RECEIVERSHIP

When a company is about to obtain loan either from the bank or from the
public by way issue of debentures, such company may be compelled, before
the required money is released, to pledge certain assets, e.g., land and/or
machinery, as security for such loan, such asset is called mortgaged asset. In
the event of default by the company, the creditor may take possession of such
assets, dispose it and use the proceeds to settle its claim. Where the security
pledge by the borrower (that is, company) is the general assets of the
company, that is, a floating charge, the borrower is unable to honour the loan
agreement; this may compel the creditor to take over of the management of
the company until the claim is settled. Anybody engaged by creditors to carry
out those kinds of assignment is called a Receiver. There are two categories of
receiver:
i. For management purposes: A receiver is appointed to manage the
company, pay the loan and interest and thereafter to release the
company back to the owners.
ii. For asset realization: The appointed receiver will sell! The assets of the
company and realize same for payment of loan and interests, after
paying the debts the balance (if any) will be paid to the owners of
the company and then the company goes into liquidation.

The Duties and Powers of Receiver are:

1. Take possession of and protect the property and realize the security for
the benefit of those on whose behalf he is appointed. Unless he is
appointed receiver/manager he shall not have power to carry on any
business-section 393(1)
2. To manage the company with a view to the beneficial realization of the
security of those on whose behalf he Is appointed- section 393 (2)
3. Powers of receiver and managers of the whole, or substantially the
whole of company property is in defined by schedule 11 of CAMA, 1990,
to include among others:
a. Power to raise or borrow money and grant security thereof over the
property of the company
b. Power to appoint professionals to assist in the performance of his
functions
c. Power to make any payment which is necessary or incidental to the
performance of his functions.
d. Power to establish subsidiaries of the company
e. Power to transfer to subsidiaries of the company the whole or any
part of the business and property of the company
 f. Tower to make any arrangement or compromises on behalf of the
company
g. Power to call up any uncalled capital of the company
h. Power to present or defend a petition for the winding-up of the
company etc.

LIQUIDATION
Liquidation is the winding up of a company. In other words, the corporate life
of the company is brought to an end and the company ceases to exist. When
a company is liquidated, its assets are sold and creditors are paid from the
proceeds in accordance with existing priorities while whatever remains is
shared among the shareholders.
TYPES OF LIQUIDATION
Under section 401(1) of CAMA, 1990 as amended winding of a company may
be affected:
(a) By the Court; or
(b) By Voluntarily; or
(c) Subject to the supervision of the court
COMPULSORY WINDING UP (WINDING UP BY THE COURT)
The company can be wind up compulsorily or voluntarily. Compulsory winding
up is affected by the court or by the shareholders subject to the supervision of
the court.
CIRCUMSTANCES IN WHICH COMPANIES MAY BE WOUND UP BY THE COURT
A company can be wound up by the court where:
1. The company is unable to pay its debts: A creditor who petitions on the
ground of the company’s insolvency may rely on any of the following
situations to show that the company is unable to pay its debts: section
409.
(a) A creditor obtains judgment against a company for debt, attempts
to enforce the judgment but unable to obtain payment;
(b) A creditor satisfies the court that taking into cognizance the
contingent and prospective liabilities of the company; it is unable
to pay its debt.
(c) A creditor to whom the company is indebted in a sum exceeding
N2000 then due has served on the company to pay the sum so
due, and the company has for three weeks thereafter neglected
to pay the sum.
2. The number of the members is reduced below the authorised minimum.
 3. The company defaults in delivery of statutory report to the corporate
Affairs Commission (CAC).
4. The company defaults in holding statutory meetings.
5. Members of the company have by special resolution resolved that the
company should be wound up.
6. The court is of the opinion that it is just and equitable that the company
should be wound up.
PETITION FOR WINDING UP OF A COMPANY
Under section 410(1), an application to the court for the winding up of a
company may be made either by:
a. The company
b. A creditor, including a contingent or prospective creditor of the
company;
c. The official receiver;
d. A contributory;
e. A trustee in bankruptcy to, or a personal representative of a creditor or
contributory;
f. Corporate affairs Commission;
g. By all or any of those parties together or separately.
VOLUNTARY WINDING UP OF COMPANY:
A company may be wound up voluntarily if:
a. The period fixed for the duration by the articles of association of the
company expires.
b. An event occurs which the articles provided that the company is to be
wound up.
c. The company resolves by special resolution that the company be
wound up voluntarily.
TYPES OF VOLUNTARY WINDING UP
1. Members’ Voluntary Winding Up: a voluntary winding up is a members’
voluntary winding up only if the directors make a declaration that the
directors have made full inquiry into the affairs of the company and are
of the opinion that it will be able to pay its debts in full within a specified
period not exceeding 12months: section 462 CAMA.
2. Creditors’ Voluntary Winding Up: a voluntary winding up is a creditors’
voluntary winding up where the directors make no declaration that the
company will be able to pay its debts in within a specified period of time.
In this case the company must summon a meeting of creditors of the
company for the same day, or the next day on which the company’s
 general meeting takes place and at which the resolution for the
voluntary winding up of the company will be proposed.
WINDING UP SUBJECT TO SUPERVISION OF THE COURT
When a company has resolved to wind up voluntarily, the court may, on the
application of an aggrieved party, order that the winding up shall continue
subject to such supervision of the court. The effect of the winding of the
supervision order is that the court has the same jurisdiction over actions in the
winding up as in a court winding up.
COMMENCEMENT OF THE WINDING UP OF A COMPANY
(i) By the court:
a. Deemed to commence at the time of the presentation of the
petition for the winding up;
b. Deemed to commence if a voluntary resolution has been passed
for the winding up, before a petition is presented to the court.
(ii) A voluntary winding up shall be deemed to commence at the time
of the passing of the resolution for voluntary winding up.

