Winding Up, Insolvency and Corporate Rescue
Modes and grounds
Winding up may be members' voluntary (solvent), creditors' voluntary (insolvent), or compulsory by the court. Grounds include special resolution, failure to commence business within a year, inability to pay debts, just and equitable grounds, and default in filing returns. A creditor's petition typically follows a statutory demand (three weeks) or other evidence of insolvency.
Insolvency and rescue
CAMA 2020 introduced company voluntary arrangements and administration-style rescue procedures, allowing a company in difficulty to reach a binding arrangement with creditors under court supervision, with a moratorium. Directors of an insolvent company must have regard to creditors' interests; fraudulent trading exposes them to personal liability.
Worked example
A company owes a supplier N20m, ignores a statutory demand for three weeks, and has no genuine defence. The supplier petitions; the court may wind up the company or, if a rescue proposal is viable, allow a CVA. Reasoning: inability to pay debts is the classic ground, and a statutory demand shifts the burden.
Traps
Confusing voluntary and compulsory winding up; ignoring preferential debts (employees' wages, tax); assuming directors escape liability; forgetting the moratorium effect in rescue.