Fraudulent trading, wrongful trading and preferences on a winding up under CAMA 2020

(1) Where a company at any time within the period defined in subsection (6), does anything or procures anything to be done which has the effect of putting a person, being one of the company’s creditors or a surety or guarantor undue advantage shall be deemed a preference of that person, and be invalid accordingly.

(2) Notwithstanding subsection (1), a preference given to any person is not invalid unless the company which gave the preference was influenced in deciding to give it by a desire to produce in relation to that person the effect mentioned in sub-section (1).

(3) A company which has given a preference to a person connected with the company (otherwise than by reason only of being its employee) at the time the preference was given is presumed, unless the contrary is shown, to have been influenced in deciding to give it by such a desire as is mentioned in subsection (2).

(4) The fact that something has been done in pursuance of the order of a Court does not, without more, prevent the doing or procuring of that thing from constituting the giving of a preference.

(5) Any conveyance or assignment by a company of all its property to trustees in furtherance of the preference for the benefit of all its creditors is void.

(6) In the case of a preference which is given to a person who is connected with the company (otherwise than by reason only of being its employee), the relevant time is the period of years ending with the onset of insolvency (which expression is defined below), and in any other case, the relevant time is the period of three months ending with the onset of insolvency.

(7) For the purpose of this section, the onset of insolvency refers to the time of the presentation of a petition for winding-up in the case of a winding-up by or subject to the supervision of the Court or, the passing of a resolution for winding-up in the case of a voluntary winding-up.

(8) This section applies in the case of a company where—

(a) the company enters administration ; or

(b) the company goes into liquidation.

Open section 658 on its own page

(1) This section applies in the case of a company where—

(a) the company enters administration ; or

(b) the company goes into liquidation.

(2) Where the company has at a relevant time entered into a transaction with any person at an undervalue, the liquidator or administrator may apply to the Court for an order under this section.

(3) The Court shall, on such an application, make such order as it deems fit for restoring the position to what it would have been if the company had not entered into that transaction.

(4) For the purposes of this section, a company enters into a transaction with a person at an undervalue if the company—

(a) makes a gift to that person or enters into a transaction with that person on terms that provide for the company to receive no consideration ; or

(b) enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the company.

(5) The Court shall not make an order under this section in respect of a transaction at an undervalue if it is satisfied—

(a) that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business ; and

(b) that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company.

(6) Subject to subsection (7), the time at which a company enters into a transaction at an undervalue is a relevant time if the transaction is entered into—

(a) within two years ending with the onset of insolvency as defined in subsection (8) ;

(b) between the making of an administration application in respect of the company and the making of an administration order on that application; and

(c) between the filing with the Court of a copy of notice of intention to appoint an administrator under sections 456 or 464 of this Act and the making of an appointment under this paragraph.

(7) Where a company enters into a transaction at an undervalue at a time mentioned in subsection (6) (a), that time is not a relevant time for the purposes of this section unless the company —

(a) is at that time unable to pay its debts within the meaning of section 572 ; or

(b) becomes unable to pay its debts within the meaning of that section in consequence of the transaction or preference, but the requirements of this subsection are presumed to be satisfied, unless the contrary is shown, in relation to any transaction at an undervalue which is entered into by a company with a person who is connected with the company.

(8) For the purposes of subsection (6), the onset of insolvency is, in a case where this section applies by reason of—

(a) an administrator of a company being appointed by administration order, the date on which the administration application is made ;

(b) an administrator of a company being appointed under section 456 or 464 of this Act following filing with the Court of a copy of a notice of intention to appoint under that section, the date on which the copy of the notice is filed ;

(c) an administrator of a company being appointed otherwise than as mentioned in paragraph (a) or (b), the date on which the appointment takes effect ;

(d) a company going into liquidation either following conversion of administration into winding-up or at the time when the appointment of an administrator ceases to have effect, the date on which the company entered administration (or, if relevant, the date on which the application for the administration order was made or a copy of the notice of intention to appoint was filed) ; and

(e) a company going into liquidation at any other time, the date of the commencement of the winding-up.

Open section 659 on its own page

(1) Where anything made or done after the commencement of this Act is void under this Chapter as a fraudulent preference of a person interested in property mortgaged or charged to secure the company’s debt, the person preferred shall, without prejudice to any liabilities or rights arising apart from this provision, be subject to the same liabilities, and have the same rights, as if he had undertaken to be personally liable as surety for the debt, to the extent of the charge on the property or the value of his interest, whichever is the less, and the value of the said person’s interest shall be determined as at the date of the transaction constituting the fraudulent preference, and shall be determined as if the interest were free of all encumbrances other than those to which the charge for the company’s debt was the subject.

