Where other requirements are met but the letter of notice to liquidate does not give upto 21 days required by CAMA, if the company in debt neglects to pay the debt beyond 21 days, the jurisdiction of the Federal High Court can still be competently activated for a winding up proceeding.
XPRESS PARTNERS LTD. vs. BGL SECURITIES LTD.(2018)LPELR-45323(CA)
ISSUE: JURISDICTION OF THE FEDERAL HIGH COURT-Circumstances where the Federal High Court will have the jurisdiction to entertain a winding up petition
PRINCIPLE:
"I have thoroughly perused the Ruling of the Lower Court which led to this appeal and the submissions of the counsel for both parties in this appeal. The contention of the Appellant is that the
Lower Court lacked jurisdiction on the ground that the requirements of Sections 409 of the Companies and Allied Matters Act, Cap C20, LFN, 2004 (CAMA) were not met before the Respondent filed a petition for winding up of the Appellant and further on the ground that the Appellant disputed the debt. From the two issues and submissions of counsel before this Court, I am of the opinion that the two questions that need to be determined are: whether there was prima facie evidence that the Appellant was indebted to the Respondent; and whether the requirements
under Sections 409 of CAMA were met before the Respondent filed the Petition for the winding-up of the Appellant. If these questions are answered in the affirmative, then, the Lower Court
would have been right in assuming jurisdiction.
On the first issue, which is, "whether there was prima facie evidence that the Appellant was indebted to the Respondent"; There are certain facts before this Court which are clear and undisputable, to wit: the Respondent filed a Petition for winding Up of the Appellant vide a Petition dated 17th February, 2011 before the Lower Court on the ground that the Appellant is indebted to it and is unable to pay the debt the Appellant challenged the jurisdiction of the Lower Court on the ground that it was not indebted to the Respondent and that, even if it was indebted, no valid notice of demand had been served on it by the Respondent; the Lower Court dismissed the preliminary objection and held that it is vested with jurisdiction to hear the petition. The jurisdiction of the Lower Court to hear and determine a petition for winding up of a company is provided for under Sections 407 of the Companies and Allied Matters Act, Cap C20, LFN, 2004 (CAMA). See also Section 251(1) (e) of the Constitution of the Federal Republic of Nigeria, 1999 (as amended) and the decision of this Court in SUBURBAN BROADBAND LTD. NIG. vs. INTELSAT GLOBAL SALES AND MARKETING LTD. (2016) LPELR-40334 (CA) pg. 8-9, paras. F - F. The jurisdiction of the Court will be activated under the circumstances set out under Section 408 of CAMA; Section 408 (d) provides as follows:
"A company may be wound up by the Court if -
a. ...
b. ...
c.
d. the company is unable to pay its debt;
e. ..."
Section 409 of the Companies and Allied Matters Act sets out the circumstances where it would be held that a company is unable to pay its debts. Section 409 of the Act provides as follows:
A company shall be deemed to be unable to pay its debt if -
a. creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding N2,000 then due has served on the company, by leaving it at its registered office or head office, a demand under his hand requiring the company to pay the sum so due, and the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; or
b. execution or other process issued on a judgment, decree or order of any Court in favour of a creditor of the company is returned unsatisfied in whole or in part; or
c. the Court, after taking into account any contingent or prospective liability of the company is satisfied that the company is unable to pay its debt.
In the instant case, the facts and submissions of both parties establish without any doubt that the Respondent advanced the sum of N200,000,000.00 to the Appellant on 11th day of February,
2008 (see, pages 9, 10, 50 and 51 of the Records of Appeal). The said sum was advanced pursuant to the negotiations between the parties which were expressed in the letter dated 7th
February, 2008; in the said letter contained at page 49 of the Records of Appeal, the Appellant requested for the advance payment and mandated the Respondent to sell its 40 million units of
NEM Shares at a minimum price of St6.00 per share. After advancing the sum to the Appellant on the 11th day of February, 2008; the Respondent wrote a letter dated 14th March, 2008 which
is contained at pages 11 and 52 -53 of the Records of Appeal; this letter in addition to an unequivocal demand that Appellant should "...immediately liquidate the cash advance plus charges to
date, through the sale of shares..."; the Respondent further gave the Appellant other options which include "Apply for a conversion to facility" under its Asset Backed Module.
