Futility of winding-up proceedings against company under receivership
The distinction between a liquidator and a receiver/manager has often been a bone of contention, with some arguing that their roles are fundamentally different. However, a closer examination of the
- By Ogbonna Chukwumerije
The distinction between a liquidator and a receiver/manager has often been a bone of contention, with some arguing that their roles are fundamentally different. However, a closer examination of the Companies and Allied Matters Act (CAMA) reveals significant functional overlaps that blur the lines between the two.
Section 588 of CAMA outlines the powers and duties of a liquidator, primarily focused on getting the company’s house in order in the course of winding up. Similarly, the powers of a receiver/manager, as detailed in Section 556 and Schedule 11 of CAMA, also involve taking the reins of company assets and managing operations for the benefit of creditors. While their appointments may arise from different ends of the legal spectrum, their objectives often tread the same path.
This article critically examines the statutory framework and judicial reasoning surrounding this functional overlap and whether winding-up proceedings can be commenced against a Company with a Receiver/Manager appointed under an All-Assets Debenture.
Receivership vs. liquidation
According to Chris C. Wigwe, SAN: “Company Law & Practice” 2nd Ed. 2022; a receiver/manager is appointed by secured creditors under the terms of a loan or debenture instrument upon the company’s default, and his primary role is to realise the company’s assets to settle the creditors’ debt.
In contrast, a liquidator is appointed by the company or the court to wind up the company’s affairs and distribute its assets among creditors and contributories in accordance with the company’s articles and the statutory rules of priority.
It is a settled principle of law that once a winding-up order is made, a liquidator is appointed with powers set out under Section 588 of CAMA 2020. These powers substantially mirror those of a receiver or manager appointed under Section 556 and Schedule 11 of CAMA, as affirmed in Cansco Dubai LLC v. Seawolf Oilfield Services Ltd (2018) LPELR-43674). This raises the question of whether there is any legal or practical justification for initiating winding-up proceedings against a company already under receivership, given that both officers are empowered to pursue the same objectives.
The core purpose of appointing a receiver or manager is to preserve and realize the company’s assets for the benefit of creditors, which is also the fundamental role of a liquidator in a winding-up. Since both processes aim to protect creditors’ interests and settle outstanding debts, commencing winding-up proceedings during receivership may amount to unnecessary duplication without added practical benefit. In Cansco Dubai LLC v. Seawolf Oilfield Services Ltd & Anor (supra) the Court of Appeal held to the effect that the functions of a Liquidator and that of a Receiver/Manager are similar as they are both primarily appointed to preserve the assets of the company when such assets are in danger of dissipation.
Ubiquitous role of a receiver
A Receiver/Manager owes a statutory and fiduciary duty to act in the best interest of the company, not merely as an agent of the appointing creditor, as clearly provided under Section 553(1) and (2) of CAMA. The law requires the Receiver/Manager to act in good faith and render proper accounts of all activities under Section 398 of CAMA. Consequently, any argument questioning the intentions of the Receiver/Manager is a non starter, since he is deemed to stand in a fiduciary relationship with the company and must act with utmost good faith for the benefit of the company and its creditors.
The court in the case of Cansco Dubai LLC v. Seawolf Oilfield Services Ltd & Anor (supra) highlighted the similarities in the functions of a Receiver/Manager and that of a provisional liquidator where it cited the case of Nigeria Bank for Commerce and Industry & Anor v. Alfijir (Mining) (Nig) Ltd (1999) LPELR – 2015 (SC); (1999) 14 NWLR (Pt. 638) P. 176; (1999) 12 SC (Pt. iii) P. 109 in which the Supreme Court held that part of the duty of a Receiver/Manager and a provisional liquidator is to preserve assets and undertakings of the company.
Therefore the appointment of a Receiver/Manager over the Company is not only for the benefit of the persons that appointed him but essentially for the benefit of the company as the Receiver/Manager will not only be acting in the interest of the persons that appointed him, but for the overall interest of the company and he will not dissipate the assets of the company but act in utmost good faith for the overall benefit of the company and its creditors.
Hence, it is unnecessary and bereft of any utilitarian value to commence winding-up proceedings (geared at appointing a liquidator) where a Receiver/Manager has already been appointed, and is carrying out functions for the overall benefit of the company.
Limited powers of a liquidator
Furthermore, Wigwe in his book (supra) stated that “a Liquidator represents the interest of the creditors, especially the unsecured creditors”. While many will be quick to conclude that acting for ‘unsecured creditors’ operates as a fundamental difference between a liquidator and a receiver/manager, it must be quickly reiterated that the target of this work is to examine beyond words, but far into the effects of the concepts in view.
That being said, it is crystal clear that even where the liquidator acts for the unsecured creditors, his presence is inconsequential in the presence of a receiver/manager appointed based on a fixed and floating charge over all the assets of the company. Where a liquidator is appointed over a company in receivership, there would be no property for the liquidator to exercise his rights over. This point is made more poignant by the fact that the rights of unsecured creditors run subsequent and subordinate to the rights of secured creditors.
Receivership Precludes any Legal Action
In so far as the purpose of the winding up is to recover the purported outstanding indebtedness of an unsecured creditor by distributing the company’s assets (which are under Receivership), then no action, inclusive of a winding-up petition to recover any alleged indebtedness, can be commenced against such a company until the secured creditors have been fully paid up. The point being made is that an unsecured creditor cannot even proceed against the assets of the company, which are under the control of the Receiver/Manager, unless and until the company slips out of receivership.
