Deciding to close a company is hard, and founders are often exhausted by the time they reach that decision. I understand the wish to stop trading and move on, but the company continues to exist after trading stops, and so do its debts and its obligations to staff and customers, as well as its filing duties. Simply walking away usually leaves the directors exposed and the creditors unhappy.
The first question is what the company owes and whether it can pay everyone, because the answer decides which legal route applies and how much money is needed to finish the process. Someone also needs to remain responsible after the team leaves, with access to the records and the bank account, and if there is a foreign parent company, its affairs have to be wound up as well.
Find out whether everyone can be paid
The company should set out its bank balances and any assets that can be sold against everything it owes, including disputed claims and commitments whose final amount is not yet known. A customer who paid for twelve months of service and received only three has a claim for the remainder, and a lease with six months left to run is a very different liability from a supplier invoice due tomorrow.
Staff entitlements and tax must also be included. PAYE and pension deductions taken from salaries but not yet paid over are treated very seriously, as is withholding tax deducted from suppliers, and the cost of the closure itself and any guarantees the company has given should be added to the list. Where the amount of a claim is uncertain, a sensible estimate and a reserve should be included before the directors conclude that all the company's debts can be paid.
For a solvent Nigerian company, a members' voluntary winding‑up is the usual route. Section 625 of CAMA requires the directors, or a majority of them where there are more than two, to make a statutory declaration of solvency after a full enquiry into the company's affairs, stating that the company will pay its debts in full within a stated period of no more than twelve months from the start of the winding‑up. The declaration must include a statement of assets and liabilities and be made within the five weeks before the winding‑up resolution, and it must then be delivered to CAC for registration within 15 days after the resolution is passed.
Making that declaration without reasonable grounds is an offence, so the directors need evidence to support it. A liquidator is then appointed and the formal resolutions and notices follow, and if the figures change afterwards, the liquidator should be told immediately.
If the figures show that not all creditors will be paid, the company needs advice on a creditors' voluntary winding‑up or a winding‑up by the court, or on a rescue option such as administration or a company voluntary arrangement under CAMA. From that point the directors must take the interests of creditors into account when deciding on payments and asset sales, and the company should stop taking customer money for orders it is unlikely to fulfil.
Close each company in the group
A Delaware parent and a Nigerian operating company are separate legal entities, even where the whole business stops at the same time. The founders should work out which company employed each person and signed each contract, and reconcile the money that moved between the companies, bearing in mind that a parent whose main asset is a loan to an insolvent subsidiary may find that loan is worth very little.
For a Delaware parent, the Delaware Division of Corporations explains the annual report and franchise tax filings that must be brought up to date, and the Delaware dissolution provisions set out the approvals and the process for dealing with claims. A US adviser should handle the parent's closure, working with the Nigerian side, and that adviser should know whether the parent was in practice managed from Lagos.
Being struck off the register by CAC is not the same as a proper winding‑up. CAMA preserves certain liabilities after a company is removed from the register, and restoring a struck‑off company usually requires a court order. If the company has received a strike‑off notice, it should check its status and respond within the deadline, while still dealing with its debts and any liabilities that survive.
Explain the figures to staff and investors
Employees need to receive their individual figures while someone is still available to answer their questions. Those figures cover notice or pay in lieu of notice and accrued leave, together with any unpaid salary and redundancy payments where the contract or the law requires them. Pension and tax deductions should be reconciled with the amounts actually paid over, and staff working abroad may have additional protections under local law.
Option holders need to know what has vested and whether they can still exercise their options before the deadline, since some options can only be exercised on an exit. If ordinary shareholders will receive nothing after creditors and preferences have been paid, exercising an option makes no financial sense, and I think the company should say that plainly. I explain the reasons in what your employee option grant means.
What investors recover depends on their documents and on what is left. A convertible note is usually debt and ranks with the company's other unsecured creditors, SAFEs have their own dissolution terms and usually rank behind creditors, and preferred shareholders receive whatever the rights of their class provide. Applying those terms to the money available allows the company to give investors an estimate, including any amounts that are still uncertain.
The product and its users
If another business is buying the software, the company should confirm what it owns and what it only uses under licence. Any missing developer assignments should be completed before the sale, and the licences of third‑party components should be checked for limits on transfer. The domain and infrastructure accounts should be handed over with a plan to keep the service running during the migration.
Founders who want to take the product into a new company need to buy or license it from the old company at a fair price, with proper approvals that deal with their conflict of interest. Where creditors are not being paid in full, a sale to insiders needs insolvency advice, because it can be challenged later if the price was too low.
Customer data can only pass to a buyer if the Nigeria Data Protection Act permits the new use, and the users should be told. Marketing to former users from a new business needs particular care, and customers should be given the chance to download their records under their contracts and told about refunds before their access ends.
Keep someone responsible until the work is finished
Leases and supplier contracts have their own notice and exit terms, which decide the final charges. A founder's personal guarantee also survives the closure of the company unless the creditor releases it, and I explain how a release works in before giving a personal guarantee.
The final tax returns and CAC filings need to be coordinated with the last payments, along with the surrender of any licences. The bank account should stay open long enough to complete this work, and the records the law requires the company to keep, along with anything relevant to a possible dispute, should be stored safely. Personal data that no longer has a lawful purpose should be deleted, and whoever deals with later enquiries needs both the authority and the funds to do so for as long as that responsibility lasts.
This article is general information and not legal advice. For guidance on your specific circumstances, speak with us directly.