(2) Where for the purposes of this section, application is made to the Court with respect to any payment on the ground that the payment was fraudulent preference of a surety or guarantor, the court shall have jurisdiction to determine any questions with respect to the payment arising between the person to whom the payment was made and the surety or guarantor, and to grant relief in respect thereof, though it is not necessary to do so for the purposes of the winding-up, and for that purpose may give leave to bring in the surety or guarantor as a third party as in the case of an action for the recovery of the sum paid.

(3) Subsection (2) applies, with the necessary modifications, in relation to transactions other than the payment of money, as it applies in relation to payments.

Open section 660 on its own page

(1) If any person, being a past or present officer of a company which at the time of the commission of the alleged offence is being wound up, whether by or under the supervision of the Court or voluntarily, or is subsequently ordered to be wound up by the Court or subsequently passes a resolution for voluntary winding-up—

(a) does not, to the best of his knowledge and belief, fully and truly discover or deliver to the liquidator all the property, landed and personal, of the company, and how and to whom, for what consideration and when, the company disposed of any part thereof, except such part as has been disposed of in the ordinary way of the business of the company ;

(b) does not deliver up to the liquidator, or as he directs, all such part of the real and personal property of the company as is in his custody or under his control, which he is required by law to deliver up ;

(c) does not deliver up to the liquidator, or as he directs, all books and papers in his custody or under his control belonging to the company which he is required by law to deliver up ;

(d) within 12 months immediately preceding the commencement of the winding-up or at any time thereafter, conceals any part of the property of the company to the value of N100,000 or upwards, or conceals any debt due to or from the company ;

(e) within 12 months immediately preceding the commencement of the winding-up or at any time thereafter, fraudulently removes any part of the property of the company to the value of N100,000 or upwards ; (f ) makes any material omission in any statement relating to the affairs of the company ;

(g) knowing or believing that a false debt has been proved by any person under the winding-up, fails for the period of one month to inform the liquidator thereof ;

(h) after the commencement of the winding-up, prevents the production of any book or paper affecting or relating to the property or affairs of the company ;

(i) within 12 months immediately preceding the commencement of the winding-up or at any time thereafter ;

(j) conceals, destroys, mutilates or falsifies, or is privy to the concealment, destruction, mutilation or falsification of the book or paper affecting or relating to the property or affairs of the company—

(i) makes or is privy to the making of any false entry in any book or paper affecting or relating to the property or affairs of the company,

(ii) fraudulently parts with, alters or makes any omission in, or is privy to the fraudulently parting with, altering or making any omission in any document affecting or relating to the property or affairs of the company,

(iii) at any meeting of the creditors of the company, attempts to account for any part of the property of the company by fictitious losses or expenses,

(iv) makes false representation or other fraud, obtained any property for or on behalf of the company on credit which the company does not subsequently pay for,

(v) under the false pretence that the company is carrying on its business, obtains on credit, for or on behalf of the company any property which the company does not subsequently pay for, or

(vi) pawns, pledges or disposes of any property of the company which has been obtained on credit and has not been paid for, unless such pawning, pledging, or disposing is in the ordinary way of the business of the company ; or

(k) makes any false representation or other fraud for the purpose of obtaining the consent of the creditors of the company or any of them to an agreement with reference to the affairs of the company or to the winding-up, commits an offence and is—

(i) in the case of the offences mentioned respectively in sub-paragraphs (iv), (v) and (vi), liable on conviction to imprisonment for a term of 12 months, and

(ii) in the case of any other offence under this subsection, is liable on conviction to imprisonment for a term of two years : Provided it is a good defence to a charge under any of paragraphs ( (c), (d), (f ) and (i) (v) and (vi) of this subsection, if the accused proves that he had no intent to defraud, and to a charge under any of paragraphs ( and (j), if he proves he had no intention to conceal the state of affairs of the company or to defeat the law.

(2) Where any person pawns, pledges or disposes of any property in circumstances which amount to an offence under subsection (1) ( (vi), every person who takes in pawn or pledge, or otherwise receives the property knowing it to be pawned, pledged or disposed of in such circumstances, commits an offence and is liable on conviction to be punished in the same way as if he had received the property knowing it to have been obtained in circumstances amounting to an offence.

(3) For the purposes of this section, “officer” includes any person in accordance with whose directions or instructions the directors of a company have been accustomed to act.

Open section 668 on its own page

An officer or contributory of any company being wound up who destroys, mutilates, alters or falsifies books, papers or securities, or makes or is privy to the making of any false or fraudulent entry in any register, book of account or document belonging to the company with intent to defraud or deceive any person, commits an offence and is liable on conviction to imprisonment for a term of two years or a fine as the Court deems fit.

