Adversarial Proceedings Against a Company in Liquidation (2)

BY DR KUBI UDOFIA

Continued from last week 

Exordium

Recently, the Supreme Court highlighted that the automatic stay under Section 580 of the Companies and Allied Matters Act (CAMA) 2020, will be actuated when the following three conditions are satisfied: (i) a winding-up order is made or a provisional liquidator is appointed, (ii) a subsequent independent action is commenced or a pre-existing independent action is continued, and (iii) the action continued or commenced is against the interest of the company:  Dematic Nigeria Ltd v Utuk (2022) 8 NWLR (Pt 1831) 71.

This concluding part of this discourse examines the thorniest of these three conditions, namely; the circumstances in which the automatic stay will suspend continuation of pre-existing actions, and the commencement of subsequent actions against a company in liquidation.  

Continuation of Pre-existing Independent Actions

Where a winding-up order is made or a provisional liquidator is appointed, pre-existing actions or proceedings against a company in liquidation are automatically suspended. A claimant/plaintiff desiring to continue with an action or proceeding against such a company, would require leave of court. Actions or proceedings continued without such leave are void for lack of jurisdiction: Universal Properties Ltd v Pinnacle Commercial Bank [2022] 12 NWLR (Pt 1845) 523, 551B-552B.

In Obe v Prosperfunds Ltd (2022) LPELR-57488(CA), a winding-up order was made against the defendant whilst proceedings were ongoing in a Lagos State High Court (“trial court”). On appeal, the Court of Appeal held that the making of the winding-up order had stripped the trial court of the jurisdiction which it previously had, ,,,, to entertain the suit against the defendant. Accordingly, leave of court ought to have been obtained, to “re-clothe” the trial court with jurisdiction to continue with the proceedings against the defendant.

In NDIC v Rahman Brothers Ltd (2018) LPELR-46781(CA), a Federal High Court appointed a provisional liquidator for a bank, whilst another suit (instituted by the respondent) against the bank was subsisting at the High Court of Lagos State. Despite the appointment of the provisional liquidator, the High Court of Lagos State continued with its proceedings and entered judgement in the respondent’s favour. On appeal, the Court of Appeal held that the High Court of Lagos State lost the jurisdiction it previously had, when a Provisional Liquidator was appointed for the bank. The respondent ought to have obtained leave, to clothe the Lagos State High Court with jurisdiction to deliver judgement.

The case of Atoju v Triumph Bank Plc [2016] 5 NWLR (Pt 1505) 252 involved arbitral proceedings which were commenced and continued against a bank, after a provisional liquidator had been appointed for the bank. Consequently, part of the proceeding was conducted, and an award was given after the provisional liquidator had been appointed. The Court of Appeal set aside the “entire proceedings” and the award, on the ground that the arbitral tribunal had lost the jurisdiction to continue with the proceedings after the provisional liquidator had been appointed. 

The propriety of setting aside the entire proceedings is debatable, considering that the proceeding conducted prior to the appointment of the provisional liquidator was untainted. For instance, in Umoh Motors Ltd v Mercantile Bank Ltd [2008] 3 CLRN 141, 148, the court declined to declare the entire suit incompetent, but restricted its declaration to the part of the proceeding which was continued or conducted without leave of court after the defendant went into liquidation.

Where a winding-up order is made or a provisional liquidator is appointed after a court delivers a judgment/ruling but before an appeal is instituted, an appellant must obtain leave before instituting the appeal. If the winding-up order is made or the provisional liquidator is appointed after the appeal has been instituted, leave must be obtained before continuing with the appeal. These scenarios involve a continuation of pre-existing actions/proceedings as opposed to commencement of independent actions. It is settled law that an appeal is a continuation of the suit at the trial court: MTN Ltd v Corporate Communications Ltd [2019] 9 NWLR (Pt. 1678) 427, 454G. This distinction has no relevance in this instance, considering that leave would still be required if they were viewed as commencement of independent actions. The distinction may gain relevance where an appeal arises from a winding-up petition. 

Where a company goes into liquidation after the conclusion of proceedings at a trial court but prior to an appeal, the fact that the suit was instituted by the company in liquidation will not absolve an appellant from obtaining leave. In Universal Properties Ltd v Pinnacle Commercial Bank (supra), the 1st respondent went into liquidation after conclusion of the suit at the trial court but before an appeal. The appellant contended that no leave was required because the suit at the trial court was instituted by the 1st respondent and as such the appeal was a continuation of the suit commenced by the 1st respondent at the trial court. The Supreme Court rejected this contention and held that the requirement for leave was not excluded merely because the suit at the trial court was commenced by the company in liquidation.

