Dissolution: Winding Up of Companies

Dissolution is the termination of a Company existence as a result of winding up proceedings. The immediate consequence of dissolution is the liquidation of the company. This consists in the collection and  realisation of the company  assets to settle a list of contributories and creditors, to pay the companyfs debts and liabilities and to divide the surplus (if any) amongst the members of the company in accordance with their rights. The provisions governing the dissolution and liquidation of companies are contained in Book VII of the Uniform Act. The Uniform Act does not define what Company dissolution is. It enumerates the causes and indicates its consequences.

A- Dissolution of The Company

1. Causes of dissolution

Under the Uniform Act the causes of dissolution are many and at times peculiar to certain forms of companies.

The Uniform Act in its Article 200 previews seven causes of dissolution of companies. Amongst the causes put forward, some come about under circumstance external to the company; others are the voluntary acts of the partners themselves. In this case dissolution is said to be provoked.

1) External circumstances leading to dissolution

They include the expiry of the period for which the company was formed; the realisation or extinction of its object; the cancellation of the companyfs partnership deed; and other causes that may be provided by the Articles of Association.

i) The Expiry of the Duration of the Company

According to Article 30 of the Uniform Act the expiry of the term for which the company was created shall entail the automatic dissolution of the company. Partners are free to insert in their Articles of Association the date on which the company life will come to an end. Article 28(2) of the same Uniform Act precise that the duration of existence cannot exceed 99 years. However, the partners have the right to extend its duration or anticipate on the life of the company by reducing its duration.

ii) Realization or Extinction of its Objects

The realization of the objects of the company supposes the accomplishment of the task for which the company was formed. On the other hand, there is extinction of objects if the activity or activities for which the company was formed to execute turns out to be an impossibility. Realization or extinction of objects of company as cause for dissolution operates rarely today.

iii) Cancellation of the Company Partnership deed

Annulment of the company partnership deed is a rare event, however once this happens, the effect is that the company must be dissolved. A judgment ordering the liquidation of a company automatically calls for its dissolution.

iv) Causes provided for in the Articles of Association

A company can be terminated for all the reasons provided for in the Articles of Association. The Articles of Association can indicate that should the company suffer heavy losses it should be dissolved. In this situation if the Companyis  industrial unit goes into flames this would constitute heavy loss and the Company would have to be dissolved.

2) Provoked causes of dissolution

The dissolution of a company may be provoked either by the voluntary acts of one or more partners or a Court decision.

i) Voluntary Acts of Partners

We have seen that partners on a common accord can decide to dissolve a company before the expiration of its term. Equally, one partner may provoke the dissolution of a company by renunciation, that is, he refuses to continue to be part of the company. The Uniform Act does not put into doubt these possibilities as it says that a company can be terminated by the decision of partners, subject to the conditions previewed for the amendments of the Articles of Association. It is then clear that there can be anticipated (premature) dissolution on common accord and by way of renunciation by a partner. A partner could equally ask for dissolution of the company if he realises that all the shares of the company are vested in the hands of one person.

Anticipated Dissolution . Mutual Agreement

Before a companys  term of existence expires, the partners can put an end to it. This is what is known as anticipated dissolution. Anticipated dissolution can be direct or indirect. It is direct when it emanates from the decisions of the General Assembly of partners or in application of a clause in the Articles of Association. It is indirect if it is the consequence of another collective decision, for example, a decision to be absorbed by another company as a result of a merger or a transformation into a different form of company implying the disappearance of it present personality. Voluntary dissolution must not be spurred by a fraudulent motive.

Renunciation

This idea emanates from the general principle of Contract Law. It holds that a partner who does no longer wish to be part of the company can unilaterally renounce it.

Renunciation is only possible in contracts whose duration is undermined either because there is no term at all or the term exceeds the human life span. Renunciation must be done in good faith and the timing must not be so as to inflict hardship on the other members. For renunciation to be valid, all the other members must be informed by way of a bailiffs.

Concentration of all the shares in a single hand

The concentration of all the shares in the hands of one person used to be a common cause for dissolution. Today with the coming into force of the Uniform Act this position of law has been altered. The Uniform Act authorises a single person to form a Private or Public Ltd Company. Any of these companies which start with a plurality of members and end up with a member is therefore regular and cannot be dissolved. Article 60 of the Uniform Act states however that, in the case of companies in which sole proprietorship are not allowed by the Act, the ownership of all the shares by a single person shall not entail the automatic dissolution of the company. Any party concerned may petition the President of the competent court for such dissolution where the situation is not regularised within a period of one year. The court may grant the company a maximum period of six months to regularise the situation. It may not order the dissolution where on the date of ruling on the merit of the case the situation has been regularised. This clause definitely applies to SNCs and SCSs.

ii) Court dissolution on justified grounds

This previews certain situations in which a partner can ask for an anticipated dissolution of a company from the court. Examples are:

  • Failure of a partner to honour his engagements vis-a-vis the company e.g. he fails to pay contributions.
  • Habitual incapacity which paralyses the Company.
  • Other cases, whose seriousness is left for the appreciation of the judge.