For context, a liquidator appointed pursuant to the winding-up order will be legally stripped of the necessary vires to deal with the assets of the company comprised under the Receivership particularly where a Receiver/Manager was appointed over all the assets of the Company (both fixed and floating) or where the Company pledged and/or charged all its present and future goodwill, capital and monies to the secured lenders who appointed the Receiver Manager.
To demonstrate this point, we rely on the case of Krans V. Bright Oridami 1956 SC. 84 VOL. 9 PG 474, where it was held that the properties, whether movable or immovable, of a company under receivership cannot be attached, not even by a duly issued writ of execution. Also, in the case of Habib Nigeria Bank Limited v. Wahab Opomulero & Ors (2000) 15 NWLR (Pt. 690)315, the Court held that the amount realised from the sale of the assets of a company under a receivership is not attachable.
Court lacks jurisdiction to attach company property under receivership
It is worthy of note that a court has no jurisdiction to decide or issue a writ for the attachment of a judgment debtor’s properties, which form part of the properties under receivership. See Kadzi International Ltd. V. Kano Tannery Company Ltd & Ors (2003) LPELR-5782 (CA). In that case, the learned trial court, upon being aware that the properties on which a writ of execution was issued are properties under receivership, and on application by the judgment debtor, immediately set aside the writ of execution and held that the court lacked jurisdiction to have attached the properties in the first instance.
In Kadzi International Ltd V. Kano Tannery Company Ltd & Ors (supra), the learned trial judge, upon being aware of his lack of jurisdiction to have issued a writ of execution on the properties under receivership, immediately set aside the writ of execution. Also, in the case of Intercontractors Nigeria Ltd. V. N.P.F.M.D (1988) LPELR-1520(SC) it was held that it is only the assets of the company which are outside the receivership that an unsecured creditor can proceed against.
This issue was well appreciated by the learned author Dr. O. Orojo in his book “Company Law and Practice in Nigeria at page 443 where he opined that a Receiver/Manager will continue to deal with the assets of a company comprised under the Receivership in the name of the company despite the fact that the company has gone into liquidation.
In a recent case handled by the writer, it was argued that hearing a winding-up petition against a company already under receivership would be an exercise in futility, since the appointment of a Receiver/Manager under an all-assets debenture prevents the liquidator from proceeding against the company’s assets.
Relying on the settled principle that courts should not act in vain, the argument urged the court to recognise the practical limitations of winding-up proceedings in such circumstances. In its ruling, the court affirmed that while a winding-up petition may be initiated against a company in receivership, the proceedings should be stayed until the receivership concludes, thereby reinforcing the view that pursuing winding-up during receivership is largely ineffective.
The argument of the writer would have been different if the Receiver/Manager was appointed over a fixed asset the company. In this circumstance, it would be appropriate to commencing winding-up proceedings against the company but is should be noted that the asset under the Receivership cannot be proceeded against as stated by Dr. Orojo. Hence in the event that a liquidator is appointed pursuant to the winding up order, the assets of the company cannot be proceeded against by the said Liquidator.
The legal remedy of unsecured creditors
The Companies and Allied Matters Act, 2020 provides important protections for unsecured creditors by ensuring transparency and accountability during receivership, even though such creditors lack priority or security. Section 561 of CAMA requires every receiver or manager to submit periodic financial reports to the Corporate Affairs Commission, detailing all receipts and payments made under their control.
These reports must be filed within one month after every six-month period from the date of appointment, as well as upon cessation of office, allowing regulators and liquidators to monitor the management of company assets and safeguard creditors’ interests. For unsecured creditors, such financial transparency is vital, as their claims can only be satisfied from whatever remains of the company’s assets after secured debts are settled.
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In addition, Section 562(1)(b) of CAMA strengthens enforcement by empowering the court to compel a receiver/manager to comply with their statutory duties where they fail to submit required documents or accounts. Upon application, the court may order the default to be remedied within a specified timeframe, reinforcing fiduciary responsibility. Taken together, these provisions ensure that receivers and managers are held to strict standards of financial disclosure and accountability, thereby enabling unsecured creditors to participate meaningfully in insolvency proceedings and preventing mismanagement of company assets.
Section 562 of CAMA enhances the protection of unsecured creditors by granting them access to judicial remedies where a receiver or manager fails to perform statutory duties, such as filing required documents, rendering proper accounts, or remitting funds due to the company. It allows unsecured creditors to apply to court for orders compelling compliance, thereby enabling timely intervention in cases of delay, negligence, or suspected mismanagement and facilitating recovery of funds for the company’s estate. When read alongside the reporting obligations under CAMA, these provisions ensure transparency, prevent secrecy, and strengthen accountability in receivership, offering meaningful protection to unsecured creditors within Nigeria’s insolvency framework.
Conclusion
“I don’t care if it is a white cat or a black cat, if it can catch mice, it’s a good cat.” stated Deng Xiaoping, the famous Chinese leader who led major economic reforms in China in the late 20th century in demonstrating the principle of effect and means.
The concomitant effect of all that has been said in this regard is that, in the peculiar circumstances where a company is already under receivership, initiating winding-up proceedings against that same company would be nothing short of flogging a dead horse.
This is because the target, aim, and objectives of winding up a company and placing it under receivership are cut from the same cloth and cannot be meaningfully separated. In essence, both processes pull in the same direction, and their functions are so closely intertwined that pursuing both simultaneously may only lead to a duplication of efforts and unnecessary legal entanglement.
•Chukwumerije is an Associate Partner at Pinheiro LP
