Intercontractors Nigeria Ltd. V. National Provident Fund Management Board (1988)
LawGlobal-Hub Lead Judgment Report
G. KARIBI-WHYTE, J.S.C.
The issue before this court for determination is whether the Chief Judge of the Federal High Court was right in dismissing Appellant’s application to strike out the writ of summons issued out by the Respondent as Plaintiff, claiming from the Appellant as defendant the arrears of contributions due in respect of National Provident Fund deductions made by it on behalf of its employees. The Court of Appeal affirmed the judgment of the High Court.
The core of the argument of Counsel for the Appellant/Defendant consistently in his appeal against the judgment of the High Court and now the Court of Appeal, is that no writ can validly issue against Appellant/Defendant Company being in Receivership for claims in respect of its assets in receivership. Since even a successful litigation by the Plaintiff/Respondent cannot enforce the judgment. it is unnecessary and abuse of the litigation. It was therefore submitted that the claim be struck out. It is necessary to observe that this is the second of the two appeals which came before us on the 8th February, 1988.
The Appellants were represented by the same Counsel who appeared to have assumed that the same arguments applied to the two cases. Generally, in each case the same company was in Receivership. In the earlier case, SC.93/1987 judgment had been obtained and enrolled against Appellants and writ of execution of Fifa applied for before the Receiver was appointed.
In the instant case the writ of summons filed on 7/4/86 had been issued and Appellant had been served with the hearing notice. A Receivership had been appointed over the assets of the Appellant company on the 27th June, 1985 about ten months prior to the issue of the writ of summons. The debenture, a floating charge of the assets of the Appellant Company was involved in the Receivership. Thus the writ of summons was issued after the Receiver/Manager was appointed over the assets of the Appellant Company.
The facts of the case are that Plaintiff/Respondent, a statutory body charged with the responsibility for collecting deductions from employers in respect of the National Provident Fund contributions made by their employees issued a writ of summons in the Federal High Court against the Defendant/Appellant claiming the sum of N156,792.44k being deductions made from and due to Respondents on the contributions of its employees which Defendant/Appellant had failed to pay to the Respondents. After entering appearance Defendant/Appellant brought a motion on notice seeking an order to strike out the writ of summons and particulars of claim on the grounds inter alia, that
- That the Plaintiffs claim even if successfully litigated was unenforceable.
- The Defendant/Appellant Company was in Receivership and accordingly could not be sued by an unsecured creditor.
- That the Federal High Court had no jurisdiction in respect of the subject matter of the claim; being one for recovery of a simple debt; not arising from the operations of the Companies Act 1968, or relating to the revenue of the Federal Government.
- That the action was frivolous, speculative embarrassing and an abuse of the Courts’ process.
The affidavit in support of the motion summarily stated averred that the assets of the Defendant/Appellant Company were by means of a floating security charged to Savannah Bank Ltd, and that having defaulted in the terms of the Debenture the assets have crystallised and the Savannah Bank Ltd have appointed one Joseph Olutoyin Munis as the Receiver/Manager of the Defendant/Appellant Company over the assets of the Company.
It was also averred that the Receiver/Manager is now the Agent of the Defendant/Appellant Company with respect to the assets charged. The averments in paragraphs 6-12 of the affidavit are very important to the appeal before us and arc reproduced verbatim.
AFFIDAVIT IN SUPPORT
- “That the Defendant/Applicant has since defaulted under, and failed to comply with the said debenture, by virtue of which the said Bank has appointed a receiver/manager over the assets charged, accordingly the floating charge has crystallised.
- That by a Deed of Appointment dated 26/6/85, one Joseph Olutoyin Munis was appointed the Receiver/Manager over the Defendant/Applicant herein by the said Bank. A copy of the said Deed is attached hereto and marked Exhibit F.
- That whereas while the Defendant/Applicant went into receivership on 20 June, 1985, the claim of the Plaintiff/Respondent is for debt owed well outside one year of the occurrence of the receivership.
- That as Receiver/Manager of the Defendant/Applicant the said Joseph Olutoyin Munis is now agent of the Defendant/Applicant with respect to the assets charged to the said Bank by virtue to the Debenture.
