Closing down a company in Nigeria is a significant decision that involves a structured legal process known as winding up. The Companies and Allied Matters Act (CAMA) 2020 and Insolvency Regulations 2022 govern the procedure for winding up a company. The government agency in charge of the winding-up process is the Corporate Affairs Commission (CAC). This comprehensive guide aims to illuminate the key steps and considerations involved in the process of winding up a company in Nigeria.
Winding up, in the context of a company, refers to the process of bringing its operations to an end, liquidating its assets, and distributing the proceeds among creditors and shareholders. This can occur voluntarily or involuntarily, depending on the circumstances. It is essential to note that winding up is a legal process guided by law to ensure fairness and transparency.
Types of Winding Up
In Nigeria, there are two primary types of winding up:
- Voluntary Winding Up
This occurs when the members or shareholders of a company decide to close it down voluntarily. It can further be classified into two categories:
- Members’ Voluntary Winding Up When the company is solvent, and its members believe it can pay its debts within a specified period. This is one of the most common and easiest types of liquidation process. The process can be concluded within 4 to 6 months provided there is not any unexpected challenge to the process.
- Creditors’ Voluntary Winding Up: When the company is insolvent, and its directors make a declaration of insolvency. A creditor’s voluntary winding up could last for years depending on how quickly the liquidator, the creditors, and members can resolve financial issues facing the company since the company is insolvent.
- Compulsory Winding Up
This is initiated by an order of the court, usually due to the company’s inability to pay its debts. Creditors, shareholders, or regulatory authorities may petition the court for a compulsory winding-up order.
VOLUNTARY WINDING UP PROCESS
Steps for Members’ Voluntary Winding Up
The following are the applicable steps for the voluntary winding up of a company in Nigeria.
- Special Resolution: The members pass a special resolution at a general meeting, indicating their intent to wind up the company voluntarily. A special resolution typically requires a 75% majority vote.
- 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 accompany the special resolution.
- Appointment of Liquidator: Once the resolution and declaration are made, a liquidator is appointed by the members. The liquidator 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, which are circulating 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 commence the liquidation process by first notifying the CAC of its appointment. The liquidator may also notify any other relevant agency where necessary. The liquidator may order the preparation of an interim account of the company.
- 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 in accordance with 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 entire process and notify the commission appropriately.
- Final Meeting: The liquidator must hold 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 completed.
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 given the opportunity 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 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.
Compulsory Winding-Up Process
- 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.
In conclusion, closing down a company in Nigeria is a legally intricate process that demands careful adherence to the provisions outlined in CAMA and the Insolvency Regulations. Whether through voluntary or compulsory means, the process involves multiple steps, including resolutions, appointments, notifications, and court involvement. Legal advice and the services of a qualified and accredited liquidator are crucial to navigate this complex procedure successfully. As companies face diverse challenges, understanding the winding-up process becomes essential for stakeholders seeking to close a chapter in a responsible and lawful manner.