This decision is distinctly correct given that the appellant’s appeal was a continuation of a pre-existing independent action. No leave would have been required if the appeal emanated from the 1st respondent’s winding-up proceedings which actuated the automatic stay. Furthermore, if the winding-up order or appointment of provisional liquidator was made at the trial court and the appellant had obtained leave in that court, the appellant would not require to further seek for leave to pursue an appeal emanating from the suit. In that scenario, the appeal would be a continuation of the suit at the trial court.

Continuation of the Winding-up and Related Proceedings

A winding-up proceeding undeniably precedes or pre-exists the automatic stay which it activates. Nevertheless, the automatic stay has no paralytic effect on the winding-up proceeding, as it does on other pre-existing actions. Applying the automatic stay to the winding-up proceeding would be counter-intuitive and self-defeating. It would serve no useful purpose. Rather, it would adversely interfere with the liquidation process which it is meant to support.  

In Dematic Nigeria Ltd v Utuk (supra), a provisional liquidator in a winding-up proceeding applied to the winding-up court for an order voiding a sale by a receiver of the company’s assets. The provisional liquidator further asked the court to vest the assets in the provisional liquidator for valuation and protection pending the determination of the winding-up petition. The 1st respondent/winding-up petitioner supported the provisional liquidator’s application via an affidavit. The provisional liquidator’s application was dismissed and the 1st respondent appealed to the Court of Appeal. The Court of Appeal set aside the trial court’s decision and granted the reliefs sought by the provisional liquidator. 

Dissatisfied with the Court of Appeal’s decision, the appellant appealed to the Supreme Court contending, among other things, that upon appointment of the provisional liquidator, the 1st respondent should have obtained leave of court (i) before continuing the winding-up proceeding, and (iii) before appealing against the trial court’s decision not to grant the provisional liquidator’s application. 

The Supreme Court rightly held that the 1st respondent did not require leave of the trial court to continue the winding-up proceeding, after the provisional liquidator’s appointment. The winding-up proceeding was not an independent action, but the same action which actuated the automatic stay. Similarly, the Supreme Court held that the 1st respondent’s omission to obtain leave before instituting the appeal against the trial court’s ruling not to grant the provisional liquidator’s application, did not offend the automatic stay. The appeal was a continuation of the winding-up proceeding and not a subsequent independent action: MTN Ltd v Corporate Communications Ltd (supra). This is further underpinned by the settled law, that a party is not permitted to change the case presented at a trial/lower court, at the appellate courts: Abba v Abba-Aji (2022) LPELR-56592(SC) at p 40A-D.

Commencement of Subsequent Independent Action

The automatic stay suspends the commencement of new actions, or proceedings against companies in liquidation. A claimant would require leave of court, before instituting such actions. In Omaghoni v Nigeria Airways Ltd [2006] 18 NWLR (Pt 1011) 310, the winding-up order for Nigeria Airways was made on 9/7/2004. The appellants (as plaintiffs) filed an action against Nigeria Airways on 26/8/2004 and thereafter appealed against a ruling on an application it made in the suit on 15/8/2005. The Court of Appeal set aside the originating processes filed at the trial court on the ground that, having not obtained leave, they were filed without due process of the law.

The automatic stay may not be triggered in all instances, where actions involving the company in liquidation are commenced. The automatic stay only halts actions commenced “against the company”. It will be effectuated, when an action is adverse to the company’s interest. This is one of the three conditions for the applicability of the automatic stay, which the Supreme Court highlighted in Dematic v Utuk. In Anakwenze v Tapp Industry Ltd (1991) 7 NWLR (Pt 202) 177,192A, the court stated that the automatic stay was not applicable because the application in issue did not seek for any relief against the company. Similarly, In Dematic v Utuk (supra) at 102G-H, the court held that an application by the provisional liquidator to set aside sales of the company’s assets by a receiver was not caught by the automatic stay because it was not against the company’s interest.

Leave will not be required, where an action or proceeding is commenced against a liquidator. Nevertheless, there are at least two Court of Appeal decisions which have erroneously stated the contrary. First, in NDIC v Visana (Nigeria) Ltd (2021) LPELR-54934(CA), the Court of Appeal held that failure by the 1st respondent to seek and obtain leave before filing an action against the appellant (a liquidator) rendered the action incompetent and deprived the court of jurisdiction over the action. Second, in Utuk v Official Liquidator (Utuks Construction Ltd) (2008) LPELR-4323(CA), the Court of Appeal nullified proceedings, on the ground that leave of court had not been sought and obtained before instituting proceedings against a liquidator. Contrary to these decisions, Section 580 of CAMA 2020 only suspends actions “against the company”. It does not provide immunity for any third party, irrespective of its proximity to the company in liquidation.

Concluded.