- That the Defendant/Applicant is being managed by the Receiver/Manager with a view to putting it on a ground commercial footing. Indeed several contracts are being carried on by the Defendant/ Applicant and a lot of recoveries are being made.
- That the assets of the Defendant/Applicant are in excess of its liabilities present, contingent and prospective.
- That the Receiver/Manager, and Mr. Abiodun Ajayi Accountant with the Defendant/Applicant gave me the information set out in paragraphs 2-10 above, and I verily believe them.
It is pertinent to observe that the motion is not seeking leave of the court to enable Mr. J. O. Munis, the Receiver/Manager to bring the application in the name of the Defendant/Appellant Company, the averment in the affidavit that he is the Agent having been regarded by Defendant/Appellant as sufficient. The crux of the application of Defendant/Appellant is that no action can be successfully brought against a company in Receivership.
After hearing arguments of counsel M. B. Belgore C.J. of the Federal High Court held that he had jurisdiction to hear the suit because the provisions of section 36(1) of the National Provident Fund Act makes contributions to the fund recoverable by action as a debt owing to the Federal Government, at any time within six years from the date when the contribution became due. The learned Chief Judge relied on Ansaldo Nigeria Limited v. NPF Management Board CA/L/207/85.
On the claim itself the learned judge referred to the affidavit of the Defendant/Appellant where liability has been admitted. He also observed that the Defendant/Appellant was not under liquidation, voluntary or compulsory and that the issue of claiming under the assets of the Defendant/Appellant Company had not arisen. After construing the provisions of section 92(1) and 297 of the Companies Act 1968, he held at p.21 of the record of proceedings, that
“The position of debts generally whether secured or unsecured, is not the same when a debenture receiver is appointed as when a liquidator or a receiver in liquidation is appointed. In the former case there is no laid down method of proving the debt as there is in a winding up case. Winding up procedure is laid down in the law and is widely publicised so that all and sundries can be aware of it.
There is provision for other creditors to put in notice so that their claim can be considered by a liquidator. All these procedures are not available to a creditor of a debenture debt why then should the creditor be denied the legal means of making his claim Such a denial cannot be in consonance with law or equity.”
The learned Judge then referred to the cases relied upon by counsel to the Defendant/Appellant and said that they were irrelevant to the issue. He held that “the issue of priority” may even be irrelevant as paragraph 11 of the Applicants’ affidavit states:
“That the assets of the Defendant/Applicant are in excess of its liabilities present, contingent and prospective”
He then went on to hold at page 22
“If the assets of the Applicant is that rosy, there is no reason why it should not be able to pay the plaintiff if the plaintiff were to be adjudged creditors, after the Defendant has settled with the debenture holder. I do (not) find this objection tenable and it is dismissed.”
The cases relied upon by Defendant/Applicant are Labaran v. Shonibare 13 NLR. 122 and N.P.F. v. Plisson Fisko (Nigeria) Ltd. FHC/IL/3/85. The Defendant/Applicant appealed to the Court of Appeal and filed nine grounds of appeal. He did not appeal against jurisdiction of the Federal High Court.
Counsel applied and was granted by the Court of Appeal an order for accelerated hearing and that the appeal be heard on the bundle of papers complied by the Appellant and the Court dispense with compliance of the rules governing compilation of record of appeal. The period statutorily prescribed for filing of briefs was accordingly reduced. In the Court of Appeal counsel to the parties were agreed on the issues for determination which was as follows-
“Does the appointment of a Receiver/Manager automatically freeze and extinguish the right of the Plaintiff/Respondent to sue for a statutory debt” In other words, does the Plaintiff/Respondent have locus standi to institute an action against the Appellants”
Concisely stated the argument of the Appellants’ counsel was that on the appointment of a Receivership over the assets of the Appellant company the right of unsecured creditors against it are frozen and no action will lie against the assets in the hands of the Receiver/Manager. It was submitted that any judgment given against the Appellant Company will remain Unenforceable.
It was submitted that once a Receiver was appointed existing unsecured creditors have little chance of recovery, and the Receiver ought not be disturbed by unsecured creditor’s litigation. Counsel relied on Akinbola v. Plisson Fisko Ltd. (1986) 4 N.W.L.R. 621.
