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LEAVE OF COURT BEFORE SUING A COMPANY UNDER LIQUIDATION

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Dictum

Let me quickly state that Section 417 of Companies and Allied Matters Act, 1990 is in all fours with Section 580 of Companies and Allied Matters Act, 2020. Now Section 417 of Companies and Allied Matters Act, 1990 provides:- “…if a winding up order is made or a provisional liquidator is appointed, no action or proceedings shall be proceeded with against the company except by leave of the Court.” The above provision is very clear and unambiguous. It means clearly that if a winding up order is made or a provisional liquidator is appointed, no action or proceedings shall be proceeded with against the company undergoing liquidation. The intendment of the said provision is not to stop an aggrieved party from proceeding against the company which has been issued a winding up order or which a provisional liquidator has been appointed, but that leave of Court must be sought and obtained before commencing the action or proceedings.

— J.I. Okoro, JSC. Universal Properties v. Pinnacle Comm. Bank, NJA, Opia, Heritage, Fatogun (SC.332/2008, Friday, April 08, 2022)

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THE COMPANY CEASES TO HAVE RIGHTS WHEN A RECEIVER IS APPOINTED

The company ceases to have any right to deal with the assets. It’s right thereto is suspended. The Receiver/Manager appointed by the Debenture holder is now regarded as agent of the company for the purposes of dealing with assets in the Receivership.

– Karibi-whyte, JSC. Intercontractors v. National Provident (1988)

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THERE MUST BE EVIDENCE OF RATIFICATION OF PRE-INCORPORATION CONTRACT

Before the above provisions could apply, there must be evidence of ratification by the new company of contracts made before its formation. In the case on hand, there was no such evidence. Nor was it shown who, if any body had ratified the contract between the plaintiff/appellant and the 1st defendant.

— Oguntade, JSC. Garuba v. Kwara Investment (2005) – SC.260/2000

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SOME FOREIGN CASES ON LIFTING COMPANY VEIL

In Littlewoods Stores Ltd v. I.B.C. (1969)1 W.L.R. 1241 Lord Denning M.R. said: “The doctrine laid down in Salomon’s case has to be watched very carefully. It has been supposed to cast a veil over the personality of a limited liability company through which the Court cannot see. But that is not true. The Court can and often do draw aside the veil. They can and often do pull the mask. They look to see what really lies behind. The legislature has shown the way in group accounts and the rest. And the Court would follow suit.”
The English case of Jones v. Lipman (1962)1 WLR 832 exemplifies the situations in which the corporate veil will be lifted when a company is used as a mere facade concealing the true facts, which essentially means it is formed to avoid pre-existing legal obligations.

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COMPANY’S DIRECTORS MAY DEAL WITH ASSET OUTSIDE RECEIVERSHIP

The Receivership in the instant case which does not necessarily result in the liquidation or winding up of the company, the right to deal with the assets in the receivership are revived at the termination of the receivership. In all cases the right of the directors of the Company to deal with the assets of the company not in receivership or other matters not suspended are not affected by the appointment of a Receiver/Manager over the assets of the Company. The directors of the company do not by virtue of a receivership become functus afficio for all purposes of the company.

– Karibi-whyte, JSC. Intercontractors v. National Provident (1988)

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A COMPANY’S LEGAL PERSONALITY DIES AT THE DEATH OF THE COMPANY

A company is a legal person with legal capacity to sue or be sued. That legal personality and capacity continues until the company dies a legal death in the process, and as a result of winding up and dissolution.

– Oputa, JSC. Intercontractors v. National Provident (1988)

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RATIONALE BEHIND NULLITY OF PRE-INCORPORATION CONTRACT

In Kelner v. Baxter (1866) L. R. 2 C.P. 174 Erie C.J. explaining the rationale of the principle [pre-incorporation contract] said: “as there was no company in existence at the time, the agreement would be wholly inoperative unless it were held to be binding on the defendant personally…where a contract is signed by one who professes to be signing as agent, but who has no principal existing at the time, and the contract would be altogether inoperative unless binding upon the person who signed it, he is bound thereby; and a stranger cannot by a subsequent ratification relieve him from the responsibility”.

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