The Propriety of Debt Recovery and Settlement in Winding-up Proceedings

Insolvency Discourse by Kubi Udofia info@kubiudofia.com

Recovery of Undisputed Debts in Winding-up Proceedings
A court would readily make a winding-up order, if a creditor shows that (i) the debtor is indebted to the creditor in a sum exceeding N100,000.00, (ii) the debt is due, (iii) the creditor has issued a demand to the debtor for payment, and the debtor has neglected to pay the debt at least three weeks after receipt of the demand: Section 572(a) CAMA.
Time and again, courts have cautioned against using winding-up petitions to exert pressure on companies to pay debts: Oriental Airlines Ltd v Air Via Ltd [1998] 12 NWLR (Pt 577) 271 at 181D. Nevertheless, a court would not refuse a winding-up petition (where the above conditions are satisfied) merely because a creditor’s motive is debt recovery. As was rightly stated in Oriental Airlines Ltd v Air Via Ltd [supra] at 280H-281A, “when the debt is established and a formal demand is made, the court has no discretion in the matter but to wind-up the company.” Accordingly, a winding-up petition may be presented against a financially healthy company, which has neglected to pay an undisputed debt. In Mann v Goldstein [1968] 1 WLR 1091 at 1096C-F, the court stated as follows: “when the creditor’s debt is clearly established … this court would not, in general at any rate, interfere even though the company would appear to be solvent.”
A primary objective of compulsory winding-up, is to realise the debtor’s assets and make distributions to its creditors. Winding-up is therefore, a (special) collective debt recovery procedure. It is collective in the sense that, it operates for the benefit of all creditors of the debtor. Brightman LJ highlighted this point in Re Lines Bros Ltd [1983] 1 Ch 1 at 20, where he stated thus: “The liquidation of an insolvent company is a process of collective enforcement of debts for the benefit of the general body of creditors…its purpose is to enforce, on a pari passu basis, the payment of the admitted or approved debts of the company.”  Accordingly, presenting a petition with the aim of compelling payment of an undisputed debt is unobjectionable. What is objectionable is seeking judicial assistance in the pursuit of individual remedies in winding-up proceedings. The Federal High Court (FHC) lacks jurisdiction to make orders relating to recovery of individual debts, in winding-up proceedings: Tate Industries Plc v D.M.B. Ltd [2004] 17 NWLT (Pt 901) 182 at 219C-D.
In Re Yanju International Motel Ltd Oriental [1990] FHCLR 17, the petitioning creditor sought for a winding-up order, and an order for the debtor to pay its debt to the petitioner. The court rightly pointed out that the two prayers amounted to eating one’s cake and having it, to wit: winding-up a company, and also asking it to pay the debt for which it was wound-up. The court struck out the latter prayer, following its withdrawal by the petitioner. Similarly, In Akono v C-P.M.B. Ltd [1996] FHCLR 269, a debtor sought for an order compelling the petitioning creditor to accept an amount from the debtor as monthly installment, in settlement of a debt owed to the creditor. The court rightly held that, it had no jurisdiction to make such order in the winding-up proceedings.