The Respondent wrote another letter dated 16th April, 2008 contained at pages 12 and 55 of the Records of Appeal reminding the Appellant of its previous letter of 14th March, 2008 and
further, in my opinion, threatened to sell the Appellant's shares. In Apparent response to the Respondent's letter of 16th April, 2008; the Appellant wrote the letter dated 21st April, 2008
contained at pages 13 and 55 wherein the Appellant asked the Respondent to convert the advanced N200,000,000.00 to a Short term loan. Further to this development, the Appellant further
wrote a letter dated 14th May, 2008 contained at page 14 of the records restating that the advanced N200,000,000.00 be converted to a short term loan of 6 (six) months. The Respondent
converted the said sum and the charges thereon to a short term loan as requested by the Appellant vide the letter dated 20th May, 2008; incidentally, on the same day, the parties entered into
an agreement (Joint Memorandum) authorizing the Central Securities Clearing Systems Limited to place a lien on the Appellant's NEM Shares in favour of the Respondent. See pages 15 and
57-59 of the Records of Appeal. What followed, as can been garnered from the records, particularly at pages 17 and 60 of the Records of Appeal is that on the 10th day of September, 2008, the Respondent wrote another letter of demand to the Appellant requesting for the sum of N200,000,000.00 and the interest of over N27 million naira that had accrued thereon; and in its usual
language, threatened to proceed to sell the Appellant's shares. Again, on the 11th day of December, 2008 the Respondent wrote a letter contained at page 61 of the Records of Appeal, wherein the Respondent stated its intention to "embark on partial sale of the stocks purchased with the facility with a view of liquidating the outstanding interest portion on the facility." The Respondent
further stated in the said letter that it was taking these steps towards "liquidating only the interest portion on the facility, at least for now..." The Appellant responded to the Respondent's letter
of 11th December, 2008 vide the letter dated 7th January, 2009 contained at pages 18 and 62 of the Records of Appeal wherein the Appellant requested for/suggested that the liquidation of the
interest be done at a further date closer to the term/anniversary of the facility which it believed is to end by April, 2009. No record of other correspondences between the parties until 22nd November, 2010 when the Respondent's Solicitor by a letter contained at pages 22 and 63 of the Records of Appeal referred to the several demands that had been made by the Respondent and the Appellant's refusal to pay the sum due and stated that legal proceedings will be commenced against the Appellant if the sum and interest due is not paid within 21 days. From a very careful analysis of the facts of all that transpired between the Respondent and the Appellant from 7th February, 2008 up to 22nd
November, 2010; it is not in doubt from the various correspondences that the Appellant received/accepted the sum of N200,000,000.00 advanced to it by the Respondent thereby making the
Appellant indebted to the Respondent. In my view, there is nothing on record to show that the said sum of N200,000,000.00 had been paid back to the Respondent.
With regards to the issue of lien placed on the Respondent's shares, it is evident that the shares were never sold by the Respondent; and the term of the Joint Memorandum did not confer outright ownership of the said shares on the Respondent, it only conferred on the Respondent the right to sell if the Appellant failed to pay the advanced sum and the interest that had accrued
thereon as agreed by the parties after stipulated period of 90 days, upon a condition that the Appellant (Borrower) shall issue an undated letter of authorization to the Respondent (Lender) to
sell the stocks; apparently, from the records before this Court, no such authorization was given to the Respondent by the Appellant pursuant to the Joint Memorandum; what this therefore means is that the N200,000,000.00 and the accrued interest were still pending and unpaid. Again, the Appellant's response to the Respondent's letter of 11th December 2008 vide its letter dated 7th January, 2009 contained at pages 18 and 62 of the Records of Appeal wherein the Appellant requested for/suggested that the liquidation of the interest be done at a further date closer to the term/ anniversary of the facility which it believed is to end by April, 2009 clearly suggests nothing but an admission of the debt by the Appellant. The Respondent's letter dated 11th December, 2008 which the Appellant replied to clearly stated inter alia that the Respondent's intention was to "embark on partial sale of the stocks purchased with the facility with a view of liquidating the outstanding interest portion on the facility." and that it was taking these steps towards "liquidating only the interest portion on the facility, of least for now..."
From the totality of records and correspondences between the parties as shown by the evidence before this Court, I am of the opinion that the Lower Court was right in its findings at pages 216
- 217 of the Records when it held that:
"...It is evidently clear that the Respondent took money converted to Loan which is still outstanding. It follows therefore that evidence of debt is certain. Furthermore, evidence abound that this
loan plus the interest has grown from the initial N200m. There are several demand notices which has not been met and the Petitioner issued final notice giving the Respondent the time of 21
days to pay the debt."
The first issue, whether there was prima facie evidence that the Appellant was indebted to the Respondent is hereby resolved in the affirmative, having regards to the facts set out herein.
Having established the indebtedness of the Appellant, the next issue is whether the requirements under Sections 409 of CAMA were met before the Respondent filed the Petition for the
Winding-Up of the Appellant. What must be established in proffering an answer to this question is whether or not there was a valid demand pursuant to the provisions of Section 409 of
Companies and Allied Matters Act. The Appellant argued that there is no valid notice of demand from the Respondent. At the risk of repeating myself, the provisions of Section 409(a) of CAMA
states that: "A Company shall be deemed to be unable to pay its debt if - a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding N2,000 then due has
served on the company, by leaving it at its registered office or head office, a demand under his hand requiring the company to pay the sum so due, and the company has for three weeks
thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; or".
