Recently, the operations of Arik Airlines in Nigeria were taken over by the Federal Government under the Asset Management Corporation of Nigeria (AMCON). I remember wondering whether the Federal Government could take over private businesses in Nigeria.
What is AMCON and what is it empowered to do? Why and when does a creditor of a company take over the company? What conditions must be in place? Let us examine particular instances where certain businesses may be taken over in Nigeria.
When is a company said to be in distress?
A company is said to be in (financial) distress when it is unable to meet its financial obligations to its creditors. And even when it may meet those financial obligations, but just barely, the company is still considered to be in financial distress.
In Nigeria, a company will qualify to be wound up when:
- A creditor to whom the company owes an amount exceeding N2,000 (Two Thousand Naira) has made a demand in respect of the debt from the company and the company has neglected or failed to pay off that debt three weeks after the demand was made. Where the company has also not been able to compound that amount to the satisfaction of the creditor, the creditor may take steps to wind up the company. To “compound” an amount means to settle by a money payment, in lieu of other liability. Note that where there is no evidence of such demand for payment as prescribed by the law, a company will not be deemed to be unable to pay its debt.
- The company either totally or partly fails to satisfy execution or other processes issued on a judgment order of any court in favour of a creditor.
- The Court after considering the contingent or prospective liability of a company forms the opinion that the Company is unable to pay its debts.
It should be noted that where the company in question disputes the allegation of a debt supposedly owed in good faith and there is no evidence that the company is unable to pay its debts, then the company will not be deemed to be in financial distress. What the creditor may have to do in such a situation is to pray the court to make a finding based on the evidence of both parties on the existence of a debt. This is because where there is no debt there is no basis for the establishment that a company is in financial distress and thus needs to be wound up.
There are different categories of people that may make petitions to the court that a particular company be wound up. These may include: the company itself, a creditor of the company, an official receiver, or even the Corporate Affairs Commission. In this case, the Asset Management Corporation of Nigeria (AMCON) is one of the creditors of Arik Airlines in Nigeria.
In certain instances, the petition for winding up has to be presented by the Corporate Affairs Commission with the approval of the Attorney General of the Federation. These instances are:
- Where the Corporate Affairs Commission appoints Inspectors to investigate the affairs of a company on its application or that of its members. The Commission may require the Inspector to make interim reports and a final report on the conclusion of its investigation. The Commission may also require that a copy of the inspector’s report be forwarded to the Company involved.
- Where, based on the reports of the investigation mentioned above, the commission seeks to commence civil proceedings on behalf of the company or another body corporate in the interest of the public.
- Where the Court seeks to wind up a company because it is of the opinion that it is just and equitable to do so.Despite the foregoing, it should be noted that the approach employed by AMCON was to explore the receivership option. This approach is different from an actual winding up because the Company is still in existence; only that is being managed by an appointed person.