Nigerian law grants all registered companies a separate legal personality, meaning they exist as distinct legal entities from their owners. This is one of the key advantages of registering a company with the Corporate Affairs Commission (CAC). In the eyes of the law, a company is treated as a legal person capable of owning property, entering into contracts, suing and being sued, creating subsidiaries, growing, restructuring, and ultimately, coming to an end.
The legal and formal process through which a company’s existence is brought to an end is known as Winding Up. This process involves stopping the company’s business, liquidating its assets, settling liabilities, and distributing any remaining assets to shareholders before the company is formally dissolved.
Winding up in Nigeria is governed primarily by the Companies and Allied Matters Act (CAMA) 2020 and the Insolvency Regulations 2022. The Corporate Affairs Commission (CAC) is the regulatory agency responsible for overseeing company winding-up procedures in Nigeria.
Definition of Winding Up
Winding up refers to the legal process by which a company ceases to carry on business and dissolves its corporate existence. Where this occurs, the company’s assets are gathered and realised, its debts are paid, and any remaining balance is distributed among shareholders. It is a formal procedure carried out in accordance with the law to ensure transparency, fairness, and the protection of creditors, members, and other stakeholders.
A company may be wound up for several reasons, including:
- Where the company is no longer financially viable to pay its debt, generate income, and sustain itself long-term.
- The company has passed a special resolution requesting that it be wound up by the Court.
- The condition precedent for the commencement or continued operation of the company has ceased to exist.
- The Court considers it fair and equitable to order the winding up of the company.
- Due to restructuring, mergers, or changes in government policy;
- Where creditors can no longer be paid, etc.
Under the Companies and Allied Matters Act, winding up of a company may occur voluntarily or through a court order, depending on the circumstances surrounding the company.
Types of Winding Up in Nigeria
1. Voluntary Winding Up
Voluntary winding up occurs when the members or shareholders of a company decide to close the company on their own initiative, without being compelled by a court order.
A company may be wound up voluntarily where the period fixed for its existence in its articles of association has expired, where a specified event stated in the articles has occurred, or where the company resolves by special resolution to wind up its affairs.
Voluntary winding up is further divided into two categories:
I. Members’ Voluntary Winding Up (Solvent Company)
This applies where the company is solvent and able to pay its debts in full within a specified period. It is one of the most common and straightforward forms of liquidation. Where there are no disputes or unforeseen complications, the process may be completed within four to six months.
The procedure for Members’ Voluntary Winding Up includes:
a. Statutory Declaration of Solvency
The directors must make a formal declaration that the company can pay all its debts within a period not exceeding 12 months from the commencement of winding up.
b. Special Resolution
The members of the company pass a special resolution at a general meeting, resolving that the company be wound up voluntarily. This requires the approval of at least 75% of the members present and voting.
c. Appointment of a Liquidator
The members appoint an accredited liquidator to manage the winding-up process. The liquidator is responsible for taking control of the company’s affairs, realising its assets, and distributing the proceeds. Only an accredited insolvency practitioner may be appointed as a liquidator.
d. Publication and CAC Notification
The special resolution and appointment of the liquidator must be published in at least two national newspapers circulating in the area where the company’s registered office is located. The company must also notify the Corporate Affairs Commission within 14 days of passing the special resolution and filing the statutory declaration of solvency.
e. Liquidation of Assets
After being appointed, the liquidator informs the CAC and other relevant authorities. The liquidator may prepare interim financial statements if needed. The liquidator then sells the company’s assets and pays off all debts. If money remains after all debts are paid, it is shared among shareholders based on how many shares each person owns.
f. Final Account and Meeting
At the conclusion of the process, the liquidator prepares a final account and convenes a final meeting of members to present the account. The minutes of the meeting must be published in two national newspapers and filed with the CAC.
II. Creditors’ Voluntary Winding Up (Insolvent Company)
Similar to Members’ Voluntary Winding Up, Creditors’ Voluntary Winding Up is an insolvency procedure used when a company can no longer pay its debts and meet its financial obligations. In this process, the company’s directors and shareholders resolve to shut down the business, appoint a licensed liquidator, and allow the company’s assets to be realised and applied toward settling outstanding debts in a structured and transparent manner.