Article 200(5) of the Uniform Act talks of the coming to an end upon its premature dissolution pronounced by the competent court at the request of a partner for justified reasons, notably in the case of non performance by a partner of hisobligations or misunderstanding between partners hampering the normal functioning of the company.

3. The consequences of dissolution

The immediate consequence of the dissolution of a company is that it be liquidated. When a company is dissolved, it conserves its legal personality for liquidation purposes until the liquidation procedure is completed. Liquidation of the company is the collect and realisation of the companyfs assets to settle a list of contributories and creditors and to pay the companyfs debts and liabilities and to divide the surplus (if any) among the members of the company in accordance with 303 Section 457 of the Nigerian Companies and Allied Matters Act 1990 their rights. This holds true under the Uniform Act as Under Nigerian and Ghanaian Laws. For dissolution of a company to have effect on  parties the Uniform Act prescribes certain obligations that must be respected. Article 201 states that dissolution of a company shall have an effect on third parties only with effect from its publication in the Trade and Personal Property Credit Register. Again concerning this aspect of publicity, Article 202 of the Uniform Act, states that the dissolution shall be published through a notice in a newspaper empowered to publish legal notices of the place of the registered office, by depositing the acts or reports deciding or recording the dissolution, at the court registry and by an amendment of the entry in the Trade and Personal Property Credit Register. Article 201(4) of the Uniform Act holds that the dissolution of a company in which all the shares are held by one person shall entail a total transmission of the assets and liabilities of the company to such person without resorting to liquidation. Creditors may object to the dissolution before a competent court within a period of 30 days following its publication. The court shall reject the objection or order the settlement of debts or provision of guarantees if the company offers any and if they are deemed sufficient. The transmission of the assets and liabilities and the winding up of the company shall be effective only after the expiry of the time limit or objection or where the objection has been declared inadmissible or if the settlement of debts has been effected or guarantees provided.

B- The liquidation of companies

Here, we shall examine the formalities of liquidation, and the operations in the liquidation process the appointment of the liquidator and his powers. The Uniform Act provides for two types of liquidation process the friendly process otherwise known as the Out -of-Court-liquidation and the Court-ordered-liquidation.

1. Formalities for liquidataion

Article 203 of the Uniform Act, specifies the field of application of the provisions of the Uniform Act governing the liquidation of companies. The provisions apply where liquidation is effected out of court in accordance with the Articles of Association and where liquidation is ordered by a court decision. Court-ordered-liquidation comes about in the absence of liquidation clauses in the Articles of Association or an express agreement between the partners. Courtordered liquidation equally comes about on request made to a court of competent authority. Article 223, of the Uniform Act mentions the persons who can make the said request. They include:

  • The majority of members in SNCs
  • Partners representing not less than 1/10 of the capital in theother forms of companies having legal personality.
  • The Companyfs Creditors.
  • The representative of the bondholder groups.

However, partners may agree that the provisions (Art. 224 to 241) applied to Court Ordered liquidation be applicable in cases of Out of Court liquidation. In case of Court ordered liquidation the powers of the board of directors and management ends with effect from the court decision ordering the liquidation of the company307. The company shall be under liquidation as soon as it is dissolved for any reason whatsoever. The words company under liquidationh as well as the name(s) of the liquidator(s) shall be included in all the acts and documents issued by the company to third parties. It shall be so mentioned on all letters, invoices, notices, and various publications.

2. Operations in the liquidation of companies

Generally, the division of the company assets after dissolution is seen as the only task in the liquidation of the company. This is false. Liquidation involves the collection of the company’s assets and liabilities which, may be dispersed and the putting into place operations to terminate matters the company had involved itself in. After the assets and liabilities have been matched, the surplus, if any, is then divided amongst the members of the company in accordance with their rights. To realise these operations, a liquidator has to be appointed.

