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A business or company is insolvent when its current assets are unable to meet its current liabilities, simply put:,  a business can’t pay their debt. Section 572 CAMA 2020 sets out conditions in which a company would be deemed insolvent.. These conditions are as follows:

When a company’s state of affairs falls in any of these above situations, it is insolvent. 

What is the Legal Framework Governing Insolvency and Restructuring Practice in Nigeria? 

There are several sectoral laws which apply to restructuring an insolvent company. These laws include both domestic and international legislation. 

1. Domestic Legislation

The domestic legislations alongside the Companies and Allied Matters Act (2020), governing insolvency and restructuring in Nigeria as follows:

2. International Legislation  

It is important to note that Nigeria has not enacted any international legislation such as the UNCITRAL Model Law on Cross-Border Insolvency. Nevertheless, judicial institutions such as the court can recognise insolvency procedures from other jurisdictions on the principle of comity of nations or direct access.

What Business Rescue Options Are Available for Insolvent Companies? 

The Companies and Allied Matters Act, 2020 introduced business rescue options for insolvent companies or businesses. These options are discussed in details as highlighted below: 

Company’s Voluntary Arrangement 

This business restructuring option is introduced under Section 17 of CAMA 2020. Here the insolvent company proposes a scheme to its unsecured creditors with the aim of restructuring the debt owed. The scheme often proposes to creditors of the insolvent company to accept all or part payment of what the company initially owed.

A CVA scheme may be proposed by either the directors of a company through a nominee or by an administrator or liquidator where the insolvent company is under administration or liquidation. Under a CVA scheme, the insolvent company is either left in control of its affairs or undergoing administration or liquidation.

The nominee, after giving notice of the scheme, is required to give his opinion to the court in a report on the feasibility of the scheme and whether meetings of the company and its creditors be held to consider this scheme. 

Where the insolvent company is under administration or liquidation, the administrator or liquidator is not required to submit a report to the court. Except for the court orders, the nominee is required to call separate meetings of the members and the creditors, while the liquidator or administrator is required to convene the same where the insolvent company is under administration or liquidation. However, it is required that such nominee should be an Insolvency Practitioner qualified under the Act.

Administration of Company:

A formal business restructuring option is recommended for an insolvent company and it is aimed at rescuing the business so that the business can continue its operations. However, where this objective cannot be realised, the administrator can channel this restructuring procedure towards another objective. 

The administration procedure may be channelled to achieving a better result for the company’s creditors than would have benefited the creditors if the company was liquidated initially without being under administration. Nevertheless, where this objective is also not realised, the administrator can channel this procedure to sell the assets of the company and make a distribution to one or more secured preferential creditors. A company may be placed under administration via any of these two means:

Can the Federal High Court place a Company Under Administration? 

A company can be  placed under administration by the court where an application for an administration order is made to the court by either the company, its directors, creditors or an officer of the court appointed to act as a receiver under the Act. 

The court may grant such an order and appoint an administrator where it is satisfied that the company is or on the verge of insolvency or such an order would achieve the purpose of administration.

Can Administration be done Outside the Federal High Court? 

A company is placed under administration outside the court upon the appointment of an administrator by a holder of a qualifying floating charge. Where such an appointment is made, the holder of the floating charge is required to file a notice of appointment and any other document requested by the Corporate Affairs Commission. 

A creditor dissatisfied with such an appointment may approach the court for a redress. However, the administrator appointed by whatever means must be a qualified Insolvency Practitioner under CAMA 2020. Nevertheless, once an administrator is appointed, the administrator is required to notify the company as well as the company’s creditors of such appointment. 

After such notification is made, the company is required to provide the administrator with the statement of affairs of the company. The Administrator on receiving such documents would consider the affairs of the company and draw up a proposal for achieving administration. This proposal is to be circulated to the company as well as its creditors. However, such a proposal must not affect the right of a secured creditor to enforce his security without his consent.

Nevertheless, where the Administrator’s proposal aims at rescuing the company as a going concern, a CVA may be a favourable option due to the advantage of a moratorium. A moratorium is provided under an administration procedure. It suspends the rights of creditors of a company under administration to enforce debt recovery actions against the company.


This insolvency process is a court-appointed tool that enables secured creditors under a loan agreement with the insolvent company to enforce their security against an insolvent company. Here, one or more secured creditors can apply to the court to appoint a Receiver. A Receiver can be appointed outside the court where the debt instrument gives the creditor such rights. The appointed Receiver is expected to apply to the court for directions on how to proceed.

In receivership, the Receiver has the right to sell the assets of the insolvent company, or manage the affairs of the insolvent company until the debts owed to the creditors are recovered. However, it's not the responsibility of the Receiver doesn’t to rescue the company from financial distress. Rather, his/her primary responsibility is to recover the debts owed to the creditors appointing him. 

While the receivership is operative, the management of the company remains in place but with limited authority. Where a company is undergoing members voluntary winding-up and a receiver is appointed, the powers of the directors and the liquidators of the insolvent company to deal with the concerned property would be suspended until recovery of debt. However, where the company is undergoing a creditor winding-up, the power of the liquidator over the concerned property would not be suspended unless ordered by the court.