Compromise and Settlement in Winding-up Proceedings
Parties to civil actions may settle their disputes on whatever terms they desire. Courts have a duty to encourage settlement in appropriate cases. In Eyo v Okpa [2010] 6 (Pt 1191) 611 at 640D-E, it was held that courts have a “legal”, “moral” and “bounding” duty to promote amicable settlement between parties. The foregoing does not extend to winding-up proceedings. First, insolvency rules are mandatory with no latitude for pursuit of goals outside those contemplated under CAMA. Second, collectivity (among creditors) is a cardinal feature/objective of insolvency law, with limited scope for individual remedies.
A creditor’s decision to engage in out-of-court settlement with the debtor may not terminate a winding-up action, where other creditors are desirous of proceeding with it. In S.B.N. v Maiden Electronics [1979] 5 FRCR 88 at 92, the court held that it had the discretion to grant a creditor’s application seeking to be substituted for the petitioner with whom the debtor had settled before the hearing of the petition.
Where the debtor has a single creditor, the creditor may be able to terminate or abandon the winding-up action for out-of-court settlement. However, it will amount to improper exercise of judicial power, for a court to stay or adjourn proceedings for such “settlement”. Such order would be antithetical to the objective of winding-up.  
The FHC lacks jurisdiction to enter judgment on terms of settlement in winding-up proceedings. In N.B.N. v Kuta Shipping Ltd (1974) 1 FRCR 210, the petitioner and debtor filed terms of settlement defining how the debt would be paid and asked the court to give judgment on the terms. The court refused on the grounds that the terms of settlement were not in consonance with the claim of insolvency, and that the court lacked jurisdiction to enter judgment on the terms of settlement. This decision was applied in F.M.B. Ltd v Imarsel Chemical Co Ltd (1993) FHCRL 205, where the petitioner applied to court to enter consent judgement on agreed terms of settlement, embodying the debtor’s admission of indebtedness and a payment schedule.
In contrast, Agbo JCA’s leading judgement in U.H.S. Ltd v CPL Industries Ltd (2009) 7 iLaw/CA/L/716M/06, indicates that at the lower court, the petitioner and the debtor “negotiated a settlement which was reduced into writing and by consent of both parties made the judgment of the trial court”. With respect, the lower court acted without jurisdiction in entering judgment on the terms of settlement in the winding-up action.
In Folawiyo & Sons Ltd v Hammond Projects Ltd [1977] 3 FHCR 143, the debtor in a winding-up action applied to court for leave to convene a creditors’ meeting to settle a scheme of arrangement for pro-rata payment of a specified amount to creditors. The court refused the application on the ground that the debtor had not disclosed sufficient facts to enable the court exercise discretion in its favour. With respect, the court lacked jurisdiction to sanction the scheme in a winding-up action and ought to have refused the application on that basis.
A winding-up order and its consequences are mandatory and cannot be compromised. A winding-up order may only be set aside by a court of competent jurisdiction. This is In contrast to judgements in civil actions which confer private rights for the benefit of the successful parties, who may compromise the terms of such judgments: S.P.M Ltd v Adetunji [2009] 13 NWLR (Pt 1159) 647at 662-663E-C.

Recovery of Disputed Debts in Winding-up Proceedings
It is impermissible to use winding-up to extort disputed debts: Oriental Airlines Ltd v Air Via Ltd (supra) at 281D, 280H. Where a debt is genuinely disputed on substantial grounds, the proper course is for the court to dismiss the petition: Hansa Construction Ltd v Mobil Nigeria [1994] 9 NWLR (Pt 366) 76 at 87G. Winding-up petitions are often fiercely contested, on the ground that the debts are disputed. Consequently, a considerable number of reported winding-up cases relate to disputed debts.
Sound reasons underpin the impermissibility of grounding winding-up petitions on disputed debts. First, the FHC has no jurisdiction to entertain simple debt disputes: Section 272 of the 1999 Constitution; Pharma-Deko Plc v FDC Ltd (2015) 10 NWLR (Pt 1467) 225 at 252C-E. Second, only a “creditor” has the locus to present a winding-up petition under Section 572(a) of CAMA: Weide & Co (Nig) v Weide & Co Hamburg (1992) 6 NWLR (Pt 249) 627 at 640H. Where the debt is disputed, it affects the status of the petitioner as a “creditor” and his right to present the petition. Third, the only relief which a court may grant in a winding-up is the winding-up of the debtor on the ground of insolvency, pursuant to Sections 571(d), 572(a) and 573(1)(b) of CAMA:

The Risk of Void Dispositions
A debtor’s payment to a creditor after the presentation of the petition, may constitute a void disposition: Section 576 of CAMA. Accordingly, a petitioner who receives payment of its debt may be required to repay same to the insolvent’s estate upon the making of a winding-up order. In Re Liverpool Civil Service Association (1874) 9 Ch App 511, the debtor paid the petitioner part of the debt, and promised to pay the balance on a future date. When the debtor defaulted, the petitioner proceeded with the petition and obtained a winding-up order. On the liquidator’s application, the court held that the part-payment received by the petitioner after the presentation of the petition was a void disposition, and ordered the petitioner to repay.
A cardinal objective/feature of insolvency law, is equal treatment of similarly situated creditors. Permitting the debtor to make any payment to the petitioner, amounts to giving the petitioning-creditor an advantage over other similarly situated creditors. To avoid the risk of receiving a void disposition, a petitioner who has received payment from the debtor may terminate the winding-up action. However, this may not be possible where there are (unpaid) creditors who are desirous of proceeding with the petition. A court has jurisdiction to substitute a creditor for a petitioner, who is unwilling or unable to continue with the petition: Rule 26 of Company Winding-up Rules 2001; Communications Associates Ltd v Pharmacia Nigeria Ltd [1987] FHCLR 77
at 89