Counsel to the Respondent submitted that the action made up of the outstanding-claim against the Appellant company as an employer, was brought within the provisions of the National Provident Fund Act 1961, and it is the arrears of contributions for the period between January 1981 and December, 1983. It was argued that the action was against the Appellant company without joining the Receiver. Appellant is a body corporate and a legal person different in law and fact from the Receiver/Manager who was not joined in the suit. He contended that no application was taken out to join the Receiver/Manager.
In dismissing the appeal the court held that although on appointment a Receiver/Manager is the person in charge of the company’s operations, yet the corporate personality of the company still subsisted. The directors are not by the appointment of a Receiver/Manager directed of their ordinary statutory duties. The court relied on Hawkesbury Development Co. Ltd. v. Landmark Finance Ply Ltd. (1969) 2 NSWLR. 732 for this proposition. The court then held,
“It is without any doubt that the Appellant could sue and be sued in their own corporate name even though a Receiver/Manager has been appointed to manage its assets.”
The court went on to hold like the court below it that
“…the Appellant’s objection on the ground that a Receiver/Manager has been appointed is premature because the debt has to be determined and adjudged owed by the court before the issue of priority, or whether or not the Respondent is a secured creditor could be raised.”
The Court of Appeal also agreed with the trial judge on his inference from paragraph II of the affidavit in support of the application, that since the assets of Appellant company were in excess of its liabilities present and contingent, there is no reason why the Appellant could not pay the Respondent if they are adjured creditors, after the settlement with the debenture holders. Still dissatisfied with this judgment Appellant has come before this court on six grounds of appeal not too different from the eight filed in the Court of Appeal. Counsel to the parties have filed their briefs of argument which they have relied upon before us. Each however sought and was granted leave to elaborate on his brief of argument. However, counsel to the Appellant having argued on earlier identical case attempted at this stage to bring a motion seeking leave of the court to allow the Receiver/Manager to signify his interest and authority for the action brought in the name of the Appellant. The application having been brought at this stage and capable of entirely changing the character of the action was not allowed. We thereafter relied on the briefs of argument filed by counsel.
It is interesting to observe that both counsel have formulated the issue for determination in competing prolixity. The issues formulated by counsel to the Appellants are in page 4 of his brief of argument as follows-
Issues for Determination
“The following issues are presented for determination in this appeal:
2.1 Whether or not the Respondent has locus standi to institute the action against the Appellant as constituted in receivership, for NPF contributions due over one year before the Appellant entered into a receivership
2.2 Whether if the replication to issue 2.1 above is in the affirmative, it is not all the same correct that an unsecured or non-preferential creditor should be debarred from making a claim against a company in total receivership, as, if successful, the same will be unenforceable
2.3 Whether or not, if the answer to issue 2.2 above is in the negative, the motion to strike out that action was premature
2.4 Whether or not …..contribution is within the scope of receivership pursuant to a floating charge
2.5 Whether or not, where a receiver is appointed pursuant to a floating charge over all the assets of a company,
2.5.1 the directors of the Company are paralysed with respect to the management of the company and assets comprised in the charge,
2.5.2 the directors of the company can sue and be sued in the name, and on behalf, of the company,
2.5.3 the receivership is a means of defeating statutory debts owed, or
2.5.4 the Company can be sued ex contractu
2.6 Whether or not the action is an abuse of process frivolous, vexatious, scandalous and embarrassing
On the other hand counsel to the Respondents at pages 3-5 of his briefs of argument stated as follows –
Questions For Determination
“The Respondent respectfully submits that the questions for determination in this appeal are as follows:
(a) Should the issue of whether or not the Plaintiff/Respondent is a secured creditor arise, at the state it did, at the Federal High Court, when the said court had not the sum being claimed by the Plaintiff/Respondent is owed by the Appellant, and moreso, when the Appellant did not admit liability to the debt, and where there is no other way the Plaintiff/Respondent can establish the said debt except by the court’s decision
(b) Does the appointment of a Receiver/Manager out of Court, automatically freeze and extinguish the right of the Plaintiff/Respondent to sue for a statutory debt
