Types of liquidation and reorganisation processes

Voluntary liquidations

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

Voluntary reorganisations

In a members’ voluntary winding up, the company must hold a general meeting to:

  • pass a resolution for its voluntary winding up; and

  • appoint one or more liquidators to wind up its affairs and distribute its assets.


During the five weeks before the passing of the resolution, the company’s directors must make a statutory declaration of solvency to the effect that, by their assessment, the company will be able to pay its debts in full at any time within 12 months of the commencement of the winding up.

The effects of a winding up are as follows:

  • the company will cease to carry on its business, except as may be required for the beneficial winding up of the company;

  • once a liquidator is appointed, all of the powers of the directors will cease, unless the company (in a general meeting) or the liquidator allows their continuance (section 627(1)(2) of the Companies and Allied Matters Act 2020 (CAMA)); and

  • any transfer of shares without the liquidator’s approval and any alteration in the status of the members of the company made after the commencement of the voluntary liquidation will be void (section 624 of the CAMA).

Voluntary reorganisations

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

Company voluntary arrangements

Under sections 434 to 442 of the CAMA, a company’s directors may make a proposal to its creditors for a composition in satisfaction of its debts or a scheme of arrangement of its affairs. A separate meeting of the company and creditors must approve or modify the arrangement to be effective.


Arrangement and compromises

Under an arrangement and compromise, the debtor company and its members or creditors must prepare a scheme of arrangement and compromise and make a summary application to the Federal High Court (FHC) for an order calling a meeting of the members or creditors to be affected by the proposed scheme. If a three-quarter majority of the members or creditors to be affected agree to the scheme and the court upon a written report from the Securities and Exchange Commission (SEC) is satisfied as to its fairness, it will become binding on all the affected members or creditors of the company and, if the company is in the course of being wound up, on the liquidator and contributories of the company.

An arrangement and compromise will alter the rights of the members and creditors of the company involved in the scheme.


Arrangements on sale

Under an arrangement on sale, the debtor company must pass a special resolution that the company be put into a members' voluntary winding up and that a liquidator be appointed and authorised to:

  • sell all or part of its undertaking or assets to another body corporate, in consideration or part consideration of the fully paid shares in that company; and

  • distribute the same among the members of the company in accordance with their rights.


On approval of the scheme, the members will forgo their rights in the company in exchange for cash, shares or debenture in another company to which all or part of the undertaking of the selling company had been sold.



Any of the parties to a proposed merger is required to notify the Federal Competition and Consumer Protection Commission (FCCPC) and attach the necessary documents for approval. If approved, the merger is considered final. Approval is given only if the merger is unlikely to substantially restrain competition or create a monopoly in the market.

The assets and liabilities of the merging companies will be assumed by any of the companies that subsumes the other or the entirely new company into which both companies may transform.


Takeover and acquisition

A takeover involves the acquisition of at least 30 per cent of the shares of a public quoted company. The directors of the offeror company must pass a resolution approving the takeover bid before it is made.

A takeover bid also requires the authority of the SEC before it can be made, and a copy of the bid must be lodged with it for registration before the bid is despatched.

A takeover is concluded upon acceptance of the bid by the offeree company and payment of the requisite consideration.

Acquisition entails the purchase of at least the majority of a company’s ownership stake in order to assume control of a private or public unquoted company. It requires the submission of a letter of intent to SEC with relevant documents before approval.


Management buy-outsThe management team seeking to buy out the company will enter into a sales agreement with it and submit an application to the SEC for approval (attaching all the relevant documents). The agreement must provide for (among other things):

  • indemnity against liability by the seller to third parties;

  • the continuation of employee pension schemes; and

  • employee liability.


The process is concluded when the SEC approves the buy-out scheme.

Following a management buy-out, the ownership of the company will be transferred to the management team, which may decide to effect changes in the structure, policies and administration of the company.

Successful reorganisations

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?

The classification of creditors is determined by the terms of a reorganisation plan. Reorganisation plans are subject to the prior review and approval of the FCCPC, the Corporate Affairs Commission, the SEC, the Central Bank of Nigeria and the Nigerian Stock Exchange, depending on the nature of the reorganisation plan. Each formal procedure must also be approved by the board of directors and shareholders of the companies involved and, where so required, be authorised by the FHC.

