordered meeting;
• the FHC refuses to sanction it;
• there are legal or procedural defects (eg, improper meeting notices); or
• the court order is not registered with the CAC.

If not approved, the scheme is ineffective and not binding on the company, creditors or members. If the company does not honour or abide by an approved and court-sanctioned plan, creditors may enforce it as they would a court order.

Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

Yes. Under CAMA, the formal dissolution of a company follows the liquidation of its assets and the winding up of its affairs (whether voluntary, by creditors or by court order). The liquidator applies for a court dissolution order and files it with the CAC within 14 days, and the CAC records the dissolution. Once recorded, the company ceases to exist.

This differs from bankruptcy, which is governed by the Bankruptcy Act 1990 and applies only to individuals. Bankruptcy is initiated by a creditor’s petition, supported by judgment and proof of unsatisfied execution, and leads to a bankruptcy notice and a possible receiving order over the debtor’s assets.

Dissolution permanently ends a company’s legal existence; bankruptcy only restricts an individual debtor’s dealings with their property and the possibility of them holding political offices.

How are liquidation and reorganisation cases formally concluded?

In voluntary liquidation, the liquidator prepares a final account of the winding up, calls meetings of the company (in a members voluntary winding up) and of the company and creditors (in a creditors’ voluntary winding up) with one month’s public notice for the purpose of laying the final account before the meeting and files the account and meeting return with the CAC. The company is deemed dissolved three months after the registration of the returns.

In compulsory liquidation, after asset realisation and distribution, the liquidator applies for a court dissolution order and files it with the CAC within 14 days. The company is dissolved from the date of the order.

Reorganisations are concluded by the delivery to the CAC for registration of the court order.