STATEMENT OF AFFAIRS AND DEFICIENCY ACCOUNTS OF LIMITED LIABILITY

COMPANY
Statement of Affairs
The purpose of the statement of affairs is not different from the purpose it serves
under Bankruptcy. It is a statement that shows the assets and liabilities of the
company being wound up. The assets are classified into two main groups.
1. Assets not specifically pledged
These are assets that will be realized in order to settle the following types of
claims:
i. Expenditures incidental to the winding up process like legal
cost, liquidator’s fees etc.
ii. Preferential creditors
iii. Debentures carrying floating charge
iv. Unsecured creditors
v. The contributories (if possible)
2. Assets specifically pledged
These are assets that are used as securities for certain category of liability e.g.,
secured debentures. Any surplus on fully secured liability will be passed on and
made available to those to be settled from assets not specifically pledged. If
on the other hand, the securities when realized cannot settle in full the secured
creditors claim the balance yet to be settled will rank as unsecured debt.
LIABILITIES
The liabilities section gives details of all those that have claims over the funds
realized from assets not specifically pledged. The liabilities are stated in the
order in which they are payable

Points to Note in Compulsory Winding Up

1. Preference Dividends in Arrears: Where there are no express provisions in
the article of association as to how the arrears of preference dividend
should be treated, the preference shareholders have no right to the
arrears unless they were declared before the commencement of the
liquidation. If dividend was declared before commencement, the
arrears should be accrued to date of commencement of the liquidation.
2. Call In Arrears: Shown in the statement of affairs at the realizable value;
while the uncollectible amount should be shown as a loss in the
deficiency account.
3. Debenture Interest: If the company is insolvent, accrue to
commencement of the liquidation. If not accrued to the date of
payment.
4. Calls In Advance: Apply this to call receivable from the contributories.
This should be paid before returning excess amount common to all the
shareholders.
5. Cumulative Preference Dividends in Arrears: Payable up to the
commencement of the liquidation.
6. Return to Shareholders: Preference shareholders should be paid first, if
there is repayment priority, they will not be entitled to any surplus in this
case. Where there is no express provision in the articles, preferences and
ordinary shareholders will rank pari-passu for capital and any surplus. The
returns to shareholders will be considered into two situations viz:
a. Where there is surplus: when the assets can repay the liabilities of the
company with surplus, the liquidator may make calls on all or any of
the shareholders up to extend of their liability for the unpaid amount.
The order of the repayments to the shareholders will be given and the
manner by which the surplus with the distributed. This has to be
followed accordingly.
b. When there is deficiency: When there is deficiency and there is an
unpaid call, the liquidator needs not call up the whole unpaid capital
if this will involve a part repayment of the call to the shareholders.
ILLUSTRATION
Skyline Ltd decided to go into voluntary liquidation on 1st June, 2022 due to the
effect of government legislation on its operation. The company’s balance
sheet as at 31st May, 2022 is drafted as follows:
Balance Sheet as at 31st May, 2022.
N
Ordinary shares of N1.00 each 275,000
10% Preference shares of N1.00 each 100,000
12% Debentures 25,000
Profit and loss account 10,000
Trade Creditors 43,200
Bank drafts 75,600
Accrued dividends 5,000
533,800
Freehold premises 300,000
Plant and machinery 110,000
Furniture and fittings 38,000
Stocks 40,750
Debtors 27,550
Cash and bank 12,500
Call in arrears 5,000
533,800
Additional Information
i. The realizable values of the company’s assets were estimated as follows:
Freehold 325,000
Plant and machinery 95,000
Furniture and fittings 34,950
Stock 37,100
Debtors – Good 15,000
Doubtful to collect 60% 7,800
Bad debt 4,750
ii. The cost and expenses of liquidation were legal cost N2,500 and
liquidator’s fees N4,000 plus 2.5% of the amount distributable to
shareholders
iii. By the company’s article, the preference shareholders are entitled to
the repayment of the capital and any arrears of dividend before the
ordinary shareholders
iv. The debenture holders have a floating charge on assets and have been
paid their interest up to the date of passing the resolution to wind up.
 They were however, settled in full on 30th November, 2022 when
liquidation were concluded.
v. The bank overdraft is secured on the company’s freehold premises
vi. The call-in arrears is expected to produce N1,825 while the preference
shares are to be settled at a premium of 2 kobo per share.
Required:
Prepare the statement of affairs and deficiency account of the company.