‘Reintroduction of a National Shipping Line is Overdue’The Maritime Sector is a goldmine on the global scene, and Nigeria shouldn’t be an exemption or exception with regard to enjoying the benefits that can be accrued therefrom. But, the Nigerian Maritime Industry does appear to have huge but surmountable challenges, including local capacity to own and crew ships, implementation of the Cabotage Law, and the inexplicable absence of a National Shipping Line since the liquidation of the Nigerian National Shipping Line (NNSL) in 1995. Onikepo Braithwaite and Jude Igbanoi encountered a Maritime Law Practitioner, Mrs Jean Chiazor-Anishere, SAN who provided clues as to how the seemingly humongous challenges in the sector can be overcome

You recently rebranded your law firm, and changed its name from Chiazor & Co to Jean Chiazor and Partners. What informed this change of name, and what other significant changes did you effect in the firm?
Yes, my Law Firm was recently rebranded from Jean Chiazor & Co to Jean Chiazor and Partners, to pave way for modernisation and international best practices and standards. The two Partners whose names are  reflected in our new registration certificate, though not yet equity Partners,  are encouraged by this acknowledgment vide the registration, to strive to become equity Partners soon. Furthermore, our Law Firm also signed Strategic Partnership Agreement with the Law Firm, Olisa Agbakoba Legal. By this agreement, the two law Firms have agreed to work together in areas of mutual understanding. This is another acknowledgement of the fact that, there is strength in Numbers.
Jean Chiazor and Partners’ Synergy Partnership Agreement with Olisa Agbakoba Legal (OAL) has a special focus on Maritime Law. This seems to be a new development in Nigeria’s legal practice space. Kindly, tell us the specifics of this agreement and how it is meant to work, if they are not too personal to share. It could be a guide for other law firms interested in some form of cooperation or the other, to follow
The specifics of the Strategic Partnership Agreement entered into with Olisa Agbakoba Legal, are to strengthen and expand our contacts/clientele in the Maritime Space, particularly, towards establishing an enviable legal institution for the upliftment of our Maritime Law and practice, and more importantly, to assisting our Maritime Industry in attaining international best standards. We believe that bringing our vast skills and intellect together through collaboration, we will attract bigger clientele, create more opportunities for employment in our Law firms, provide efficient and adequate legal services for all and sundry.
Maritime Arbitration is gradually gaining acceptance in Nigeria, especially as litigation at the Federal High Court which has exclusive jurisdiction to hear maritime matters can be quite slow, with vessels being detained for months on end; but, some have expressed concerns that most arbitrations sessions still hold outside Nigeria, in places like Singapore, Malta, London and even Dubai. How can this trend be reversed, to make Nigeria attractive for arbitral proceedings, and improve the administration of justice generally in the maritime sector in Nigeria generally?
Yes, indeed, maritime arbitration is gradually gaining acceptance in Nigeria, and we Maritime Arbitrators of Nigeria, are happy with the trend. However, in order to reverse the trend of resolving disputes under ADR outside the shores of our country, with particular reference to maritime disputes, the Maritime Arbitrators Association of Nigeria, otherwise known as MAAN, has over the years, campaigned for the building of a Maritime Dispute Resolution Centre here in Lagos, Nigeria, and to also serve as a hub for West Africa.
Recognising the fact that we have a good number of qualified and well skilled Arbitrators and Chartered for that matter, here in Nigeria, who have been tested globally and are available to serve, having such a Dispute Resolution Centre, coupled with our good policy on Arbitration, will definitely pave way for an attractive Arbitral Proceedings not only here in Lagos, but in other vintage cities in Nigeria.
On the issue of improvement on our administration of justice generally in the Maritime sector, the Nigeria Maritime Law Association, has over the years, continued to assist our Judiciary and the National Assembly in the drafting and amendment of relevant laws, and our Rules of practice and procedure as they relate to Maritime law. Recently, the Nigeria Maritime Law Association, entered into a form of collaboration with the National Judicial Institute (NJI), towards assisting the NJI in expanding the knowledge of some of our Judges in the special field of Maritime Law and Practice.