(c) Should the issue of priority of other debts over the Respondent’s claim, be canvassed at that stage when the Respondent’s suit (as per the particulars of claim) had nothing to do with the priority, more so when the sum owed had not been ascertained and adjudged to be owed by the Court
(d) Should the Plaintiff/Respondent be prevented or precluded from promptly exercising its legal right to obtain redress in the court, by the mere fact that a Limited Liability Company – a Corporate entity is under receivership, more especially when further delay in instituting legal action would make its claim statute barred in accordance with Section 36 of the NPF Act 1961
(e) Does the Appellant in this Appeal- the Receiver, have any locus standi in this matter, when the action was filed against a separate and distinct corporate entity totally different in Law from the Receiver, and more especially when the Receiver did not, first of all, apply to be joined in the suit as a second Defendant, and was never joined in the suit
(f) Was there anything in the Plaintiff’s suit that is “frivolous, embarrassing, scandalous, speculative, unnecessary, vexatious and abuse of process of the Court”‘
It is common ground that Defendant/Appellant had only entered appearance to the suit. He has not joined issues in respect of the claim to necessitate a discussion of the substantive issues which will involve findings of facts. Hence, the only issue properly arising for determination is whether by the appointment of a Receiver/Manager by a debenture holder over the assets of the Appellant company, no action will lie against the company for claims in respect of debts owed by the company.
It is neither desirable, nor permissible in the determination of a matter for tile court to take into consideration issues neither relevant nor necessary for its decision. Indeed in Ochonma v. Unosi (1965) N.M.L.R. 321, this court has clearly stated that it is wrong to base judgment on such matters. Since all that has happened in this case is the issue and service of writ of summons and entry of appearance to protest the jurisdiction of the court and locus standi of the Plaintiff/Respondent, I do not consider it permissible to go beyond a consideration of these issues.
As there is no appeal against the jurisdiction of the trial Court, it is not here necessary for consideration. I shall therefore confine this judgment to the issue whether Plaintiff/ Respondent can bring an action against the Defendant/Appellant company in respect of which there has been a receivership over its assets.
I have already set out above the position of both counsel on the issue. There seems to be a misconception on both sides due to a misunderstanding of the law relating to the effect of the appointment by a debenture holder of a Receiver/Manager out of court.
A debenture consists of a debt owed by the Company to another secured by a deed which prescribes the condition of the realization of the debt. A debenture may be created over the fixed or floating assets of the Company. When it is created over the floating assets, the company is entitled to continue to use the assets in the ordinary course of its business, until the conditions prescribed for its realization occurs. When it thus occurs and the debenture holder, usually the creditor, enforces his security by the appointment of a Receiver or Receiver/Manager under his powers in the Debenture deed, the assets formerly available to the Company ceases to be so, and now becomes fixed, and is crystallised, and remains under the general control of “the Receiver/Manager – see Robson v. Smith (1985) 2 Ch. 118; Re Crompton & Co. Ltd. (1914) 1 Ch. 954.
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. – See Central London Electricity Ltd. v Berners & Ors. (1945) 1 K.B.D. 160. It is important to appreciate the fact that the company neither loses its legal personality nor its title to the goods in the receivership. See Moss Steamship Co. Ltd v. Whinney (1912) AC at p. 263 per Atkinson L.J. See Newhart Developments vs. Co-op Commercial Bank (1978) 2 All E.R. 901.
It’s right to deal with the goods are merely suspended during the receivership. – See Moss Steamship Co. Ltd. v. Whinney (supra). 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.
Thus in Robinson Printing Co. Ltd. v. Chic Ltd. (1905) 2 Ch. 123, the Privy Council held that a receiver as agent of the Company could be sued. The important fact to be borne in mind is that although the Receiver/Manager has no title to the assets in the receivership which still vests in the company, it is only the Receiver/Manager who can bring action or be sued in respect of the assets, being agent of the company. The company cannot bring the action.
The Receiver/Manager can only bring the action in the name of the company. The statement of principle relied by counsel for the Appellant and found in Kerr-On Receivers 14th Ed. (1972) p.301 is too wide and clearly inconsistent with judicial authorities. As I have said, the directors are free to deal with the assets of the Company not in receivership.
