When A Pending Lawsuit Will Not Be Enough To Prevent The Winding Up Of A Company: Key Lessons From Unifam Industries V. Ecobank (2019) 1 NWLR 187

Introduction

The case of UNIFAM INDUSTRIES LIMITED V. ECOBANK NIGERIA LIMITED (SC.149/2005) was heard by the Supreme Court of Nigeria, with judgment delivered on Friday, 8 June 2018. The central issue revolved around whether a petition for the winding-up of a company due to its inability to pay its debts constituted an abuse of court process when a pre-existing suit was filed by the debtor company concerning the same indebtedness. The Supreme Court, in a unanimous decision, dismissed the appeal, affirming the Court of Appeal's ruling that the winding-up petition was distinct and not an abuse of process.

Background of Facts

The appellant, Unifam Industries Limited, was a customer of the respondent, Ecobank Nigeria Limited, and maintained a current account at the respondent's Aba branch. The respondent granted credit facilities to the appellant, leading to an indebtedness of N25,941,308.41 (Twenty-five million, nine hundred and forty-one thousand, three hundred and eight naira, forty-one kobo) as of 3 April 2002.

Significantly, the appellant admitted this indebtedness in a letter dated 21 December 2001. In this letter, the appellant proposed to pay N1,000,000.00 (one million naira), by the first week of March 2002 and continue similar instalment payments until all interest on the overdraft was liquidated, seeking a rollover or renewal of the overdraft facility.

Despite this admission, on 16 April 2002, the appellant instituted an action against the respondent at the High Court of Abia State, Aba. In this suit, the appellant sought various declaratory reliefs, including declarations that the overdraft consents were obtained by economic duress, the contracts were contrary to public policy and illegal, the respondent was not entitled to sell the 2nd plaintiffs' property, and that unauthorised charges were debited to its account. It also sought an order for an independent Chartered Accountant to ascertain the correct and legitimate sum due, and an order granting time to liquidate the ascertained sum. The Supreme Court later characterised this suit as having been instituted mala fide and a “ploy to stop the respondent's legitimate petition,” designed to be obtrusive and pre-emptive to frustrate the recovery of the admitted outstanding debt.

After filing its statement of defence in the appellant's High Court suit on May 20, 2002, the respondent filed a petition on 29 June 2002, at the Federal High Court, Umuahia, praying for the winding-up of the appellant due to its inability to pay the admitted debt of N25,941,308.41 (Twenty five million, nine hundred and forty one thousand, three hundred and eight naira, forty one kobo) plus accruing interest.

Upon being served with the winding-up petition, the appellant filed a motion on July 1, 2002, at the Federal High Court, Umuahia, seeking to dismiss the petition on the ground that it constituted an abuse of court process. The trial court, in its ruling on 29 November 2002, agreed with the appellant, finding that the reliefs in the Abia State High Court suit related to the same subject matter as the winding-up petition. It concluded that allowing both suits to run concurrently would amount to a multiplicity of actions and therefore struck out the winding-up petition.

Dissatisfied with this decision, the appellant appealed (seeking dismissal instead of striking out and an award of costs), while the respondent filed a cross-appeal against the order striking out its petition. The Court of Appeal, on 8 November 2004, dismissed the appellant's appeal and allowed the respondent's cross-appeal. It held that the winding-up petition was distinct from the appellants' High Court suit and did not constitute an abuse of court process. The Court of Appeal ordered the petition remitted to the Chief Judge of the Federal High Court for assignment and determination, awarding N5,000.00 costs to the respondent.

The appellant, still aggrieved, then appealed to the Supreme Court. The sole issue before the Supreme Court was whether the Court of Appeal was correct in holding that the winding-up petition was distinct from the appellants' High Court suit and, as such, did not constitute an abuse of court process.

The Supreme Court's Judgment

The Supreme Court unanimously dismissed the appeal, affirming the judgment of the Court of Appeal. The Court held that the appellant's letter of 21 December 2001 constituted a clear admission of its indebtedness, meaning the debt was not bona fide disputed.

The Supreme Court found that all the conditions precedent for winding up a company on the ground of inability to pay its debt under sections 408 and 409 of the Companies and Allied Matters Act (CAMA) were fulfilled. These conditions included:

1. A due debt exceeding N2,000.00 (two thousand naira).
2. Service of a demand letter by the creditor.
3. The company's neglect to pay, secure, or compound the sum to the creditors' satisfaction within three weeks of the demand.

The Court further clarified that a court would not refuse a winding-up order merely because there is a dispute over the precise amount owed, where the debt itself is admitted. Galinje, JSC, at Page 200 Para G-H of the judgment, held as follows:

“According to section 408 of CAMA, a company may be wound up by the court if the company is unable to pay its debt. When the debt is admitted or established followed by a formal demand, and the debt is not settled or paid within three weeks of such demand, a court has no discretion but to wind up the debtor company.”

Crucially, the Supreme Court determined that the appellant's lawsuit at the High Court of Abia State (No. A/148/2002) was instituted mala fide and was a “ploy to stop the respondent's legitimate petition”. The claims in that suit were deemed to be at variance with the respondent's winding-up petition, rendering the appellant's action a pre-emptive and unconscionable attempt to frustrate the recovery of the admitted debt. Applying the maxim “equity acts in personam,” the Court emphasised its duty to do substantial justice and not countenance such conduct.

Therefore, the Supreme Court concluded that the respondent's winding-up petition was distinct and did not constitute an abuse of court process. The appeal was dismissed, and the order remitting the winding-up petition to the Federal High Court for determination was affirmed, with costs of N500,000 (five hundred thousand naira only) awarded in favour of the respondent.

Key Takeaway from the Supreme Court's Judgment

While a lawsuit will be enough to prevent the winding up of a company where the indebtedness of the company is disputed and has never been admitted, the Supreme Court's judgment has shown clearly that once a debor has admitted a debt, the mere fact that the debtor has filed another lawsuit to challenge its indebtedness will not be enough to prevent the winding up of a company.

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