Additionally, a moratorium prevents a secured creditor from appointing a Receiver where a company is under administration unless with the consent of the Administrator as the Administrator can direct such appointed Receiver vacate office immediately.

Receivership is wielded often by the creditor and it often leads to the dissolution of the company. An insolvent company after receivership can appoint a liquidator at the conclusion of the receivership to distribute the remaining assets of the company amongst any unsecured creditor.

How Can a Company be Wound-Up Under CAMA 2020? 

This insolvency process is often instituted against a financially distressed company and it’s often aimed at dissolving the company. Before the enactment of CAMA 2020, the CAMA 1990, often encouraged creditors to wield this procedure as a tool to recover their debts rather than explore restructuring options. 

In winding-up proceedings, the company ceases operations permanently, while its assets are sold to repay its creditors and its remaining assets are distributed among its members. Under CAMA 2020, two types of winding-up proceedings are recognised;

Members Voluntary Winding-Up & Creditors Voluntary Winding-Up 

This winding-up process is often self-imposed and may occur in any of the following circumstances provided under Section 620 of the Act:

However, it’s important to note that a voluntary winding-up could be carried out by either the members of the company or the creditors of the company. A Members Voluntary winding-up can be distinguished from a Creditors Voluntary Winding-Up based on whether the business is solvent or not. In a Members Voluntary Winding-up, the directors must file a declaration of solvency. Where such a declaration cannot be made, it becomes a Creditors Voluntary Winding-Up.

What is the procedure for Members Voluntary Winding-Up? 

The procedure for members voluntary winding-up are as follows:

  1. Declaration of Solvency: This is the first step in a voluntary winding up. The company is expected to file a declaration of solvency with the Corporate Affairs of Commission for registration. This declaration is to stipulate the current state of the company’s assets and liabilities; such declaration must be made five weeks preceding the date the resolution is passed.
  2. Special Resolution: After such declaration is made, a special resolution must be passed at a general meeting of the company. The resolution is then registered with the CAC within 35 days of filing a statutory declaration of solvency.
  3. Notice of Special Resolution to the Corporate Affairs Commission: Within 14 days of passing the special resolution, a company must give notice of this resolution to the public and the commission. The notice to the general public is given by publishing it in two national newspapers and such notice is delivered to the Commission.
  4. Appointment of a Liquidator: The company thereafter appoints a liquidator which must be an Insolvency Practitioner. The liquidator is expected to publish a notice of his appointment in two national newspapers within 14 days of his appointment and this shall serve as a notice to the commission.
  5. Summoning of a Meeting by the Liquidator: Where the winding-up proceedings extend for more than one year, the liquidator is expected to summon a general meeting at the end of the first year of the commencement of the proceedings and every subsequent year for which the proceedings extend to. In these meetings, the liquidator is expected to give an account of the progress of the winding-up process.
  6. Final Meeting: Once the affairs of the company are fully wound-up, the liquidator is expected to summon a final general meeting of the company. Here, he is expected to prepare an account showing how the affairs of the company were dissolved. A copy of the accounts/meeting returns would be sent to the CAC within 7 days of the final meetings.
  7. Dissolution: The CAC on receiving such accounts of the meetings of the company and creditors, would register such accounts. The company would be deemed dissolved three months from such registration.

What is the Procedure for Creditors Voluntary Winding-Up? 

Creditors Winding-Up: This winding-up process is often initiated by the creditors of the company. Here a special resolution is passed by the company under the supervision of the creditors as a means of recovering its debts. This winding-up process occurs in the following steps:

  1. The company and its creditors must hold separate meetings to propose a winding-up of the company. The meeting of the creditors could be called either on the same day the meeting of the company is to be held or the following day after the company’s meeting.
  2. The notice of the meeting of the creditors must be published either once in the Federal Gazette or two national newspapers. The national newspaper must be distributed in a place where the company has its principal place of business or place of business.
  3. The company is expected to send to each creditor of the company a statement of affairs of the company alongside the list of the creditors and the particulars of the debt owed to each creditor. These documents are to be sent at least 14 days prior to the creditor’s meetings.
  4. A director must be appointed by the directors of the company amongst themselves, to preside over the creditors meeting. This director is expected to lay and discuss before the creditors, the statement of affairs of the company earlier circulated to the creditors.
  5. The creditors and company must afterwards nominate a Liquidator who shall conduct the winding-up process. Where two different liquidators emerge as a result of each meeting, the liquidator appointed by the creditors would become the Liquidator.
  6. The Creditors at their meeting may decide to appoint a committee of inspection consisting of not more than five persons. The Company may also appoint such a committee but the creditors have the discretion to reject such nominated persons.
  7. The liquidator after his appointment is to publish a notice of such appointment in the Federal Government gazette or two daily newspapers and deliver such notice to the CAC for registration. This should be done within 14 days after such an appointment.
  8. The Liquidator must make publications of the notice of the final meeting where the account of the wounding-up process is discussed and approved by the meeting. The liquidator must within 7 days of the meeting send a copy of the accounts and returns holding to the CAC.
  9. The company is deemed dissolved after three months of the registration of such accounts and returns by the CAC. The date of the dissolution might be deferred on an application to the court by the Liquidator or a member or a creditor.

