This document provides an overview of the process for distributing company assets during liquidation under Nigerian law. It discusses what assets are available for distribution, including realized assets and potential future assets. It also covers how to increase the asset pool, such as through legal claims or calls on unpaid share capital. The document outlines the process for creditors to prove debts and rankings of claims, with costs and preferential debts in Classes A and B, followed by secured and unsecured creditors in Class C. Exceptions to the pari passu principle of equal treatment are noted, and the conclusion emphasizes proper compliance with laws to satisfy obligations in the liquidation process.

1. “DISTRIBUTION OF COMPANY
ASSETS IN LIQUIDATION”.
BY
CHIMEZIE VICTOR C. IHEKWEAZU
JULY 31, 2010

2. BEING A PAPER PRESENTED AT THE SECOND
PREPARATORY TRAINING FOR BRIPAN MEMBERS
TITLED :
“STRIKING A BALANCE BETWEEN MERE PAYMENT
DEFAULT AND INSOLVENCY GUIDING
COINSIDERATION”
JULY 31, 2010

3. CONTENTS.
• INTRODUCTION
• WHAT ASSETS ARE AVAILABLE FOR DISTRIBUTION
• HOW DO YOU SWELL THE POOL OF ASSETS
• PROOF OF DEBTS
• RANKING OF CLAIMS IN LIQUIDATION
• PARI PASSU PRINCIPLE
• EXCEPTIONS TO THE PARI PASSU PRINCIPLE
• CONCLUSION

4. INTRODUCTION
• Liquidation is the process of winding up of a Limited
Liability Company or other incorporated Association.
• In the case of a Limited Liability Company, the
liquidation or winding up may be voluntary, by the
Court or under the supervision of the Court.
• The applicable provisions are provided under the
Companies and Allied Matters Act.
• See part XV of the Act.

5. Cont’d
• A Liquidator is a person appointed to wind up the Business affairs of
a Company in liquidation.
• He may be appointed by the Court, the Creditors, or the Company
as the case may be and with relation to the nature and stage of the
winding up of a Company.
• He retains the duty to gather the assets of the Company and
manage same with a view to realizing the best value of the assets to
pay the Company’s debts and for distribution among the Company’s
creditors, and the surplus to shareholders subject to other statutory
obligations.
• These obligations include among others, payment of recognized
Taxes, charges, cost and fees under the Law and managing the
Affairs of the Company with due statutory compliance until final
dissolution of the Company under the Companies and Allied Matter
Act.
• See Part XV of the Act.

6. According to the Osborn’s Concise Law Dictionary 8th
Edition – by Leslie Rutherford and Sheila Bone, (Sweet
& Maxwell) 1993.
• A Liquidator is “an individual appointed to carry out
the winding up of a company.
• The duties of a liquidator are to get in and realize the
property of the Company to pay its debts, and to
distribute the surplus (if any) among the members”.
• The powers and the manner in which the Liquidator is
to exercise its duties are as stated under the
Companies and Allied Matters Act and the Companies
Winding up Rules.

7. WHAT ASSETS ARE AVAILABLE FOR
DISTRIBUTION
• The assets of the Company in Liquidation may be
present or future.
• These assets include properties, choice-in-action to
which the Company is or appears to be entitled.
• These can be ascertained from Statement of affairs
of the Company and other available records of the
Company.
• Other assets may also be located at the Company
premises and locations where the Company carries
on business or businesses.

8. In Liquidation the following assets are
available for distribution:
• All assets that are realized by the Liquidator (after
discharge of due debts of the Company as may be
sufficient to meet them.)
• All such assets that may be further realized from the
management of the business of the Company as
elected by the Liquidators.
• All assets that may be recovered in the course of
winding up through discoveries made from the
companies records or other information.

9. •See generally Sections: 420, 423, 424, 425 and
sections 494(5) of CAMA.
(Example- ADC experience as regards
discoveries and claims.)

10. HOW DO YOU SWELL THE POOL OF ASSETS
• Claims through any Legal Process against debts owed to the Company. See Section
425(1) (a)
• Placing a demand on contributories on any money due from them or their estate to the
Company. See Section 441 of CAMA and Rule 62.
• Making calls on any part of unpaid Share Capital. This may be enforced by order of
Court. Rule 73 Winding up Rules. See also Section 442 of CAMA.
• Exercising the Power to summon persons suspected to be in possession of Company
Assets. See Section 449 of CAMA
• Carrying on the business of the Company as may be necessary for its beneficial Winding
up. See Section 425 of CAMA.
• By making compromises or arrangements with Creditors. See Section 425 of CAMA.

11. PROOF OF DEBTS
• All unsecured creditors and secured creditors (that
have surrendered their rights) are entitled to prove
their claims for debts

12. NOTICE TO CREDITORS TO PROVE DEBT.
• The Liquidator shall fix the date for proof of debts
by Creditors and he shall do so by advertisement
in any convenient Newspaper. See Rule 89.
• In addition the Liquidator may also notify all the
creditors in writing through any means of
communication which will be received by the
Creditor. (E.g. By post or other electronic
medium).

