Applications in winding-up proceedings in Nigeria: settled and unsettled issues

June 2019 | EXPERT BRIEFING | BANKRUPTCY & RESTRUCTURING

financierworldwide.com

Winding-up proceedings are unique proceedings in a class of their own. Nigeria’s Companies Winding-up Rules, 2001 (CWR) embody procedural provisions which govern winding-up proceedings. Applications are ubiquitous and indispensable in civil and criminal proceedings. Rule 4 of CWR requires every application in winding-up proceedings (other than a petition) to be by motion. The motion must be served on persons against whom the order is sought at least five days before the hearing. This rule is rooted in Rule 8(1) of the abrogated English Companies (Winding-up) Rules 1949. Recently, in Ecobank Nigerian Ltd v Honeywell Flour Mills Plc (2018) LPELR-45124, Nigeria’s Supreme Court examined the permissibility of ex parte applications in winding-up proceedings. Previously, the Supreme Court had considered a similarly-worded Rule 4 of the Companies Winding-up Rules 1983 in Provisional Liquidator, Tapp Industry Ltd v Tapp Industry Ltd (1995) 5 NWLR (Pt 393) 9. This article examines some settled and unsettled issues in relation to applications in winding-up proceedings.

Ecobank v Honeywell

Ecobank filed a winding-up petition and an ex parte application seeking interim injunctive orders against Honeywell and others aimed at preserving Honeywell’s assets. The trial court granted the ex parte application. An issue raised at the Court of Appeal and Supreme Court was whether Honeywell ought to have been put on notice in accordance with Rule 4 of CWR. The Supreme Court upheld the Court of Appeal’s decision that Honeywell was entitled to notice of the application. The Court of Appeal had held that granting the injunction without giving Honeywell an opportunity to be heard on a matter which could paralyse it was an extreme and injudicious exercise of discretion. This decision was followed in Cansco Dubai LLC v Seawolf Oilfield Services Ltd (2018) LPELR-43674.

Further, the Supreme Court rejected Ecobank’s contention that ex parte applications were permissible in winding-up proceedings pursuant to section 411(1) of the Companies and Allied Matters Act, 1990 (CAMA) and Rule 183 of CWR. Section 411(1) of CAMA empowers a court after hearing a petition to either dismiss it, adjourn hearing conditionally or unconditionally, make an interim order or any order. The Supreme Court rightly held that this provision does not authorise ex parte orders but provides a guide to what courts should do. Rule 183 of CWR provides that in the absence of a provision in CWR, the court’s civil procedure rules shall apply. The Supreme Court rightly held that a recourse to the high court rules was not necessary because the CWR had adequate provisions in this regard. Similar arguments had been canvassed in Pharma-Deko Plc v FDC Ltd (2015) 10 NWLR (Pt 1467) 225. In that case, the respondent obtained an ex parte order of interim injunction against the appellant at the trial court. Although the winding-up petition was struck out for constituting an abuse of court process, the Court of Appeal erroneously accepted the contention that section 411 of CAMA permits ex parte applications in winding-up proceedings.

Flashback: Tapp v Tapp

In Ecobank v Honeywell, copious references were made to Tapp v Tapp. This is not surprising given that this was the only previous occasion where the Supreme Court examined Rule 4 of CWR. The Supreme Court rejected Ecobank’s reliance on Tapp v Tapp as authority that ex parte applications are permissible in winding-up proceedings. The apex court described this as a “sweeping submission” which was “dangerous”.

In Tapp v Tapp, The trial court had granted ex parte orders: (i) extending time to complete the winding-up; and (ii) permitting the provisional liquidator to dismantle, remove and take possession of all properties of Tapp for safekeeping. The Court of Appeal (in Anakwenze v Tapp Industry Ltd (1991) 7 NWLR (Pt 202) 177) upheld order (i), but set aside order (ii). While the Court of Appeal viewed order (i) as not being sought against any person, order (ii) was declared inappropriate and a breach of the right of fair hearing by putting property which third parties claimed interest in the control of a liquidator without hearing the third parties.

The Supreme Court reversed the Court of Appeal’s decision on the ground that the application did not seek for an order against any persons. The apex court opined that the liquidator was merely asking for an order of court to aid him in performing his principal duty of preserving the company’s properties.

While the decision in Honeywell v Ecobank is arguably unimpeachable, that in Tapp v Tapp raised issues which remain unresolved. Some of these issues are discussed below.