From the very clear and unambiguous provisions of Section 409(a) of CAMA, the primary requirements for a notice of demand are that:
1. The debt exceeds N2,000.00 and has become due;
2. The notice requires the indebted company to pay the sum due;
3. The notice is under the hand of the creditor; and
4. The notice is served on the company, by leaving it at its registered office or head office;
If after the issuance of a Notice of Demand in the manner stipulated by the Act, the Appellant for three weeks (or more) neglects to pay the sum, the company shall be deemed to be unable to
pay its debt. In the instant case, the debt in question exceeds N2,000.00; and from the Respondent's letter dated 14th March, 2008 which is contained at pages 11 and 52 -53 of the Records of
Appeal; the Respondent clearly demanded/required the Appellant to "...immediately liquidate the cash advance plus charges to date..." This letter was under the hand of the Respondent and
duly served on the Appellant; and the Appellant did not pay the debt three weeks after this particular letter of demand, which cannot be invalidated. Further to the letter dated 14th March,
2008 as already shown in this judgment, several other letters of demand followed wherein the Respondent demanded/
required the Appellant to pay its debt; one of such is the letter dated 10th
September, 2008.
The Petition in the instant case was filed by the Respondent on the 17th day of February, 2011 which clearly exceeds three weeks after the initial notice of demand and the other demands;
therefore, there is no ground for the Appellant's contention that there is no valid demand. The Appellant is contending that the letter of 10th September, 2008 which the Respondent sought to
rely on as evidence of a letter of demand is not in compliance with the mandatory provisions of Section 409(a) of the Act because paragraph 3 of the said letter, in which the Respondent gave
the Appellant till 15th day of September, 2008 to liquidate the purported debt is less than the 21 days required by the Companies and Allied Matters Act. I am of the view that contrary to the
misconceived submissions of learned Counsel for the Appellant, what is paramount is that the letter demands for payment of the debt, and after such demand, if the Appellant neglects to pay
the debt after a period of three weeks (21 days), then the Appellant is deemed to be unable to pay its debt and consequently, the Respondent is entitled to file a Petition for winding up of the
Appellant. There is nothing in the provision of Act providing that the 21 days be stated on the face of the Notice of Demand.
UWAIS, JSC, (Later CJN) in AIR VIA LTD. vs. ORIENTAL AIRLINES LTD. (2004) 9 NWLR (Pt.878) pg.298; (2004) LPELR-272 (SC) pg. 32 - 33, paras. E -A held as follows:
"Section 408 of the Companies and Allied Matters Act, Cap. 59 of the Laws of the Federation of Nigeria, 1990 provides inter alia that a company may be wound-up by Court if "the company is
unable to pay its debt." For this to take place the following essential ingredients are required:-
(a) There must be a debt,
(b) The debt must be due, and
(c) The company to be wound-up is unable to pay the debt...
It follows from the foregoing that it is possible for a respondent to a petition for winding-up to dispute the petition by bona fide challenging the debt or its been due or on the ground that it is
capable of paying its debt..."
In the instant case, the Appellant is not challenging the petition on the ground that it is capable of paying the debt, and the purported dispute of the debt is unsustainable in the face of the
admissions of indebtedness by the Appellant especially in their last letter to the Respondent on the 7th January, 2009 contained at pages 18 and 62 of the Records of Appeal wherein the
Appellant requested for the liquidation of the interest be done at a further date closer to the term/anniversary of the facility which it believed was to end by April, 2009 without mentioning or
disputing the principal sum. See the decision of this Court in DURUMUGO vs. ZENITH BANK PLC (2016) LPELR -40487 pg.14 - 21, paras. E - A.
This instant appeal is an interlocutory appeal challenging the Ruling of the Lower Court on the Appellant's Preliminary Objection that the Lower Court had no jurisdiction to entertain the
Respondent's Petition because condition precedent under Section 409 of CAMA had not been fulfilled. In the circumstances therefore, since it is apparent there is prima facie evidence before
the Court that the Appellant is indebted to the Respondent; that the debt had become due; that the Respondent demanded for the debt to be paid; and that three weeks (21 days) had elapsed
after the debt had been demanded, the contention by the Appellant that the Lower Court lacked jurisdiction is completely baseless and without merit." Per ABUBAKAR, JCA.(Pp.18-32,Paras.C-C).
: Jurisdiction of the Federal High Court in Winding Up of a Company.- By Adedotun Habeeb Adetunji, LL.M (M.IoD), FCAI){kind=link}
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