Winding up of the Company is referred to as the legal mechanism of permanently shutting down a company. It is a procedure by which the Company ends its existence as a separate legal entity after filing for dissolution under the supervision of a liquidator. During this critical period of the Company’s existence, the Liquidator oversees and manages its assets to ensure that the interests of the stakeholders are not compromised. Dissolution eventually takes place, wherein the Registrar of Companies dissolves the Company and strikes the name from the register. As a result, the Company’s existence ends.
According to Section 245 of the Companies Act of 1994 (“Companies Act”), a petition for winding up may be submitted by a creditor, the company, or contributory, either together or separately. Each current and former member of the company shall be obligated to contribute to an amount adequate to cover the company’s debts, liabilities, charges, and liquidation expenditures in the case of the company’s winding up, according to Section 235 of the Companies Act.
The term “contributory” is defined in Section 237 to signify that everyone is obligated to contribute to a company’s assets in the case of a winding-up. However, if the former member has not been a member for more than a year prior to the start of the winding up or for any obligations of the contractual business since he has not been a member, or if the current members are unable to make the required contribution, the former member shall be exempt from the duty of making such contribution. However, in the event of a limited company, no member (present or past) shall be obliged to contribute the sum in excess of any unpaid on the shares for which he is accountable. In the event of a limited company’s dissolution, directors’ liability (present or past) is unlimited.
As per Sections 239 and 240 of the Companies Act, in the event of death of a contributor, their representatives and heirs are responsible for making a contribution to the company’s assets. On the other hand, in the event of insolvency, the assignee shall act in the capacity of the contributor, and the expense of any payment made in the form of such contribution shall be borne by the estate of the insolvent.
Procedure for Winding up of a Company
The liquidation process starts with filing a petition under the Company Act, after which the court fixes a liquidator. Also, the order of winding up has to be filed in the Registrar of the Joint Stock Companies and Firms. There are several grounds for winding up a company- the case of Rohimuddin Ahmed Vs. Bengal Water Ways Ltd., (1979) 31 DLR 28 states some grounds which justify the dissolution of the company under Section 162 of the Companies Act, 1913 (corresponding to sec 241 of the Companies Act, 1994). In this case, three grounds were established for winding up a company- firstly if the default is made in filing a statutory report, secondly in holding statutory meetings, thirdly if the company is unable to pay its debt or if the Court is of opinion that it is just and equitable that the company should be wound up. Further to this, Section 241 mentions other grounds for winding up, that were not mentioned in the case i.e. if the company has by special resolution resolved that the company be wound up by the Court, if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year; or if the number of members is reduced, in the case of a private company below two, or, in the case of any other company, below seven.
Under Section 234 of the Companies Act, there are three modes of winding up a company in Bangladesh which may be either:
- by the court or
- voluntarily or
- subject to the supervision of the court.
- Filing a Winding up Petition in Bangladesh
According to section 245 of the Companies Act, a creditor, the company, or a contributory may submit a winding-up petition jointly or separately or by the Registrar. Section 235 of the Companies Act states that in the event of a company’s winding up, each of the entity’s current and previous owners will be required to contribute money sufficient to pay the company’s debts, obligations, fees, and liquidation expenditures. According to Section 237, the term contributing signifies that every person is obligated to contribute to a company’s assets in the event of its dissolution. For example, in the case of Prime Finance and Investment Ltd vs Delwar H Khan 15 BLC (AD) 170, the High Court Division was very much conscious of the broad fact of huge loan liabilities of the Company and was on the view that the same has to be put at halt accordingly the court allowed the application for winding up of the Company and appointed official receiver as the liquidator and passed other incidental orders.
Process of Liquidation or Winding up in Bangladesh
Step 1: Filing Petition to Court
A petition must be filed with the company court in the High Court Division of the Supreme Court of Bangladesh in order for a court to wind up a company. It should be emphasised that the court may wind up a company, and that process will be deemed to start when the petition for winding up is presented. The court will issue an order for the company’s liquidation after hearing the application.
Step 2: Notification to Registrar
Within 30 (thirty) days following the request date, the petitioner and the company are required to file a copy of the winding-up order with the Registrar. Upon submitting a copy of a winding-up order, the Registrar is required to record a summary in his company-related books. The official Gazette is then informed by the registrar that such an order has been made. Except in cases where the company’s operations are continuing, such an order shall be deemed a notice of discharge to the employees of the company.
Step 3: Appointment of Liquidator
The official liquidator will then be appointed by the court and the liquidator shall conduct their duties in accordance with the Companies Act. All of the company’s assets and effects in the event of a court-ordered winding up shall be deemed to be in the custody of the Court from the date of the order for the winding up of the company.
Step four: Information recorded with RJSC
The Court shall issue an order dissolving a company effective from the date of the order when all of the company’s affairs have been fully wound up. Within 15 (fifteen) days of the order, the official liquidator must notify the order to the registrar. A minute of the company’s dissolution must be entered by the registrar in his books.
- Voluntary Liquidation or a winding up a company in Bangladesh
A company may wind up voluntarily:
- When the period, if any, specified in the articles of incorporation for the duration of the company expires or an event occurs for which the articles provide that the company is to be dissolved, and the company in general meeting has passed a resolution for winding up voluntarily;
- if the company resolves by special resolution that the company be wound up voluntarily;
- if the company resolves by extraordinary resolution that it cannot continue due to its liabilities;
It should be emphasised that when the resolution for voluntary winding up is passed, the voluntary winding up process is assumed to have started.
- Winding up subject to Supervision of Court in Bangladesh
When a company has decided to dissolve voluntarily through a special or extraordinary resolution, the court may order that the voluntary liquidation proceed but under its supervision and on the terms it deems appropriate.
However, if the requirements of Section 241 of the Companies Act are met, then the petitioner shall not be disallowed from doing so just because other equally effective remedies are available to them, as held in the case of Amir Hossain Vs. Homeland Footwear Ltd and others, 55 DLR 478.
It is important to note that when an order of winding up is made at the discretion of the court, no suit or legal proceeding shall be pursued without the court’s permission as per Section 250 of the Company Act.
Section 242 of the Companies Act considers whether a company is determined to be unable to pay its debts. This will be the case if the company owes a debt to a creditor and fails to pay the debt for three weeks, if an execution or other proceeding issued in accordance with a court order or decree in favour of a company creditor is returned unsatisfied in whole or in part, or if it is convincingly shown to the court that the company is unable to pay its debts and the court is required to take account of them.
Section 316-321 of the Companies Act deals with judiciary supervision. The court may issue an order requiring the voluntary winding up to take place but be subject to scrutiny from the court and any conditions the court deems necessary in cases when a company has agreed to dissolve voluntarily through unique or exceptional measures. The liquidator may exercise all the powers, subject to any restrictions given by the court, as if the company were being wound up voluntarily entirely when an order for winding up is made subject to supervision.
Conclusion
In conclusion, it is important to mention that in Bangladesh, there is a frequent misunderstanding regarding the process for winding up a company and non-payment of mortgage debt. In the matter of Bangladesh Shilpa Bank v. M/s. S.S. Mujibullah (1977) 29 DLR 67, all of the mortgagor firms’ assets and properties had been assigned and mortgaged to the Bank, therefore there was no reason to invoke section 162 of the Companies Act. In addition, it was decided that a company that defied state policy should not be shut down because it was temporarily unable to pay its debt.
Written and compiled by the Administrative & Public Law team at Mahbub & Company
