Process For Winding Up A Company In Nigeria

In simple terms, winding up is the process by which a company brings its operations to an end, liquidating its assets, and distributing the proceeds among its creditors and shareholders. The procedure for winding up a company is regulated by the Companies and Allied Matters Act (CAMA) 2020 and Insolvency Regulations 2022. The Corporate Affairs Commission (CAC) is the governmental body saddled with the responsibility of the winding up process.

The process of winding up a company in Nigeria can either be voluntary or involuntary depending largely on the situation on ground. There are primarily two types of ways through which a company may be wound up and they will be elaborated on below;

1. Voluntary Winding Up

When the members or shareholders of a company decide to close down the company out of their own free will, it is known as a voluntary winding up of the company. Voluntary winding is further divided into two which are;

• Members’ Voluntary Winding Up: This is when the company is debt-free, and its members are certain that it can pay its debts within a specified period. This is one of the most popular and effortless types of liquidation process. The process can be concluded within 4 to 6 months without any unforeseen challenges.
• Creditors’ Voluntary Winding Up: This is when the company is in debt, and its directors make a declaration of insolvency. A creditor’s voluntary winding up could take years to conclude depending on how quickly the liquidator, the creditors, and members can sort out the financial issues facing the company since the company is insolvent.

1. Process for Members’ Voluntary Winding Up

• Special Resolution:The members of the company pass a special resolution at a general meeting, indicating their intent to wind up the company voluntarily. A special resolution of 75% majority vote is the requirement.
• Statutory Declaration of Solvency:The directors must make a statutory declaration of solvency, stating that the company can pay its debts in full within a specified time. This declaration must be accompanied by the special resolution.
• Appointment of Liquidator:Once the resolution and declaration are made, the members appoint a liquidator who is responsible for overseeing the winding-up process, realizing assets, and distributing proceeds. Only an accredited insolvency practitioner can be appointed as a liquidator.
• Publication in Two Newspapers:The special resolution appointing the liquidator will then be published in at least two national newspapers. The newspapers will be circulated in areas where the company head is located.
• Notifying the Corporate Affairs Commission (CAC):The company must notify the Corporate Affairs Commission (CAC) within 14 days of passing the special resolution and filing the statutory declaration of solvency.
• Commencement of Liquidation:The liquidator will then start the liquidation process by first notifying the CAC of its appointment. The liquidator may also notify any other relevant agency where necessary.
• Realization& Distribution of Assets: The liquidator must ensure he/she realizes the company’s assets and may dispose of some assets if necessary. Since there are no creditors and the company is not indebted or it has paid its debt, the remaining assets realized must be distributed to members by the ratio of shares held by each of them.
• Final Account:The liquidator must ensure a final account is prepared upon the conclusion of the whole process and notify the commission accordingly.
• Final Meeting:The liquidator must have a final meeting where he/she will brief the members of the company on his findings and furnish them with the account. The liquidator must ensure the minutes of the final meeting are published in another two national newspapers and notify the CAC before the exercise can be concluded.

1. Creditors’ Voluntary Winding Up:

• Board Meeting:The directors convene a board meeting to assess the company’s financial situation and propose the winding-up resolution.
• Creditors’ Meeting:A meeting is convened with creditors, and they are allowed to appoint a liquidator of their choice.
• Notice to CAC and Publication:The company must notify the CAC within 14 days of passing the winding-up resolution. Additionally, a notice of the resolution must be published in the official gazette and two national newspapers.
• Creditors’ Committee:In some cases, a creditors’ committee may be formed to work with the liquidator in overseeing the winding-up process.
• The process:The process must follow the pattern for voluntary winding up except for the fact that the creditor must follow a statutory hierarchy of payment in distributing the assets of the company before it is finally wound up.

2. Compulsory Winding Up

This is also known an involuntary winding up and it is initiated by an order of the court, usually due to the company’s inability to pay its debts.

1. Process for Compulsory Winding Up

• Petition to the Court:The winding-up process is initiated by filing a petition with the court. The petition can be filed by the company, creditors, members, or regulatory authorities.
• Court Hearing:The court will schedule a hearing to consider the petition. If the court is satisfied that grounds for winding up exist, it may issue a winding-up order.
• Appointment of Official Receiver:Upon the winding-up order, the court may appoint the official receiver or a liquidator to take charge of the winding-up process.
• Notice to CAC:The official receiver or liquidator must notify the CAC of the winding-up order within 14 days.

Conclusion

Winding up a company in Nigeria is a legally difficult process that requires complete adherence to the provisions outlined in CAMA and the Insolvency Regulations. There are several steps to follow to wind a company which is why it is advised that companies seek the service of  Legal Practitioners in Lagos Nigeria for all their company matters.