I believe that a constant review of our laws, reflecting domestication of International Conventions ratified by Nigeria, with a continuous training of our Judges in the Maritime Sector and the establishment of a Maritime Court in the near future, will improve the administration of justice  in the Maritime Sector in Nigeria.
What can be done to ease up the gridlock at Apapa Port? What can also be done to make Nigeria a shipping hub in this sub-region like Hong Kong, considering the fact that we have a few ports in the country, several of which are under-utilised?
To ease up the gridlock at Apapa Port, the Nigerian Ports Authority (NPA) in conjunction with Lagos State Government and other relevant stakeholders, have strived brilliantly through the introduction of the electronic call up system, popularly known as “ETO”.
However, although this new and brilliant initiative has some hiccups which are mostly man-made sadly, it has, not withstanding, fairly eased up the gridlock at Apapa Port. This however, is one method which has shown not to be sufficient to earn us a long lasting success story. Hence, I agree with some stakeholders, that building more seaports and tank farms outside Apapa and its environs, will ease the congestion in Apapa.
Furthermore, the introduction of a “Single window” coupled with a constant maintenance of our roads leading to the ports and re-introduction of rail lines to ease the congestion on our roads, will drastically ease doing business in Apapa Ports.
On what can be done to make Nigeria a shipping hub like Hong Kong etc, our Government and our numerous port users must first accept the notion that, it is not only patriotic but necessary to make Nigeria a shipping hub like the great sea ports of Dover, Rotterdam, Singapore, etc, as opposed to making financial gains their priority.
Thereafter, the need to improve our sea ports by regular dredging, increasing the drafts, investing in modern port equipment and machinery, introduction of rail lines to boost and ease road transportation of goods, and ensuring a vast improvement in our logistics chain. This will reduce the numerous man power and physical presence in our ports, with a resultant reduction in corruption and trade malpractices which have eroded our sea ports and made way for all forms of insecurity which negate the notion of making Nigeria a Shipping hub.
As a female Lawyer, share with us your journey to the top as a female Senior Advocate of Nigeria?  
Oops! My journey to the top as a Senior Advocate of Nigeria, has been tumultuous. Taking  SILK in the year 2020 was the peak of my career. I must state that I had applied twice before my third application, which got me the Silk.
The tumultuous aspect for me, of taking Silk, were the changes in the guidelines and requirements which are mandatory amongst other requirements, in proof of one’s agility in legal practice.
Furthermore, as the year progresses, taking SILK became “a task”. Notwithstanding all this, I must say that it is quite refreshing and fulfilling once one is able to scale through.
I say with all sense of humility, that the benefits accruable to taking Silk, are worth the ‘stormy waters’. I have no regrets!
How would you assess the Cabotage Law and its implementation in Nigeria since its passage almost two decades ago? How has it impacted on the maritime sector?
The Cabotage law in Nigeria has suffered a checkered history, with a resultant abuse on implementation. The initial beneficiaries of the Cabotage law since its enactment in 2003, the indigenous ship owners, have unfortunately suffered untold/severe hardship due to the misunderstanding and abuse of the Cabotage Act, which brilliant initiative is to provide jobs for our Indigenous Ship owners,  expand fleet, with a resultant growth in our Maritime industry in terms of job creation and more.
Its impact on the Maritime sector since its enactment in 2003, has been like a “Roller Coaster”. The Cabotage Act 2003 has been reviewed with guidelines to ease its implementation, but still, there is no encouraging resultant effect on our sector. Happily, should I say, the Cabotage Act has gone into “surgery” again, and I hope that this time, we will have a success story with our indigenous Ship owners and the newly added beneficiaries smiling and increasing fleet, to the benefit of our Seafarers, teeming unemployed youths and resultant economic growth.
Nigeria is on record not to be a ship owning country. That the few who own vessels, are actually fronts for foreigners. Some have attributed this to the apathy of Nigerian financial intuitions to extend the required facilities to enable Nigerians acquire vessels. How can this negative trend be addressed?
We have a few ship owners, but I guess if we compare the ratio with the population of our dear country, or better still the population of the maritime stakeholders/operators, you will be correct in your statement that Nigeria is not a ship owning country.
