The Blacks Law Dictionary defines insolvency as when a Company is unable to pay its debts. Once this is established it triggers a statutory procedure by which the Company is relieved of its debts by undergoing a judicial supervised winding up or liquidation for the benefit of its creditors. Unfortunately this procedure is not usually considered in the debt recovery process in Nigeria because of the perception of delay in getting justice, it however remains a veritable way of compelling a debtor company to pay its debts or risk the forfeiture of its assets.

Provisions governing this special commercial process can be found in Section 408 (d) of the Companies and Allied Matters Act 1990 (CAMA) which spells out circumstances wherein the Court would wind up a Company for failure to pay its debts.

Section 409 of CAMA further makes provisions for circumstances where a company shall be deemed unable to pay its debt. It provides inter alia:

“a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding N 2000 then due has served on the company, by leaving it at its registered office or head office , a demand under his hand requiring the company to pay the sum so due, and the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; or

execution or other process issued on a judgment, decree or order of any Court in favour of a creditor of the company is returned unsatisfied in whole or in part; or

the Court, after taking into account any contingent or prospective liability of the company is unable to pay its debts”.

In effect this means that if any company fails to pay an acknowledged debt exceeding the sum of N2,000 after three weeks from when a demand has been dropped at its office, is liable to be wound up in accordance with the provisions of the law. The Companies Winding-Up Rules (“the Rules”) governs all proceedings in respect of winding up in Nigeria and Rule 16 of this Rules provide that a petition should be presented at the Registry of the Federal High Court (the Court which Section 251 of the 1999 constitution confers exclusive jurisdiction to hear winding up petitions) after the expiry of the three weeks period. The Chief Judge or any other Judge in charge shall then appoint the time and place at which the petition is to be heard. The rules stipulate that every petition is to be verified by an affidavit made by the person(s) presenting the petition. If the petition is presented by a corporation then the petition is to be verified by an affidavit deposed to by a Director of the creditor company, such affidavit is to be sworn and filed within four (4) days after the filing of the petition.

Rule 19 provides that every petition must be advertised fifteen (15) clear days before the hearing of same. However, such an advertisement must be at the order of the Judge hearing the petition or before whom the petition is first mentioned in open court. The petition can be advertised as many times as the Judge ordering the advertisement may stipulate and it must be advertised in at least two national dailies. Anyone who wishes to appear at the hearing of the petition must give the petitioner a notice of intention to appear supported by an affidavit of opposition and upon the hearing of the petition and on the strength of the petitioner’s case the Court would grant a winding up order. On the making of a winding up order a copy of the order shall forthwith be forwarded to the Corporate Affairs Commission (CAC) which shall make a minute thereof in its books relating to the company.

It is noteworthy that although there are provisions in CAMA for arrangements and compromises, this is hardly used in practice. The often used provision of CAMA is the winding up procedure which terminates the life of companies without the debtor company being given an opportunity to reorganize and pay its debt over time. While liquidation is the last resort in developed jurisdictions, in Nigeria it is used as a first option resulting in the untimely death of many companies that could have been salvaged if given the chance to properly manage their debts.

In some jurisdictions, it is an offence under the bankruptcy laws for a corporation to continue doing business while insolvent, though in the United States bankruptcy proceedings typically sees the corporation continue its operations.

CONCLUSION

In order to improve confidence in doing business in Nigeria there is the need to have a solid debt recovery process in place and ultimately the winding up process plays a huge role in guaranteeing this confidence. Some of the essential things we need to put in place includes:

An harmonization of the laws governing Corporate insolvency;
Establishment of commercial fast track courts to propel the quick resolution of commercial disputes;
A total overhaul of the Corporate Affairs Commission especially as regards insolvency;
Establishment of a system for licensing insolvency practitioners in Nigeria.

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