Their powers to deal with the assets under receivership are in abeyance. I shall now apply these principles to the facts of the appeal in the light of arguments of counsel. The contention of counsel for the Appellants that Plaintiff/Respondent cannot bring action against the Defendant company for any claim whatsoever is predicated on the assumption that on the appointment of a Receiver/Manager, all rights of action by any person against the company whether or not related to the assets in the receivership become frozen against all the assets of the company. This as I have pointed out is not the law and has never been.
As I have stated already, only assets included in the charge are affected by the Receivership. The passage in Kerr-On Receivers – relied upon has been too widely stated. In the instant case and on general principle although the directors cannot deal with the assets in the receivership they are not functus officio for all purposes. They are still entitled to exercise their normal functions in other cases not included in the charge.
There is nothing in the instant appeal to show that the contributions of Defendants/Appellants’ employees and deductions by the Appellant/Defendant to National Provident Fund, under the National Provident Fund Act 1961, is one of the assets over which there is a receivership thereby rendering it legally impossible by virtue of the receivership, for the company or its directors to deal with.
The company still retains its legal personality and can be sued in its own name in respect of actions which properly lie, See Newhart Ltd. v. Co-op Commercial Bank (supra) – See Njemanze v Shell BP Port Harcourt (1966) All N.L.R. 8. The action in this case was brought by virtue of S.36(1) of the National Provident Fund Act 1961 which provides:-
“Notwithstanding any other provisions of this Act, a contribution to the Fund may be recoverable by action as debt owing to the Federal Government, at any time within six years from the date when the contribution became due.”
The claim is not against any assets of the company in receivership. The directors can legally and properly deal with it and action can still lie against the company in respect thereof. – See Porsons & Ors. v. The Sovereign Bank of Canada (1913) AC. 160.The facts are that Appellants are paper merchants. The Respondents are bankers. The Imperial Paper Mills which carried on the business of paper manufacture had business contracts with the Appellants prior to Oct. 27,1906. In a debenture holder’s action a Receiver/Manager was appointed by the court, but business relations continued with the Appellants. On September 14,1906 the Paper Mill had made an agreement with its creditors including the Respondents to advance it some money on the terms that the accounts for goods sold should be hypothecated. A Receiver/Manager was appointed in October 27 with liberty to continue the business. Appellants continued in business with the Receiver/Manager who subsequently cancelled the contracts. They were held liable in an action brought by the Respondents. It was held
“In the case of contracts to deliver paper such as existed in the present case, there appears to be no reason for saying that the possession of the undertaking and the assets given by the order of the Court for the express purpose of carrying on the business, put an end to the contracts. The company remained in legal existence, so did its contracts, until put an end to otherwise.”
– See (1913) AC. 160 at p.171.
I think it is somewhat naive to suggest that action cannot be brought against the company in receivership for claims arising from Torts. The Court of Appeal has stated the law correctly. Counsel to the Respondents has contended rightly that action lies against the Defendant/Appellant company in its corporate capacity since it can only be sued by that name. However, the approach to the action is misconceived and wrong. The law is that generally the Receiver/Manager will bring the action in the name of the company and will seek leave of the court to do so. In certain circumstances he may bring the action in his own name. In M. Wheeler and Company Ltd. v. Warren (1928) Ch. 840, the Debenture deed provided for the Receiver/Manager to get in the property charged by the debenture. When there was a default in the terms of the debenture, the debenture holder appointed a receiver. The receiver issued a writ in the name of the company. A preliminary objection was taken by the Defendant seeking to set aside the writ on the ground that the receiver had no power to commence an action in the name of the company. Lord Hornworth M.R. after referring to the words of clause 6, sub-clause 1, similar to clause 1 in this case, and observing that it is not expressly stated that the receiver is to have power to use the company’s name for the purpose of bringing proceedings, stated that it is provided that the receiver
“shall be the agent of the company and shall have power….to take possession of and get in the property hereby charged” at p.844 construed this to mean and I entirely agree,
“… that as the getting in of the property charged is to be done by the receiver and the property is vested in the company, he must have power to get in the property in the only way possible – namely, by bringing action in the name of the company. The fact that he was made the agent of the company and given power to get in the property charged, is in my opinion sufficient to give him power to take the only effective steps in the name of the company.” p.844.