The process for a creditors’ voluntary winding up largely follows the same steps as a members’ voluntary winding up. The major distinction is that the directors acknowledge that the company is insolvent and unable to continue business operations. As a result, the winding-up procedure is carried out in accordance with the members’ process, but it often takes longer due to the company’s financial position.
2. Winding Up of a Company by Order of the Court (Compulsory Winding Up)
Winding up by the Court, also known as compulsory winding up, occurs where a company is dissolved by an order of the Court, usually as a result of insolvency or other statutory grounds. In this case, the Court takes control of the winding-up process to ensure that the company’s affairs are properly concluded in accordance with the law.
I. Grounds for Winding Up by the Court
A company may be wound up by the Court where any of the following circumstances exist:
- The company has passed a special resolution requesting to be wound up by the Court.
- The company defaults in holding its statutory meeting or in delivering its statutory report to the CAC.
- The number of members falls below the legally required minimum for companies with more than one shareholder.
- The company is unable to pay its debts. A company is deemed unable to pay its debts where a creditor owed more than ₦200,000 has made a formal demand which remains unpaid; where enforcement of a court judgment is unsuccessful; or where the Court is satisfied after considering contingent or future liabilities, that the company cannot meet its obligations.
- A condition precedent to the company’s operation has ceased to exist.
- The Court is of the opinion that it is just and equitable to wind up the company.
II. Who May Petition the Court
A petition for winding up by the Court may be presented by the company itself, its directors, creditors, contributories, a trustee in bankruptcy, personal representatives of creditors or contributories, the official receiver, the Corporate Affairs Commission, or any combination of these parties.
III. Court Proceedings and Orders
Upon hearing the petition, the Court may dismiss it, adjourn the hearing (with or without conditions), or make interim orders as it considers appropriate. Where the petition arises from failure to hold a statutory meeting or submit a statutory report, the Court may order that the default be remedied and may also direct that costs be paid by those responsible.
Once a winding-up order is made, a copy of the order is forwarded to the company and the CAC, which records the winding up in its official register. The Court then appoints a liquidator or official receiver to take control of the company’s assets, realise them, and distribute the proceeds to creditors and contributories in accordance with the law. Generally, such orders are made primarily for the benefit of creditors.
What Is the Effect of Winding Up on a Company?
The winding up of a company has legal and practical consequences on its existence, operations, and affairs. Once winding up begins, the company does not cease to exist immediately, but its activities are strictly limited to those necessary for liquidation. Some key effects include the following:
1. Cessation of Business Operations
The company must stop carrying on its business, except where continuing operations are necessary for the beneficial winding up of the company, such as completing outstanding transactions to realise assets.
2. Loss of Management Powers
The powers of the directors are suspended or substantially limited, and control of the company’s affairs is transferred to the liquidator, who acts on behalf of creditors and contributories.
3. Stay of Legal Proceedings
Upon the making of a winding-up order by the Court, no legal action or proceeding may be commenced or continued against the company without the leave of the Court, in order to protect the collective interests of creditors.
4. Acceleration of Debts
All outstanding debts and liabilities of the company become due and payable, enabling creditors to submit their claims for settlement during the liquidation process.
5. Termination of Employment Contracts
The contracts of employment of the company’s staff are usually terminated, subject to statutory protections and the right of employees to claim outstanding wages and entitlements as creditors.
6. Eventual Dissolution of the Company
After the liquidation process is completed and the company’s affairs are fully wound up, the company is dissolved, and its name is struck off the register, bringing its legal existence to an end.
In conclusion, winding up a company in Nigeria is a highly regulated and structured process governed by the Companies and Allied Matters Act (CAMA) and the Insolvency Regulations. Whether initiated voluntarily by members or creditors, or compulsorily by an order of the Court, the procedure requires strict compliance with statutory requirements, including the passing of resolutions, appointment of liquidators, regulatory notifications, and, where applicable, court supervision.
Considering the legal and financial complications involved, it is advisable to engage a law firm and a licensed liquidator. A proper understanding of the winding-up process enables directors, shareholders, and creditors to bring a company’s affairs to an orderly and lawful conclusion while protecting the interests of all stakeholders.
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