What is sauce for a liquidator is not sauce for other parties

The judicial pronouncements in Ecobank v Honeywell and Tapp v Tapp suggest the decision in Tapp v Tapp may have been influenced by the fact that the applicant was the liquidator. In Tapp v Tapp, the court highlighted that the liquidator: (i) was asking for the order to aid him in performing his principal duty of preserving assets; (ii) was not an agent of any of the parties; (iii) was appointed by the court and subject to the court’s control; and (iv) had the right to apply to the court for directions as to how to perform his duties.

First, Rule 4 applies to “every application in court” in winding-up proceedings. The fact that the applicant was the liquidator was inconsequential as liquidators are not exempted from Rule 4 of CWR. Second, as was rightly stated by Okoro JSC in Ecobank v Honeywell, the language used in Rule 4 of CWR is mandatory with no room for permissiveness. The highlighted considerations were therefore extraneous. Worse still, they were employed to deprive third parties of their rights to be heard on an issue which clearly affected their interests. The court ought to have limited itself to the sole consideration under Rule 4 which is whether an order is being sought against any person.

Triumph of form over substance

The ex parte applications in Tapp v Tapp did not seek for orders against persons. While the first application sought for extension of time to complete the winding-up, the second sought to take control of the company’s properties for safekeeping. Nevertheless, the second order clearly affected other persons. The Supreme Court gave Rule 4 of CWR a literal interpretation, holding that no order was sought against any person. This approach suggests that ex parte applications which affect other persons may be granted where orders are not sought against persons on the face of the motion paper. Consequently, Rule 4 may be evaded by skilful couching of reliefs in the ex parte application. Instructively, in Cansco Dubai LLC v Seawolf Oilfield Services Ltd (supra) at 41, Uwa JSC at a point gave Rule 4 a broader construction, stating as follows: “I agree with learned counsel that such applications must be by way of motion, notice of which must be given to the parties against whom the order is sought. The service of the motion on persons to be affected by the grant of the reliefs sought by such motions is required.”

Advertising a winding-up petition is a precondition to its hearing: Rule 19 of CWR, Richsea Ltd v Star AP JV Ltd (2004) 3 FHCLR 508 at 512. An application for leave to advertise a petition does not seek an order against any person. Nevertheless, such advertisements may inflict irreversible damage on other parties. This notwithstanding, the approach in Tapp v Tapp suggests that leave to advertise may be obtained via an ex parte application. The facts in Cansco Dubai LLC v Seawolf Oilfield Services Ltd (supra), UBA v Dana Pharmaceuticals Ltd (2018) LPELR-43799 and Pharma-Deko Plc v FDC Ltd (supra) indicate that leave to advertise were obtained via ex parte applications.

In Ecobank v Honeywell, Okoro JSC observed that the Supreme Court had stated in Tapp v Tapp that the applications in that case did not raise contentious issues affecting the parties’ civil rights and obligations. His Lordship contrasted this with the orders of injunction in Ecobank v Honeywell which affected the rights of parties. This narrative and comparison are, with respect, flawed. The referenced statement in Tapp v Tapp was made by Ogundare JSC in response to the respondents’ contention that the ex parte application violated their right to fair hearing under section 33(1) of the 1979 Constitution. The provision required fair hearing “in the determination of the civil rights and obligations” of persons.

Accordingly, the statement did not relate to the similarly-worded Rule 4 of CWR 1983. Under Rule 4, whether or not an application is contentious is irrelevant. It would be an injudicious exercise of discretion for a court to deny a party the right to be heard under Rule 4 on the basis that an application is not contentious. Besides, the facts in Tapp v Tapp suggest that the application was indeed contentious. At the Court of Appeal, Oguntade JCA pointed out that: (i) the case was a difficult one with bitter and extensive rival claims relating to the ownership of the company’s properties; (iii) unresolved claims were being made in court proceedings; (iii) taking control of the properties “castrated” the 7th appellant and paralyzed its business; and (iv) the liquidator’s plan to take the properties into safe custody for a short period was “barren consolation” as the 7th appellant still suffered injury.

The application in Tapp v Tapp clearly affected other persons notwithstanding that no order was sought against persons. The Supreme Court’s decision was a triumph of form over substance. The above mischief may be remedied by courts exercising their inherent powers and ordering service of notice of applications on persons who may be affected by any orders. For example, in Nassib Grizi v Ideal Commercial Syndicate Ltd (1991) FHCLR 102 the court ordered the petitioner who had filed an ex parte application for leave to advertise the petition to put all parties on notice.

Dr Kubi Udofia is a senior associate at Fidelis Oditah & Co. He can be contacted on +234 81 0289 1800 or by email: kudofia@oditah.com.

Dr Kubi Udofia

Fidelis Oditah & Co.