Open section 669 on its own page

A person who, being at the time of the commission of the alleged offence is an officer, of a company which is subsequently ordered to be wound up by the Court, or subsequently passes a resolution for voluntary winding-up—

(a) has by false pretence or by means of any other fraud induced any person to give credit to the company ;

(b) with intent to defraud creditors of the company, made or caused to be made any gift or transfer of or charge on, or has cause or connive at the levying of any execution against the property of the company ; or

(c) with intent to defraud creditors of the company, has concealed or removed any part of the property of the company, or within two months before the date of any unsatisfied judgment or order for payment of money obtained against the company, he commits an offence and is liable on conviction to imprisonment for a term of two years.

Open section 670 on its own page

(1) If, where a company is wound up, it is shown that proper books of account were not kept by the company throughout the period of two years immediately preceding the commencement of the winding-up or the period between the incorporation of this company and commencement of the winding-up, whichever is the shorter, each officer of the company who is in default, unless he shows that he acted honestly and that in the circumstances in which the business of the company was carried on the default was excusable, commits an offence and is liable on conviction to a fine as prescribed by the Commission in the regulation.

(2) For the purposes of this section, proper books of account shall be deemed not to have been kept in the case of any company if there have not been kept such books of accounts as are necessary to exhibit and explain the transactions and financial position of the trade or business of the company, including books containing entries from day to day in sufficient detail of all cash received and cash paid and, where the trade or business has involved dealing in goods, statements of the annual stock takings and (except in case of goods sold by way of ordinary retail trade) of all goods sold and purchased, showing the goods and the buyers and sellers in sufficient details to enable those goods and those buyers and sellers to be identified.

Open section 671 on its own page

(1) If, in the course of the winding-up of a company, it appears that any business of the company has been carried on in a reckless manner or with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the Court, on the application of the official receiver, or the liquidator or any creditor or contributory of the company, may, if it deems proper to do so, declare that persons who were knowingly parties to the carrying on of the business in that manner, is personally responsible, without any limitation of liability for all or any of the debts or other liabilities of the company as the Court may direct.

(2) Where the Court makes a declaration as to responsibility for debts or liabilities under subsection (1), it may give any direction it deems proper for the purpose of giving effect to that declaration, and in particular the Court may make provision for making the liability of any such person under the declaration a charge on any debt or obligation due from the company to him, or on any mortgage, charge or interest in any mortgage, or charge or assets of the company held by or vested in him, or any company or person on his behalf, or any person claiming as assignee from or through the person liable or any company or person acting on his behalf, and may make any further order necessary for enforcing any charge imposed under this subsection.

(3) Where any business of a company is carried on with such intent or for such purpose as is mentioned in subsection (1) (other than recklessly), every person who was knowingly a party to the carrying on of the business in that manner, commits an offence, and is liable on conviction to a fine as the Court deems fit or to imprisonment for a term of two years or both.

(4) In its operation, this section shall have effect, so that—

(a) a declaration may be made notwithstanding that the person concerned may be criminally liable in respect of matters which are grounds for the declaration and a declaration, if made, is deemed to be a final judgment of the Court ;

(b) the official receiver or the liquidator, as the case may be, on the hearing of an application to the Court, may himself give evidence or call witnesses ;

(c) the expression “assignee” includes any person to whom or in whose favour by the direction of the person liable, the debt, obligation, mortgage, or charge was created, issued or transferred, or the interest created, other than any person being an assignee for valuable consideration given in good faith and without notice of any of the matters on the ground of which the declaration is made ; and

(d) “valuable consideration” shall not include consideration by way of marriage.

Open section 672 on its own page

(1) Subject to subsection (3), if, in the course of the winding-up of a company, it appears that subsection (2) applies in relation to a person who is or has been a director of the company, the Court, on the application of the liquidator, may declare that that person is to be liable to make such contribution (if any) to the company’s assets as the Court deems proper.

(2) This subsection applies in relation to a person if—

(a) the company has gone into insolvent liquidation,

(b) at some time before the commencement of the winding-up of the company, that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation, and

(c) that person was a director of the company at that time.

(3) The Court shall not make a declaration under this section with respect to any person if it is satisfied that after the condition specified in subsection (2) (b) was first satisfied in relation to him, that person took every step with a view to minimising the potential loss to the company’s creditors as (assuming him to have known that there was no reasonable prospect that the company would avoid going into insolvent liquidation) he ought to have taken.

(4) For the purposes of subsections (2) and (3), the facts which a director of a company ought to know or ascertain, the conclusions which he ought to reach and the steps which he ought to take are those which would be known or ascertained, or reached or taken, by a reasonably diligent person having both—

(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company ; and

(b) the general knowledge, skill and experience that that director has.

