PROCEDURE FOR VOLUNTARY WINDING UP OF A COMPANY IN NIGERIA
The term "winding up" refers to the process of bringing a company's operations to a close.
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PROCEDURE FOR VOLUNTARY WINDING UP OF A COMPANY IN NIGERIA
There are instances that require a corporation to halt operations, such as when there is a management deadlock and oppression - shareholder disagreement, the company's parent company is undergoing a corporate or financial reorganization. A process to minimize tax liabilities or maximize tax benefits for the company's parent group, a breach of legislative provisions, such as offenses committed and when the Company operates outside its scope of operations. This situation is known as winding up.
The term "winding up" refers to the process of bringing a company's operations to a close. It sells its stock to settle debts and distributes any remaining assets to partners or shareholders. It's the synonymous with Liquidation. The only difference is that when in Liquidation, even if there is nothing left to distribute to members if the company is insolvent, the main priority is to pay creditors. While winding up entails the completion of all business affairs as well as the company's closure (including liquidation or dissolution). Liquidation is a step in the Winding Up process.
Laws Regulating the Winding up of Companies in Nigeria are:
1. Companies and Allied Matters Act Cap. C20, Laws of the Federation of Nigeria (LFN) 2004 (CAMA 2020]
2. Winding-Up Rules 2001 (WR)
3. Subsidiary legislations such as Banks and Other Financial Institutions Act, Cap. B3, LFN 2004 (BOFIA)
4. Insurance Act, Cap. L14, LFN 2004 (Insurance Act) (IA).
5. Companies Winding up Rules
6. Federal High Court (Civil Procedure) Rules and Act
7. Investments and Securities Act.
Winding up may be either voluntary of mandatory. Voluntary Winding Up is a situation where a Company decides on its own to end its existence. Section 457 of CAMA 2020 stipulates two instances where a company may voluntarily wound up:
1. The duration of the company's existence has come to an end: The first is when the period, if any, stipulated by the articles of the company stipulates the duration the company is to exist and that period subsequently expires. Furthermore, if the articles base the existence of the company on some future event and that event subsequently occurs; the company may pass a resolution requiring the company to be wound up voluntarily at its general meeting.
2. Secondly, if the company decides to end its existence on its own, members of the company can wind up the firm voluntarily by passing a Special Resolution at the company's general meeting.
Mandatory Winding up occurs when a court order lawfully compels a firm to dissolve. In these situations, the corporation must appoint a liquidator to oversee the sale of assets and distribution of revenues to creditors.
This is often as a result of a lawsuit filed by the company's creditors especially when it is detected that a company has gone bankrupt. In other circumstances, the winding-up is the ultimate step in a bankruptcy process, which may include creditors attempting to collect money owing to the corporation.
Procedures for Voluntary winding up of a company As earlier stated Voluntary Winding Up is a situation where a Company decides on its own to end its existence. There two major ways a Company may be wound up:
1. By Creditors
2. By Members
Procedure for voluntary winding up by Creditors
When a firm becomes insolvent, its creditors may assume care of the liquidation procedure. This is provided for in sections 472- 478 of CAMA 2020.
1. Section 472(1) stipulates that Separate meetings of the Company and its Creditors would be held to recommend the company's winding up.
2. By virtue of section 473(1)of the act, at their respective meetings, the creditors and the company may appoint a liquidator to oversee the winding up process. If different people were selected at the two sessions, the liquidator will be the person nominated by the creditors. In the meanwhile, any director, member, or creditor may petition the court for an injunction to the contrary.
3. At their meeting, the creditors may create a five-person inspection committee if they deem it necessary. The Company may also designate up to 5 people to the committee, but the creditor has the right to reject those people.
4. According to section 477 of the act, the liquidator must issue a Notice of Appointment in the official gazette and two daily newspapers within 14 days of his appointment and present it to the commission for registration.
5. The liquidator shall publish notice of the final meeting, and the account of the liquidation shall be placed before the meeting and approved. After the meeting, the liquidator must provide a copy of the account and the notice of the meeting to the Corporate Affairs Commission within seven days.
3. The corporation is deemed dissolved three months after the accounts are registered and returned to the commission, according to Section 478
(4). It is noteworthy that the Court, on the request of the liquidator, a member, or a creditor, might postpone the effective date of the dissolution.
Procedure for voluntary winding by members
Voluntary winding up by members occurs if the company is solvent and can pay its debts in full within a period of not more than twelve months from the start of the winding up. This is provided for under section 464- 470 0f CAMA 2020.
1. At a general meeting, the company would pass a special resolution proposing to wind up the firm and appoint one or more liquidators to oversee the process.
2. The liquidator may be a corporate lawyer or a professional with extensive understanding of the winding up laws and procedures, such as an accountant.
3. The corporation must notify the Corporate Affairs Commission (CAC) of the special resolution passed within 14 days of its passage, as well as publish it in the official gazette or two daily newspapers.
4. Within five weeks of the special resolution's passage, the directors or a majority of the directors must make a statutory declaration of solvency.
5. After the resolution for winding up has been passed, the company must cease to carry on business, and the powers of the directors ceased upon the appointment of the liquidator, unless the company in a general meeting or the liquidator authorizes it to continue.
6. If the winding-up procedure takes longer than a year, the liquidator is required to hold a meeting at the end of each year, and these meetings must be advertised in the official gazette and in some Nigerian media.
7. After the firm is liquidated, the liquidator must hold final meetings and send a copy of the accounts/returns to the Corporate Affairs Commission for registration within 7 days following the meetings.
8. As soon as the company's affairs are entirely wound up, the liquidator must prepare, send, and summon a meeting to put before it the financial accounts of the winding up, demonstrating how the winding up was completed.
9. The liquidator is obligated to save all corporate books, papers, and paperwork related to his actions as a liquidator for a period of 5 years before destroying them or otherwise directed by the commission, and shall not do so until the CAC agrees in writing.
10. The liquidator must transmit copies of the accounts, as well as a statement of the meeting's holding and registration dates, to the Corporate Affairs Commission within 28 days of the meeting.
11. The liquidator must then seek for and get a dissolution order from the commission. It's worth noting that the business is deemed dissolved three months after the accounts/returns are filed with the Corporate Affairs Commission in compliance with the Companies Act.
In conclusion, Companies are formed for a variety of reasons, with the primary objective of burgeoning, remaining profitable and as a going concern, generating returns on investment for shareholders, continuing to be an employer of labor, a taxpayer to the government, a responsible corporate member contributing to worthy causes, and a service provider meeting the needs of its customers.
The option of voluntarily winding up is more appealing than getting to the stage where a corporation is sued and forced to comply with a court order.
NB: This article is not a legal advice, and under no circumstance should you take it as such. All information provided are for general purpose only. For information, please contact firstname.lastname@example.org
WRITTEN BY CHAMAN LAW FIRM TEAM
TEL: 08065553671, 08024230080