The distinction between a liquidator and a receiver/manager has often been a bone of contention, with some arguing that their roles are fundamentally different. However, a closer examination of the Companies and Allied Matters Act (CAMA) reveals significant functional overlaps that blur the lines between the two.
Statutory Framework and Judicial Reasoning
Section 588 of CAMA outlines the powers and duties of a liquidator, primarily focused on getting the company's house in order during winding up. Similarly, the powers of a receiver/manager, as detailed in Section 556 and Schedule 11 of CAMA, involve taking control of company assets and managing operations for the benefit of creditors. While their appointments may arise from different legal contexts, their objectives often converge.
This article critically examines the statutory framework and judicial reasoning surrounding this functional overlap and whether winding-up proceedings can be commenced against a company with a receiver/manager appointed under an all-assets debenture.
Receivership vs. Liquidation
According to Chris C. Wigwe, SAN, in Company Law & Practice (2nd Ed. 2022), a receiver/manager is appointed by secured creditors under the terms of a loan or debenture instrument upon the company's default. His primary role is to realize the company's assets to settle the creditors' debt. In contrast, a liquidator is appointed by the company or the court to wind up the company's affairs and distribute its assets among creditors and contributories in accordance with the company's articles and statutory rules of priority.
It is a settled principle of law that once a winding-up order is made, a liquidator is appointed with powers set out under Section 588 of CAMA 2020. These powers substantially mirror those of a receiver or manager appointed under Section 556 and Schedule 11 of CAMA, as affirmed in Cansco Dubai LLC v. Seawolf Oilfield Services Ltd (2018) LPELR-43674. This raises the question of whether there is any legal or practical justification for initiating winding-up proceedings against a company already under receivership, given that both officers are empowered to pursue the same objectives.
The core purpose of appointing a receiver or manager is to preserve and realize the company's assets for the benefit of creditors, which is also the fundamental role of a liquidator in a winding-up. Since both processes aim to protect creditors' interests and settle outstanding debts, commencing winding-up proceedings during receivership may amount to unnecessary duplication without added practical benefit. In Cansco Dubai LLC v. Seawolf Oilfield Services Ltd & Anor, the Court of Appeal held that the functions of a liquidator and a receiver/manager are similar, as both are primarily appointed to preserve the assets of the company when such assets are in danger of dissipation.
The Ubiquitous Role of a Receiver
A receiver/manager owes a statutory and fiduciary duty to act in the best interest of the company, not merely as an agent of the appointing creditor, as clearly provided under Section 553(1) and (2) of CAMA. The law requires the receiver/manager to act in good faith and render proper accounts of all activities under Section 398 of CAMA. Consequently, any argument questioning the intentions of the receiver/manager is a non-starter, since he is deemed to stand in a fiduciary relationship with the company and must act with utmost good faith for the benefit of the company and its creditors.
The court in Cansco Dubai LLC v. Seawolf Oilfield Services Ltd & Anor highlighted the similarities in the functions of a receiver/manager and that of a provisional liquidator, citing Nigeria Bank for Commerce and Industry & Anor v. Alfijir (Mining) (Nig) Ltd (1999) LPELR – 2015 (SC); (1999) 14 NWLR (Pt. 638) P. 176; (1999) 12 SC (Pt. iii) P. 109, in which the Supreme Court held that part of the duty of a receiver/manager and a provisional liquidator is to preserve assets and undertakings of the company. Therefore, the appointment of a receiver/manager over the company is not only for the benefit of the persons that appointed him but essentially for the benefit of the company, as the receiver/manager will not only act in the interest of the persons that appointed him but for the overall interest of the company. He will not dissipate the assets of the company but act in utmost good faith for the overall benefit of the company and its creditors. Hence, it is unnecessary and bereft of any utilitarian value to commence winding-up proceedings (geared at appointing a liquidator) where a receiver/manager has already been appointed and is carrying out functions for the overall benefit of the company.
The Limited Powers of a Liquidator
Furthermore, Wigwe in his book stated that a liquidator represents the interest of the creditors, especially the unsecured creditors. While many will be quick to conclude that acting for unsecured creditors operates as a fundamental difference between a liquidator and a receiver/manager, it must be quickly reiterated that the target of this work is to examine beyond words, but far into the effects of the concepts in view. That being said, it is crystal clear that even where the liquidator acts for the unsecured creditors, his presence is inconsequential in the presence of a receiver/manager appointed based on a fixed and floating charge over all the assets of the company. Where a liquidator is appointed over a company in receivership, there would be no property for the liquidator to exercise his rights over. This point is made more poignant by the fact that the rights of unsecured creditors run subsequent and subordinate to the rights of secured creditors.
Receivership Precludes Any Legal Action
In so far as the purpose of the winding up is to recover the purported outstanding indebtedness of an unsecured creditor by distributing the company's assets (which are under receivership), then no action, inclusive of a winding-up petition to recover any alleged indebtedness, can be commenced against such a company until the secured creditors have been fully paid up. The point being made is that an unsecured creditor cannot even proceed against the assets of the company, which are under the control of the receiver/manager, unless and until the company slips out of receivership. For context, a liquidator appointed pursuant to the winding-up order will be legally stripped of the necessary vires to deal with the assets of the company comprised under the receivership, particularly where a receiver/manager was appointed over all the assets of the company (both fixed and floating) or where the company pledged and/or charged all its present and future goodwill, capital, and monies to the secured lenders who appointed the receiver/manager. To be continued tomorrow.
Chukwumerije is an associate partner at Pinheiro LP, while Ugboaja is a junior associate.