a) Appointment of a liquidator

The Liquidator represents the Company during the period of liquidation be it Court ordered or out of court. To ensure that the liquidation process is carried out, a liquidator must be appointed. In this light, Article 206 of the Uniform Act states that where liquidation is decided upon by the partners, one or more liquidators shall be appointed: Unanimously by the partners in the case of SNCs Unanimously by the active partners, and by a majority capital of sleeping partners in the case of SCSs. By the majority capital of partners in the case of a Private Ltd Company. Under the quorum and majority conditions provided for extraordinary general meetings in the case of Public Ltd Companies. The liquidators may be chosen from among the partners or third parties. The liquidator may be a corporate body. Where the partners are unable to appoint a liquidator, he may be designated by a court decision at the request of any interested party as provided under Article 226 and 227 of the Uniform Act. That is the court decision ordering the liquidation of the company shall designate one or more liquidators.308 307 Article 224 of the Uniform Act 308 Article 226 of the Uniform Act. Juriscope 2010 77 The duration of liquidator mandate may not exceed 3 years renewable by Court decision at the request of the liquidator. In his application for renewal, the liquidator shall state the reasons why the liquidation has not been closed, the measures he intends to take and the time needed to complete the liquidation. Unless otherwise stated in the decision of appointment, if many liquidators are appointed, they can exercise their functions separately but must establish a common report. The Liquidator(s) are remunerated. His remuneration is fixed according to Article 210 by the decision of the partners or of the court designating him. The liquidator may be dismissed and replaced. The replacement shall be done in accordance with the conditions provide for his appointment. Any partner may petition to the court for the dismissal of the liquidator where such petition has legitimate grounds. The instrument appointing liquidator(s) whatever its form must be published within one month from the date of the appointment in a newspaper empowered to publish legal notices in the Contracting State of the registered office. It shall include thefollowing information:

  • The name of the company followed by the word g company under liquidation;
  • The amount of registered capital;
  • The address of the registered office;
  • The registration number in the trade and personal property credit register;
  • The cause of liquidation;
  • The name and domicile of the liquidators;
  • Any limitation to their powers;
  • The place where correspondences should be sent and the place where deeds and documents concerning the liquidation should be notified;
  • The court in charge of commercial matters whose registry shall be depository ofthe deeds and documents relating to the liquidation.
  • At the behest of the liquidator, the same details shall be brought to the notice of the holders of registered shares and bond, by hand delivered letter against receipt or by registered letter with a request of acknowledgment of receipt.
  • Under Nigerian Law the first meeting of creditors and contributories will decided whether the official receiver should continue to be liquidator or another person should be appointed. Where another person is to be appointed, the appointment will be made by the Court on the application made after the meeting. Like the Uniform Act, in making the appointment the court may limit or restrict the powers of the liquidator by the order appointing him.309.
b) Liquidator powers

The problem here is to determine the acts which the liquidator can accomplish unilaterally and those which can only be accomplished with the authorization of the partners. In effect it is generally admitted that the liquidator acting alone may sell and transfer the companyfs property or recover debts. The Uniform Act precises acts which the liquidator is prohibited from performing and those which he performs only after the authorisation from partners. In this light, Article 214 of the Uniform Act forbids the transfer of all or part of the assets 309 Section 422(2) of the Nigerian Companies and Allied Matters Act 1990 Juriscope 2010 78 of the company under liquidation to the liquidator, his employees or their spouses, ascendants and descendants. On the other hand, Articles 213 and 215 authorise the total or partial transfer of assets only after the consent of the members must have been sought. Article 213 states that except upon the unanimous consent of the partners, the transfer of all or part of the assets of the company under liquidation to a person who has had in the company the capacity of partner, manager, member of the board of directors or managing director or auditor may not take place except with the authorisation of the competent court, the liquidator and the auditor after having been heard. Article 215 of the Uniform Act holds that: the transfer of all the assets of the company or the assignment of the assets to another company notably through merger shall be authorized:

  • In a SNC, unanimously by partners;
  • In a SCS, unanimously by the active partners and by the majority capital of sleeping partners;
  • In a Private Ltd company by the majority required to amend the articles of association;
  • In a Public Ltd company under the conditions of quorum and majority required for extraordinary general meetings.