Once the winding-up process is commenced the company would cease operations except for operations that are beneficial to the winding-up process. Such operations include the power to conduct business or transfer shares by a member of the company which shall be regarded as void unless with the approval of the liquidator. 

However, the operations allowed during a winding-up is the distribution of the company’s assets to satisfy its liabilities unless the articles of the company provide that the property be distributed otherwise. Furthermore, it is important to note that a moratorium is put in place to stay any creditor’s action for winding-up order where a creditor’s voluntary winding-up has been ongoing for six months. However, where the asset sought to be enforced upon by the creditor, the moratorium would not apply under any of the following conditions

Compulsory Winding-Up Under CAMA 2020

This is often done by the court on the application of any or one or more of the following persons:

The court may give an order for the company to be dissolved if any or all of the following circumstances exists:

Once the order for dissolution is given by the court, a compulsory winding-up commences and the following steps occur:

However, apart from business rescue options provided under CAMA 2020 for insolvent companies; the act as well as other domestic legislations provide corporate restructuring options for  insolvent companies. 

Overview of a Company’s Corporate Restructuring Options

Corporate restructuring is the process in which a company re-organises or modifies its legal, operational, management, ownership or capital structures in order to work more efficiently. Companies on the verge of financial distress often employ restructuring options to prevent a declaration of insolvency. Corporate restructuring can either be internal or external.

What Internal Restructuring Options Can an Insolvent Company/Business Explore? 

This restructuring option is the modification of the operational or management of capital structures of the company internally. Here the goal is to prevent the alteration of the company’s corporate identity and seek solutions internally without resorting to third parties for assistance. 

In exploring internal restructuring solutions, financial and legal advisors are often employed to lead negotiations with the company’s creditors to improve the capital structure by restructuring its debts and equity profile, thereby liquidating debt in the process. Internal Restructuring options include the following:

Arrangement on compromise

This internal restructuring option involves the company proposing an arrangement with its creditors to accept less than the debt originally owed as the final satisfaction of its debts. This arrangement often proposes a change in the rights and liabilities of the creditors. This process is recognised by CAMA and requires the sanction of the Federal High Court to be effective. 

The first step is to make an application to the court for a court-ordered meeting. Where the application is granted, a court-ordered meeting is summoned and the scheme of arrangement is proposed for approval. Approval is obtained when 75% of persons holding the value of the company’s shares or a specific class of debt consent to the resolution sanctioning the scheme. The scheme would thereby be presented to the court for approval.

Arrangement on sale

This internal restructuring option is often explored by a solvent company on the brink of financial distress. Here, the members of the company resolve that dissolving the company and selling is likely to yield better results rather than be dissolved permanently. The members also resolve that the company be wound up voluntarily; the assets of the company be sold and transferred to another company in consideration of an equity stake in the transferee’s company. 

The consideration received is not restricted to an equity stake, it includes cash, debenture policies, etc , -  distributed amongst members of the company according to their rights in liquidation. The consideration received could also be used to settle outstanding creditors. It should be pointed out that the company doesn’t cease to exist when this option is explored, rather after it is dissolved, it is resurrected in another company.


This internal restructuring option is an arrangement where certain groups of the company agree to acquire the interest (either debt or equity) of other groups. A buy-out can occur in the following forms:

What External Restructuring Options Are Available for Insolvent Companies? 

This restructuring option often involves an arrangement with a third party. In an external restructuring, the company often loses its corporate identity and a company is implored to explore internal restructuring options initially before resorting to these options. The forms of external restructuring are as follows; 

Mergers & Acquisition

This external restructuring option often involves the integration of two companies into a single corporate entity and this is known as a Merger. An acquisition occurs when a company is purchased by another company. The distinction between a merger and acquisition is that in a merger a new company is formed while in an acquisition no new company is formed. Mergers and Acquisitions are often motivated by the acquisition of a large market share, acquisition of new technology and intellectual property, expansion into new markets or gaining human capital and talent. Mergers could occur in three forms;

The Federal Competition and Consumer Protection Commission is the regulatory body that governs mergers and acquisitions in Nigeria and it derives its powers and legal framework from the Federal Competition and Consumer Protection Act, 2019.


This is a forceful acquisition of a company by another to gain a controlling interest in the target company, which is often 70%. In takeovers, the acquiring company makes a bid for the target company, and where successful the acquiring company takes control of the company’s operations and assets.

Purchase and Assumption

This external restructuring option is often explored by ailing banks and financial institutions. Here the assets and liabilities of an ailing company are purchased by another company at an auction price. The ailing company is not often wound up rather it is dissolved by a judicial process. This restructuring option is often governed by the Federal High Court. 

The framework of insolvency and restructuring introduced by CAMA 2020 has put Nigeria on the global map of stimulating growth and development in an ever-evolving digital economy. These innovations lay a foundation for accommodating anticipated legal frameworks such as the introduction of a framework for cross-border insolvency.

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