Since the Defendant/Appellant can bring action in the name of the company, it is not the law that he should be joined. It is action in the name of the company. See Atkins Court Forms (Second Edition) Vol.33 1981 issue; Forms 40, 41, 42, 43, at pages 221-222 and second Edition Annual Supplement, 1979, Form 38A. at p.336. Generally if in the opinion of the court the bringing of action by the Receiver/Manager is the best way of disposing of the issue leave will be granted, – L.P. Arthur (Insurance) Ltd. v. Sisson (1966) 2 All E.R. 1003.
In Viola v. Anglo-American Cold Storage Company (1912) 2 Ch. 305, Swinfen Eady J, gave what is acceptable as the reason why leave of the Court is necessary for a receiver to institute or defend actions whether the appointment of Receiver/Manager is by court or under a debenture-holder’s deed. He said at pp.310-311. “It is however, well settled that in a mortgagee’s action where a receiver and manager has been appointed it is for the court to determine whether proceedings shall be taken at the expense of the mortgaged property. The receiver cannot do this of his own initiative, but would run the risk of his cost being disallowed if he did not obtain the direction of the Court (see Bristowe v. Needham (1847) 2 Ph.190 and Wynn v. Lord Newborough
(1790) 3 Bro. C.C. 88, and neither mortgagor nor mortgagee has any absolute right to insist upon an action being brought or to prohibit it being brought by the receiver at the expense of the mortgaged property. The appointment of a receiver is a matter of discretion to be governed by the circumstances of the case; see Lord Truro’s judgment in Owen v. Homan (1851) 3 Mac & G, 378, 412. It is made in the first place for the protection of the estate and for the benefit of all concerned, and in sanctioning the receiver taking proceedings the court has regard to what it considers right and proper in the interest of all parties.”
Hence where, as in this case, the Defendant! Appellant Receiver/Manager has brought action without complying with the rules of practice he has not shown the capacity in which he has brought the action and the court will be right in ignoring the fact that action was brought as Receiver/Manager in the name of the Company. The application could have been dismissed on this ground. I wish to add that actions by receiver which is commonly referred to as equitable execution is indeed equitable relief, and this is because of the hindrance in the way of execution at law. See In re Sheppard Atkins v. Sheppard (1889) 43 Ch.D. 135 Ex parte Evans. In re Watkins (1879) 13 Ch.D. 252 at pp.257-258. As was said by Cotton L. J. in In re Sheppard at pp.135-136, what the Receiver gets by his appointment “is not execution, hut equitable relief which is granted on the ground that there is no remedy by execution at law, it is a taking out of the way a hindrance prevents execution at law…..The obtaining of a receivership order is not taking out execution, it is obtaining equitable relief by a subsequent order, which must be made against someone against whom the court has jurisdiction to make an order. ” It is the ordinary rule that equitable relief can only be granted when the proper parties are before the Court. It is obvious from the facts of the case before us that the Receiver/Manager having not sought leave to defend the action in the name of the Company, the proper parties are not before the Court – See Re Botibol (1947) 1 All E.R. 26.
The Plaintiff/Respondent has the locus standi to bring the action claiming National Provident Fund deductions from the Defendant! Appellants not being any item of the assets included in the debenture deed.
I have already stated that this judgment is confined to the crucial issue of the locus standi of the Plaintiff for the determination of this appeal. All the other grounds not being relevant are not discussed. For the reasons I have given the appeal fails and is dismissed.A. NNAMANI, J.S.C.: I had a preview of the judgment just delivered by my learned brother, Karibi- Whyte, J.S.C, and I agree with his reasoning and conclusions.
This appears to be the opposite of the earlier appeal in SC.93/1987 just delivered. In this case, it was the Plaintiff/Appellant, as it was entitled to do under the National Provident Fund Act, 1961, that sued for N156,792.11 being outstanding contributions due from the Defendant/Appellant as an employer. The Defendant/Appellant filed a notice of preliminary objection in which it urged the Federal High Court to strike out the claim on the grounds that the claim was vexatious, scandalous, embarrassing etc. the Defendant/Appellant company being in Receivership.