(5) The reference in subsection (4) to the functions performed in relation to a company by a director of the company includes any function which he does not perform but which has been entrusted to him.

(6) For the purposes of this section, a company goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding-up.

Open section 673 on its own page

(1) If, in the course of winding-up a company, it appears that any person who has taken part in the formation or promotion of the company, or any past or present director, manager or liquidator, or any officer of the company, has misapplied or retained or become liable or accountable for any money or property of the company, or been guilty of any misfeasance or breach of duty in relation to the company which would involve civil liability at the suit of the company, the Court may, on the application of the official receiver, liquidator, creditor or contributory, examine into the conduct of the promoter, director, liquidator or officer, and compel him to repay or restore the money or property or any part thereof respectively with interest at such rates as the Court deems just, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the Court deems just.

(2) The provisions of this section extend to any receiver of the property of a company, and, shall, in any case, have effect notwithstanding that the offence is one for which the offender may be criminally liable.

(3) Where an order for payment of money is made under this section, the order is deemed to be a final judgment of the Court.

Open section 674 on its own page

(1) If it appears to the Court, in the course of winding-up by, or subject to the supervision of the Court, that any past or present officer, or any member of the company has been guilty of any offence in relation to the company for which he is criminally liable, the Court may, either on the application of any person interested in the winding-up or of its own motion, direct the liquidator to refer the matter to the Attorney-General of the Federation.

(2) If it appears to the liquidator, in the course of a voluntary winding-up, that any past or present officer, or any member of the company has been guilty of any offence in relation to the company for which he is criminally liable, he shall report the matter to the Attorney-General of the Federation and shall furnish him such information and give to him such access to and facilities for inspecting and taking copies of any document, being information or document in the possession or under the control of the liquidator and relating to the matter in question, as he may require.

(3) Where any report is made under subsection (2) to the Attorney-General of the Federation, he may, if he thinks fit, apply to the Court for—

(a) an order conferring on him or any person designated by him for the purpose with respect to the company concerned ; and

(b) all such powers of investigating the affairs of the company as are provided by this Act in the case of a winding-up by the Court.

(4) If it appears to the Court, in the course of a voluntary winding-up, that any past or present officer, or any member of the company has been guilty, and that no report with respect to the matter has been made by the liquidator to the Attorney-General of the Federation under subsection (2), the Court may, on the application of any person interested in the winding-up or of its own motion, direct the liquidator to make such a report, and on a report being made accordingly, the provisions of this section shall have effect as though the report had been made under subsection (2).

(5) If, any matter is reported or referred to the Attorney-General of the Federation under this section, and he considers that the case is one in which a prosecution ought to be instituted, the Attorney-General of the Federation shall institute proceedings accordingly, and it is the duty of the liquidator and of every other officer and agent of the company past and present (other than the defendant in the proceedings) to give him all assistance in connection with the prosecution which he is reasonably able to give.

(6) For the purposes of subsection (5), the word, “agent” in relation to a company includes any—

(a) banker or solicitor of the company ; and

(b) person employed by the company as auditor, whether that person is or is not an officer of the company.

(7) If a person fails or neglects to give assistance in the manner required by subsection (5), the Court may, on the application of the Attorney-General of the Federation, direct that person to comply with the requirements of the subsection (5), and where any such application is made with respect to a liquidator, the Court, may, unless it appears that the failure or neglect to comply was due to the liquidator not having in his hands sufficient assets of the company to enable him to do so, direct that the costs of the application shall be borne by the liquidator personally.

Open section 675 on its own page

(1) The following persons shall not be competent to be appointed or to act as liquidator of a company, whether in a winding-up by, or under the supervision of the Court, or in a voluntary winding-up—

(a) an infant ;

(b) anyone found by the Court to be of unsound mind ;

(c) a body corporate ;

(d) an undischarged bankrupt ;

(e) any director of the company under liquidation ; and (f ) any person convicted of any offence involving fraud, dishonesty, official corruption or moral turpitude and in respect of whom there is a subsisting order under section 672 and 280 of this Act.

(2) Any appointment made that is contrary to subsection (1) is void and if any of the persons named in subsection (1) (c)-(f ) act as a liquidator of the company, he commits an offence and is liable to a fine as prescribed by the Commission in the Regulations in the case of a body corporate or, in the case of an individual, to imprisonment for a term not exceeding six months or to a fine as the Court deems fit or both.

Open section 676 on its own page

Any person who gives, agrees or offers to give to any member or creditor of a company any valuable consideration with a view to securing his own appointment or nomination, or to securing or preventing the appointment or nomination of a person other than himself as the company’s liquidator, commits an offence and is liable to a fine as the Court deems fit.

Open section 677 on its own page