Non-debtor parties will be released only where the terms of the reorganisation plan provide so.

Involuntary liquidations

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?

Creditors may place a debtor company into involuntary liquidation by filing a petition for its winding up with the FHC where the company is unable to pay its debts. A company is deemed to be unable to pay its debts where:

  • the company owes a sum of money exceeding 200,000 naira (section 572 of the CAMA);

  • the creditor has served on the company a demand notice requiring the company to pay the sum due at its registered or head office;

  • the debtor company has failed to pay the sum or secure or compound it to the reasonable satisfaction of the creditor within three weeks; or

  • the execution or other process issued on a judgment in favour of the creditor against the debtor remains unsatisfied.


After considering any contingent or prospective liability, the court may order the company’s winding up if it is satisfied that it is unable to pay its debt in line with the above.

The effects of a winding-up order are as follows:

  • in all actions that are pending or subsequently instituted in court against the debtor company, the company or any creditor or contributory may apply to the court for an order staying proceedings, which the court may grant with or without terms (section 575 of the CAMA);

  • any disposition of the company’s property (including things in action), transfer of shares or alteration in the status of the company’s members made after the commencement of the winding up will – unless the court orders otherwise – be void (section 576 of the CAMA); and

  • any attachment, sequestration, distress or execution put in force against the estate or effects of the company after the commencement of the winding up will be void.

Involuntary reorganisations

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 commence an involuntary reorganisation of a debtor by applying to the FHC for an administration order pursuant to section 450(1) of CAMA, or by appointing a receiver over all or part of a debtor company’s assets where the principal money borrowed by the company is in arrears or the security or property is in jeopardy. An involuntary reorganisation proceeding is driven entirely by the administrator or receiver appointed by the creditors.

Expedited reorganisations

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


Unsuccessful reorganisations

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 scheme of arrangement on sale may be defeated if:

  • a member is granted relief under sections 353 to 355 of the CAMA within one year of the special resolution proposing the scheme, on the grounds that the affairs of the company have been or are being conducted in an illegal, unfairly prejudicial or oppressive manner; or

  • an order is obtained for a creditors’ voluntary winding up of the company.


A scheme of arrangement and compromise may be defeated if:

  • less than the required three-quarter majority of the members or creditors of the company approved the scheme; or

  • the court is unsatisfied with the fairness of the scheme.


The FCCPC may revoke any approval it has granted to a merger scheme if:

  • it was supplied with incorrect information by a party to the merger;

  • the approval was obtained by deceit;

  • the parties failed to implement the merger within 12 months after approval was granted; or

  • an obligation attached to the merger is breached by a merging party.


If the FCCPC is of the belief that the business of a company substantially prevents or lessens competition, it can direct the company to break up into separate entities and be re-registered within a specified time.

Any reorganisation upon a disapproved plan is invalid.

Where the court sanctions the plan and the debtor fails to perform the plan, a shareholder or creditor may apply to court for the plan to be performed.

Corporate procedures

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

The corporate procedures for the dissolution of a company include:

  • winding up by the court;

  • voluntary winding up by members or company creditors; and

  • court-supervised winding up.


A debtor can present a bankruptcy petition against themselves for inability to pay their debts. A three-month limitation period applies from the occurrence of the act of bankruptcy. If a debtor is adjudged bankrupt, a trustee in bankruptcy will be appointed over their assets, which will be distributed in line with the rules of priority set out in section 36 of the Bankruptcy Act.

Conclusion of case

How are liquidation and reorganisation cases formally concluded?

Mergers, acquisitions, takeovers, management buy-outs and schemes of arrangement are concluded when the necessary approvals from the court, SEC and FCCPC have been obtained and the required filings and notifications have been made.

In voluntary liquidation, a company is deemed dissolved three months after the liquidator has submitted an account of the winding up to the Corporate Affairs Commission and has registered the winding up.

A winding up by the court is concluded after the liquidator has fully wound up the affairs of the company and, pursuant to the liquidator’s application, the court has ordered the company’s dissolution.