Again the issue of priority of equities was discussed by Appellant at length. With respect, it was premature for there had not even been a trial let alone a judgment before that issue can arise. In the Defendant/Appellants affidavit, the fact of the appointment of the Receiver/Manager was deposed to. It was contended therefore for the Appellant that a Receiver/Manager having been appointed, the Appellant company cannot be sued by an unsecured creditor. It was also contended that even if the claim was successful, it cannot be enforced, since it was claimed a court does not give judgment which it cannot enforce.
It is pertinent to mention again that on the face of the application it was clearly brought by the Defendant/Appellant. It is also clear that there was no application by the Receiver/Manager for leave to bring the application. It was mentioned in the earlier suit that the Receiver/Manager does not by his appointment acquire a right of action. He can maintain an action as agent of the company in the company’s name. It was to correct this situation that learned counsel, Mr. Ajayi, brought an application to this Court “for leave of the Court to allow the Receiver/Manager to signify his interest and authority for the Suit to be brought in the name of the Appellant.” The application was refused by this Court.
The more important matter, however, is that the Receiver/Manager having not filed the action, the matter was between the Defendant/Appellant company and the Plaintiff/Respondent. Is it the law that once the company is in receivership it cannot be sued
Belgore, C.J. dismissed the application. Supporting this Ruling Uthman Mohammed, J.C.A. who read the lead judgment of the Court of Appeal held,
“Although in respects to the outside world the receiver is the sole person in charge of the company’s operations, nevertheless the corporate structure of the company still subsists. The directors are not thereby relieved of their normal statutory duties Hawkesbury Development Co. Ltd v. Landmark Finance Co. Ltd. (1969) 2 N.S.W.L.R. 787. It is without any doubt that the Appellant could sue and be sued in their own corporate names even though a Receiver/Manager has been appointed to manage its assets.”
The learned Justice of Appeal also rightly held that the question of priorities of equities, or whether the Plaintiff/Respondent was a secured creditor or not was premature. In his own contribution, Nnaemeka-Agu, J.C.A. (as he then was) even put the matter bluntly. He said inter alia as follows:-
“If the contentions of the Appellant were correct, it means that the incidence of receivership is being used to defeat a statutory debt which preceded the receivership. The Court ought not (to) allow the appointment of a receiver to be thus converted into a machinery for the evasion of the payment of a just debt.
Secondly it appears to me that the Appellant has an entirely erroneous idea about the result of appointment of a receiver by a debenture holder, outside the Court. His whole argument is predicated on the assumption that once a receiver is appointed no matter the terms of his appointment, all the machinery of the company is taken over by the receiver for all purposes.
This appears to me to be an overstatement. The true position appears to be that those assets of the company which were charged under the trust deed as a floating charge crystallise into a fixed charge (See Re Erompton and Co. Ltd. (1914) 1 CH.954; Kasofsky v Kretegars (1937) 4 All E. R. 374.) Those assets and Liabilities such as the subject matter of the instant suit, which were never part of the floating charge remain completely unaffected, and the company can be sued or sue for them inspite of the receivership.”
(Italics mine)
This seems to me to state the law on this issue. Perhaps I should just say that at least there was nothing in the Suit to show that the contributions, the subject of the suit, formed part of the floating charge.
The persistent submission of Mr. Ajayi to the contrary was all the more surprising as on the submissions he made to the Court in Sc. 93/1987, he conceded that the powers of the Appellant company and the Board of Directors are paralysed on the appointment of a receiver only in respect of the property charged. It is well settled that the appointment of a receiver does not annihilate the company.
The Receiver takes possession and control of the property charged and the powers of the directors are in abeyance as regards them. The Company, however, retains its corporate personality and can act in respect of property not so charged. See Steamship Coy v Whinney (1912) A.C. 254,263.
The suit against the Defendant/Appellant was proper. In the result I too would, and do, dismiss this appeal. I abide by the order for costs in the lead judgment.
SC.94/1987
