The sections, word for word
Every section on this subject, exactly as printed in the Official Gazette (Act No. 3 of 2020). The explanation follows beneath.
Section 570. Jurisdiction as to winding-up
(1) The Court having jurisdiction to wind up a company is the Federal High Court within whose area of jurisdiction the registered office or head office of the company is situate.
(2) For the purpose of this section, “registered office” or “head office” means the place which has longest been the principal place of business of the company during the six months immediately preceding the presentation of the petition for winding-up.
Section 571. Circumstances in which companies may be wound up by Court
A company may be wound up by the court if—
(a) the company has by special resolution resolved that the company be wound up by the Court ;
(b) default is made in delivering the statutory report to the Commission or in holding the statutory meeting ;
(c) the number of members is reduced below two in the case of companies with more than one shareholder ;
(d) the company is unable to pay its debts ;
(e) the condition precedent to the operation of the company has ceased to exist ; or (f ) the Court is of opinion that it is just and equitable that the company should be wound up.
Section 572. Definition of inability to pay debts
A company is deemed to be unable to pay its debts if—
(a) a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding N200,000, 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 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 ;
(b) execution or other process issued on a judgment, act 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 debts.
Section 573. Provisions as to application for winding-up
(1) An application to the court for the winding-up of a company shall be by petition presented subject to the provisions of this section, by —
(a) the company or a director ;
(b) a creditor, including a contingent or prospective creditor of the company ;
(c) the official receiver ;
(d) a contributory ;
(e) a trustee in bankruptcy to, or a personal representative of, a creditor or contributory ; (f ) the Commission under section 366 of this Act ;
(g) a receiver, if authorised by the instrument under which he was appointed ; or
(h) by all or any of those parties, together or separately.
(2) Notwithstanding anything in subsection (1)—
(a) a contributory is not entitled to present a petition for winding-up a company unless the—
(i) number of members is reduced below two in the case of companies with more than one shareholder, or
(ii) shares in respect of which he is contributory or some of them, were originally allotted to him or have been held by him, and registered in his name, for at least six months during the 18 months before the commencement of the winding-up, or have devolved on him through the death of a former holder ;
(b) a winding-up petition shall not, if the ground of the petition is default in delivering the statutory report to the Commission or in holding the statutory meeting, be presented by any person except a shareholder, or before the expiration of 14 days after the last day on which the meeting should have been held ; and
(c) the Court shall not hear a winding-up petition presented by a contingent or prospective creditor until sufficient security for costs has been given, and a prima facie case for winding-up has been established to its satisfaction.
(3) Where a company is being wound up voluntarily or subject to supervision, a winding-up petition may be presented by the official receiver attached to the Court, as well as by any other person authorised under the other provisions of this section, but the Court shall not make a winding-up order on any such petition unless it is satisfied that the voluntary winding-up or winding-up subject to supervision cannot be continued with due regard to the interests of the creditors or contributories.
(4) A contributory is entitled to present a winding-up petition notwithstanding that there may not be assets available on the winding-up for distribution to contributories.
What this means
Short answer
A company is treated as unable to pay its debts in three cases: a creditor owed more than ₦200,000 serves a written demand and the company neglects it for three weeks, execution of a court judgment is returned unsatisfied, or the court is satisfied that the company cannot pay its debts (section 572).
Amended since the gazette
Section 572(a) no longer fixes ₦200,000. It now refers to a sum to be determined by a regulation issued by the Commission. Law firm commentary on the 2023 amendment says the Commission had not issued a new figure, and that ₦200,000 continues to apply until it does. Check the Commission’s current regulations before serving a demand. See all the amendments.
The three tests in section 572
- Statutory demand. A creditor, by assignment or otherwise, to whom the company owes more than ₦200,000 that is then due, serves a written demand at the registered or head office requiring payment. For three weeks afterwards the company neglects to pay the sum, or to secure or compound for it to the creditor’s reasonable satisfaction (section 572(a)).
- Unsatisfied execution. Execution or other process issued on a judgment, act or order of any court in favour of a creditor is returned unsatisfied in whole or in part (section 572(b)).
- Court finding. The court, after taking account of contingent or prospective liabilities, is satisfied that the company cannot pay its debts (section 572(c)).
Why the test matters
Being unable to pay debts is one of the grounds on which the court may wind a company up (section 571(d)). The other grounds are a special resolution to be wound up by the court, default in delivering the statutory report or holding the statutory meeting, the number of members falling below two where there was more than one shareholder, the condition precedent to the company’s operation having ceased to exist, and the court’s opinion that winding up is just and equitable (section 571).
It is also relevant to administration, because the court can make an administration order where the company is, or is likely to become, unable to pay its debts. See what is administration.
Who can petition
Section 573(1) lets the following present a winding-up petition, separately or together: the company or a director, a creditor including a contingent or prospective creditor, the official receiver, a contributory, a trustee in bankruptcy or personal representative of a creditor or contributory, the Commission under section 366, and a receiver if authorised by the instrument that appointed him. A contributory can petition only if the number of members has fallen below two, or if the shares were originally allotted to him or held and registered in his name for at least six months during the 18 months before the winding up began, or came to him on the death of a former holder (section 573(2)).
The court with jurisdiction is the Federal High Court for the area where the company’s registered or head office is, meaning the place that has been its principal place of business for longest in the six months before the petition (section 570).
Questions and answers
How much must a company owe before a creditor can use the demand test?
More than ₦200,000 in the gazetted text, then due, with a written demand left at the registered or head office and not met for three weeks (section 572(a)). The Business Facilitation Act 2023 replaced the figure with a sum set by Commission regulation, and commentators reported ₦200,000 still applies until one is issued.
Who can ask the court to wind a company up?
The company or a director, a creditor, the official receiver, a contributory, a trustee in bankruptcy or personal representative of a creditor or contributory, the Commission, or a receiver authorised by his appointing instrument (section 573(1)).
Which court winds up a company?
The Federal High Court where the company’s registered or head office is (section 570(1)).
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