So, how can we address this sad trend? I advocate for a proper implementation of the Cabotage Act, when the recently concluded review at the National Assembly is passed. The Cabotage Vessel Financing Fund  (CVFF), is one good means of increasing our fleet. Another means is the creation of a Maritime Bank, with the introduction of a single digit as interest for loans or ship financing. This is because our Commercial Banks are yet to get it right, in terms of ship financing. Furthermore, I suggest a 60:40 collaboration between our Government and indigenous shipowners respectively, for the re-introduction of a National Shipping Line. The benefits accruable thereto, are sine qua non to economic boom!
Piracy and kidnapping of crew members was on the in Nigerian coastal waters before. What is the implication of this for the maritime sector, which depends almost wholly on foreign owned and foreign-crewed vessels? What is the position today?
Piracy and kidnapping in our coastal waters howbeit on the rise before now, has happily reduced as reported by the International Maritime Bureau (IMB), earlier this year. This cheerful news on the reduction of piracy and kidnapping or armed  robbery at sea in our Coastal waters, is not unconnected by the introduction of the Deep Blue Sea Project under the auspices of the Nigeria Administration and Safety Agency (NIMASA). However, the attainment of this historic success has been attributed to the Presidency playing a major role by providing direction, the Nigeria Navy ensuring the provision of security in our waters, the National Assembly passing the Bill on the SPOMO Act, 2019  (Suppression of Piracy and other Maritime Offences Act), and our judiciary ensuring maritime crimes are brought to book. So, it’s a big  “combo” which has seen the entire gamut of security architecture working together to achieve a common goal. This we must applaud and encourage.
The Protection and Indemnity (P&I) Club – how accessible is to Nigerians? Why, in your view, does its appear so?    
The Protection and Indemnity Club, otherwise known as (P &I) Club, is accessible to Ship owners who can afford it.  It’s an Insurance Club for Ship Owners, with branches in most parts of the world. Thus, it is accessible to Nigerian Ship Owners who have cause to insure their vessels, in the event of a huge challenge or loss. We have a client who is a reputable Nigerian Ship Owner, and is a member of the (P & I) Club UK.
What are your views on restructuring and calls to redraw the Constitution of the Federal Republic of Nigeria? Are you satisfied with the ongoing exercise in the Senate?
My major concern with the proposed amended Constitution, is the sad and worrisome National Assembly of 95% men voting against the right for  Nigerian Women to grant their foreign born husbands, Nigerian Citizenship. The right for Nigerians in diaspora to vote during National elections, the right for specific seats to be allocated for women in the National Assembly, 35% affirmative action for women in party administration and leadership, amongst others. The depressing fact being that the vote is gender discriminative and biased, and ironically carried out in the month of March this year, when women advocated for “Breaking the Bias”. Thus, I am not happy with this and strongly support our women in calling for a withdrawal of those provisions in our Constitution, or an immediate amendment which is inclusive of the female gender in all ramifications.
 How well would you say this administration has performed vis-à-vis its three main campaign promises – insecurity, corruption and the economy?
Hmmmm. Well, I do not know the yardstick for measuring success whilst appreciating the size of our dear country which is multifarious by culture, religion and language. However, as  beacons for smooth administration, our Government should go extra mile to fulfil their promises at least by 60%, to secure the mandate of the people.
What are your views on how we are practising democracy in Nigeria 23 years on? Some are of the opinion that we are in a civilian autocracy, and buttress their views with examples like having consensus candidates instead of voting for intra-party positions, where we saw in the recent APC Convention that just took place, that some aspirants complained bitterly that they did not want to concede to the selected candidates? Is this democracy or imposition of office holders?
I am sorry I will not be able to give you a satisfying answer or comment or view on this question. Not being a politician! I can only say that Nigerians should please go out and register en masse, to vote for Democracy and the change that we all desire.
Otherwise, we will have ourselves to blame if we suffer any imposition of office holders.

I rest. Thank you very much.

Thank you Learned Silk.