The mission of a court appointed liquidator is clearly defined by article 228 and 241 of the Uniform Act. We gather from Article 228 that within a period of six months from the date of his appointment, the liquidator shall convene a meeting of shareholders where he shall give a report on the assets and liabilities of the company, his execution of the liquidation exercise and the time needed to complete the exercise and shall also where necessary request any authorisations he may need. The meeting shall take decisions under the conditions of quorum and majority provided for in the Uniform Act for each form of company for the amendment of the Articles of Association. The period within which the legislator shall draw up his report may at his request be extended to twelve months by court decision. Failing this, the meeting shall be convened by a court appointed representative at the request of any interested party. Where it has been impossible for the general meeting to hold or to reach a decision the liquidator shall petition to the court for the necessary authorisations to bring about the liquidation. Article 241 of the Uniform Act provides that the liquidator shall, subject to the rights of the creditors decide on the advisability of distributing the available funds in the course of the liquidation. Where formal notice to the liquidator to share the funds remain unheeded, any interested party may petition to the competent court through summary proceedings to rule on the appropriateness or otherwise of sharing the funds. The liquidator represents the company on whose behalf he engages all the acts of liquidation. He is vested with wide powers to realise the companyfs assets, pay the companyfs debts and share amongst partners any surplus in accordance with their rights. The liquidation shall be closed within the period of three years from the date of liquidation of the company. Failing this, the public prosecutorfs office or any interested party may bring an action before the competent court within whose jurisdiction the registered office of the company is located for the liquidation of the company or where the liquidation has started for it to be completed. Juriscope 2010 79 The liquidator shall be liable to the company as well as to third parties for the actionable wrongs resulting from any errors made by him in the exercise of his duties. Liability action by the company or an individual against the liquidator shall lapse within a period of three years from the date of commission of the actionable wrong or where it was hidden from the date of its disclosure. However, where the act amounts to a felony, the action shall lapse within a period of 10 years. 310 The liquidatorfs powers under Nigerian law will vary depending on the mode of winding- up. This notwithstanding the essential duties of the liquidator is as follows:311

  • Sell the property of the company of whatever nature by public auction or private contract, with power to transfer the whole thereof to any person or company or to sell the same in parcels;
  • Do all acts and to execute, in the name and on behalf of the company, all deeds, receipts and other documents, and for that purpose to use, when necessary, the company’s seal;
  • Prove, rank and claim in the bankruptcy, insolvency or sequestration of any contributory for any balance against his estate, and to receive dividends in the bankruptcy, insolvency or sequestration in respect of that balance as a separate debt due from the bankrupt or insolvent, and rateably with the other separate creditors;
  • Draw, accept, make and indorse any bill of exchange or promissory note in the name and on behalf of the company with the same effect with respect to the liability of the company as if the bill or note had been drawn, accepted, made or indorsed by or on behalf of the company in the course of its business;
  • Raise on the security of the assets of the company any money requisite;
  • Take out in his official name letters of administration to any deceased contributory, and to do in his official name any other act necessary for obtaining payment of any money due from a contributory or his estate which cannot be conveniently done in the name of the company, and in all such cases the money due shall, for the purpose of enabling the liquidator to take out the letters of administration or recover the money, be deemed to be due to the liquidator himself;
  • Appoint an agent to do any business which the liquidator is unable to do himself;
  • Do all such other things as may be necessary for winding up the affairs of the company and distributing its assets.

The liquidator in a winding up by the court shall have power, with the sanctioneither of the court or of the committee of inspection, to:

  • Bring or defend any action or other legal proceeding in the name and on behalf of the company;
  • Carry on the business of the company so far as may be necessary for its beneficial winding up;
  • Appoint a legal practitioner or any other relevant professionals to assist him in the performance of his duties;
  • Pay any classes of creditors in full;
  • Make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim, present or future, 310 Article 221 of the Uniform Act 311 Section 425(1)&(2) of the Nigerian Companies and Allied Matters Act 1990 Juriscope 2010 80 certain or contingent, ascertained or sounding only in damages against the company, or whereby the company may be rendered liable;
  • Compromise all calls and liabilities to calls, debts and liabilities capable of resulting in debts, and all claims, present or future, certain or contingent, ascertained or sounding only in damages, subsisting or supposed to subsist between the company and a contributory or alleged contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the assets or the winding up of the company, on such terms as may be agreed, and take any security for the discharge of any such call, debt, liability or claim and give a complete discharge in respect thereof.

The liquidator under Nigerian law like under the Uniform Act is subject to control. Under Nigerian law the control is done by the court, the Committee of inspectors, the Creditors, the Contributories and the Commission. Under the Uniform Act control is done by the Court, the Creditors, the Shareholders and the Public Prosecutor. Juriscope 2010 81

Chapter eight Corporate Criminal Responsibility

The Penal provisions are contained in Part Three of the Uniform Act. Like the provisions contained in part one they apply to all the forms of commercial companies provided by the Act. Before the Uniform Act, corporate criminal offences were dispersed in different legal instruments. The Act has the merit to have attempted a codification of the acts and omissions considered as criminal offences within the Company Law of the OHADA zone. Article 5(2) of the Treaty creating OHADA indicates that Uniform Acts may contain criminal offences. This is discretionary, meaning that they may not. If they do not, it will be incumbent on the member states to provide them. The criminal provisions contained in the Uniform Act are therefore a minimum and it is left on them