13. MODE OF PROOF OF DEBT
• By verifying Affidavit deposed to before any
Commissioner of Oaths. The Affidavit must state the
debt and necessary particulars and must be
submitted to the Liquidator within the specified
time.
• The Deponents to the Affidavit must be the creditor
or a person who has authority to make the
deposition at his instance and he must state so.

14. CONTENTS OF THE AFFIDAVIT:
• It must contain all necessary facts showing the debt
including Statements of Accounts, Receipts, Vouchers
etc.

15. PROCESS OF PROOF OF DEBT
• Examination of the verifying Affidavit by the
Liquidator and upon reasonable satisfaction of the
Liquidator in the verification exercise. See Rule 90 of
the Rules.
• Issuance of certificate of indebtedness – to be
marked “without prejudice” of the proved debt.
• Notice of Rejection – to be issued against
unsubstantiated claims for debt.

16. •Where a Notice of rejection is issued and served
on a creditor, he is entitled under the Winding up
Rules to challenge same in Court within thirty (30)
days of service.
The Court may vary or reverse same.
See Rule 91.

17. RANKING OF CLAIMS IN LIQUIDATION (ISSUE
OF PRIORITY)
• The manner of applying the assets of the Company in
Liquidation is as prescribed under the Companies
and Allied Matters Act and the Companies Winding
up Rules.

18. CLASS A
• Costs, Expenses, Fees
• Cost of Winding Up
• Debts of the Company
• Remuneration of Special Manager
• Cost of any Person properly employed by the
Liquidator
• Remuneration of the Liquidator
• The out-of-Pocket expenses incurred by the
Committee of Inspection

19. CLASS B SECTION 494
PREFERENTIAL PAYMENTS.
• Local rates and charges from the Company, all pay as you earn tax
deductions and taxes due from the Company as prescribed under Section
494 (1) (a) and (6) of CAMA.
• Deductions under the National Provident Fund Act.
• All wages of any workman or Labourer whether payable for time or piece
of work for service rendered to the Company.
• All accrued holiday remuneration payable to any staff.
• All amounts due in respect of workmen’s compensation under the
workmen’s compensation Act 1987 – unless where the Company is being
wound up voluntarily for purposes of reconstruction or amalgamation.
• The above debts are to be paid even where the funds are insufficient. In
which case it will be pro-rated among preferential debtors.

20. CLASS C
DISTRIBUTION AMONGST OTHER CREDITORS.
1. Secured Creditors – are to be paid first unless where
they surrender their security. Secured Creditors
include holders of Debentures under any Floating
charge as may be created by the company.
2. Unsecured Creditors.
• These Creditors are ranked equally.

21. FORM OF PAYMENT TO UNSECURED CREDITORS
• Payment is made in form of Dividends and subject to
be shared equally based on available assets.

22. DISTRIBUTION AMONGST CONTRIBUTORIES
Upon full payment to Creditors- Any
surplus may be distributed among
contributories. Section 446.

23. PARI-PASSU PRINCIPLES
• The pari-passu principle stipulates equal treatment of the same class of
creditors and in relation to insolvency matters. It is a principle recognized
in insolvency law and which applies to insolvency proceedings. (e.g,
winding up).
• According to Riz Mokal in the Article “Global Initiative on Insolvency and
Creditor/Debtor Regimes”
• “Pari-passu Principle provides that the Creditors of a Company ranked at
par with each other under the general law should similarly be treated on
par with each other in Insolvency Proceedings”.
• The Pari-passu principle in winding up discloses equal distribution of
available assets among all classes of Debtors and unsecured creditors
without any preference, depending on the payment due and available
funds realized from sell of the assets.

24. EXCEPTION TO THE PARI-PASSU PRINCIPLE
1. Section 425 (1) (d)-
• The liquidator may with the sanction of a resolution of the
company, in members voluntary winding up or with the sanction of
the committee of Inspection or meeting of creditors pay any class
of creditors in full.
2. Section 425 (1) (e)-
• The liquidator can make any compromise or arrangement with
creditors regarding their claims.
3. Section 197 and Section 208 (secured creditors)
• Beneficiaries of charges property registered and as prescribed
under Section 197 of the Act.

25. CONCLUSION
• Management of assets in Liquidation is critical to the
success of the Insolvency Proceedings and Process. It is
therefore of great need to ensure due compliance with
statutory provisions to ensure appropriate discharge of the
requisite obligations.
• While it is possible that assets of a Company in Liquidation
may not be adequate to satisfy all claims against the
Company in liquidation, proper approach, compliance with
the relevant laws and standard practice will guarantee
satisfaction among all persons entitled to benefit and as
may be affected by the process.

26. CHIMEZIE VICTOR C. IHEKWEAZU
31ST JULY 2010.