03 Dec Republic V. High Court, Wa Exparte Liquidator DKM Diamond Microfinance Ltd. & ORS. [Unreported Judgment] Civil Motion No. J5/52/2020 Delivered On 25 November, 2020.
“What it means in simple language is that upon commencement of a winding up, only secured creditors are allowed as of right to sue or continue with pending civil proceedings for the realization of their security. Any other person who has a cause of action against a company being wound up cannot sue as of right but may do so only with the prior leave of the High Court.”
The Bank of Ghana revoked the licence of DKM Diamond Microfinance Ltd (the “Company”), and the Applicant was appointed as official liquidator of the Company under the Bodies Corporate (Official Liquidation) Act, 1963 (Act 180)
Subsequently, the Applicant issued a publication in the national newspapers, inviting the interested parties to the suit to submit their proof of debts owed them by the Company. The interested parties who were dissatisfied applied to the High Court pursuant to section 93 of the new Corporate Restructuring and Insolvency Act, 2020 (Act 1015) (“CIRA”)[1] for permission to bring an action against the Applicant. The Court granted leave to sue.
The Applicant applied to the Supreme Court for an order to quash the decision of the High Court to grant leave to sue, alleging that the Court committed an error of law and did not have the jurisdiction to grant leave to sue. The Applicant further claimed that the interested parties were unsecured creditors and as such on a true and proper interpretation of Section 93 of the CIRA, they had no right to commence an action.
Section 93 of the CIRA provides as follows:
“A person shall not on the commencement of a winding up proceed with or commence an action or civil proceedings against the company other than proceedings by a secured creditor for the realization of the security of that secured creditor except:
- By leave of the Court and
- Subject to the terms that the Court may impose.’’
In interpreting the provision, the Supreme Court referred to an earlier decided case in which it interpreted section 17 of Act 180, now section 93 of CIRA. The Supreme Court held in both instances that when a company is wound up, only secured creditors may initiate or continue pending civil actions for the realization of their security, without leave of the Court. Any other person who has a cause of action against a company being wound up requires leave of the Court. The interested parties were therefore within their rights to apply for leave to commence an action against the Applicant. The Supreme Court also ruled that High Court acted lawfully in granting leave to sue.
The application was therefore dismissed.
Insight: When a company is wound up, only secured creditors can sue or continue pending civil actions for the realization of their security, as of right. Any other person, including an unsecured creditor, who has a cause of action requires the permission of the Court.
[1] CIRA repealed the Bodies Corporate (Official Liquidation) Act, 1963 (Act 180)