Winding up of company refers to the legal process of closing a company permanently. It is a procedure by which the company ceases to exist 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. Eventually dissolution occurs, where the Registrar of Companies dissolves the company and strikes the name off the register. Consequently, the company ceased to exist.
Pursuant to Section 245 of the Companies Act, 1994 (“the Companies Act”), a petition for winding up may be submitted jointly or severally by a creditor, company or contributory. As per Section 235 of the Companies Act every present and former member of the company is bound to contribute an amount sufficient to cover the company’s debts, liabilities, charges, and liquidation expenses in case of winding up of the company.
The term “contributory” is defined in section 237 to mean that every person liable to contribute to the assets of a company in the event of a winding up. However, if the former member has not been a member for more than one year after the commencement of the termination or has not remained a member for any contractual business obligation, or if the current member is not a member making the required contribution, the former member shall be relieved of the obligation to make such contribution.
However, in the case of a limited company, no member (present or past) shall be liable to pay any excess of unpaid sums on the shares for which he is liable. In case of dissolution of a limited company, the liability of the directors (present or past) is unlimited.
According to Sections 239 and 240 of the Companies Act, on the death of a contributory, their representatives and heirs are liable to contribute to the assets of the company. On the other hand, in case of bankruptcy, the assignee shall act in the capacity of contributory and the cost of any payment made in the form of such contribution shall be borne by the estate of the bankrupt.
Procedure for winding up a company
Liquidation proceedings are initiated by filing a petition under the Companies Act, after which the court appoints a liquidator. Also, the winding up order has to be filed with the Registrar of Joint Stock Companies and Firms. There are several reasons for winding up a company- Case of Rohimuddin Ahmed Vs. Bengal Water Ways Ltd., (1979) 31 DLR 28 stated some of the grounds justifying the winding up of a company under Section 162 of the Companies Act, 1913 (corresponding to Section 241 of the Companies Act, 1994).
In this case, three grounds were laid down for winding up a company- firstly if there is default in filing a statutory report, secondly if the statutory meeting is held, thirdly if the company is unable to pay its debts or the court is of the opinion that it is just and equitable that the company Should be wound up.
Apart from this, Section 241 mentions other grounds for winding up, which are not mentioned in the case, if the company decides by special resolution that the company will be wound up by the court, if the company does not resume its business within one year. from its resources, 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 methods of winding up a company in Bangladesh which can be:
Subject to court supervision.
Filing a winding up petition in Bangladesh
According to Section 245 of the Companies Act, a winding-up petition may be submitted by a creditor, company or contributory jointly or severally or by the Registrar. Section 235 of the Companies Act states that in case of winding up of a company, each of the present and previous owners of the entity shall pay sufficient sums to pay off the company’s debts, obligations, fees and liquidation expenses.
According to Article 237, the word contribution implies that every person is bound to contribute his assets in case of dissolution of the company. For example, in the case of Prime Finance and Investments Ltd. v. Delwar H. Khan 15 BLC (AD) 170, the High Court Division was very aware of the extensive facts of the huge debt liability of the company and was of the view that the same should be stayed accordingly when the Court granted the winding up petition of the company. and appointed the Official Receiver as liquidator and made other incidental orders.
Process of liquidation or winding up in Bangladesh
Step 1: Filing the Petition in Court
For the court to wind up a company, a petition must be filed in the Company Court in the High Court Division of the Supreme Court of Bangladesh. It should be emphasized that the court can wind up a company, and that process will be deemed to commence when the winding up petition is presented. After hearing the application, the court will issue an order for winding up the company.
Step 2: Notification to Registrar
Within 30 (thirty) days from the date of request, the applicant and the company shall file a copy of the winding-up order with the Registrar. After submitting a copy of the winding-up order, the Registrar shall record a summary in his company-related books. The Official Gazette is then notified by the Registrar that such an order has been made. Such order shall be deemed to be a notice of discharge to the employees of the Company, except in cases where the Company continues to operate.
Step 3: Appointment of liquidator
The official liquidator will then be appointed by the court and the liquidator will perform his duties in accordance with the Companies Act. In case of winding up by court order all the assets and effects of the company shall be deemed to be in the custody of the court from the date of order of winding up of the company.
Step Four: Information is recorded with RJSC
The court shall issue an order winding up a company with effect from the date of the order when all affairs of the company have been completely wound up. Within 15 (fifteen) days of the order, the Official Liquidator must notify the Registrar of the order. A minute of dissolution of the company must be entered by the registrar in his books.
Voluntary liquidation or winding up of a company in Bangladesh
A company may be wound up voluntarily:
When the period specified in the articles of incorporation for the term of the company has expired or an event has occurred for which the articles provide that the company shall be dissolved, and the general meeting has passed a resolution to wind up the company voluntarily. If the company resolves by special resolution that the company will be wound up voluntarily;
If the company resolves by extraordinary resolution that it cannot continue because of its liabilities;
It should be emphasized that when the resolution for voluntary winding up is passed, the process of voluntary winding up is deemed to have commenced.
Closure subject to court supervision in Bangladesh
When a company decides to go into voluntary liquidation by way of a special or extraordinary resolution, the court may order that the voluntary liquidation shall proceed but under its supervision and on such terms as it thinks fit.
However, if the requirements of Section 241 of the Companies Act are met, the petitioner will not be debarred from doing so because other equally effective remedies are available to them, as in Amir Hussain Vs. Homeland Footwear Ltd. et al., 55 DLR 478.
It is important to note that when a winding-up order is passed at the discretion of the court, no suit or legal proceeding shall be instituted without the permission of the court in terms of section 250 of the Companies Act.
Section 242 of the Companies Act deals with whether a company is unable to pay its debts. This will be if the company owes a debt to a creditor and fails to pay the debt for three weeks, if any execution or other proceeding issued pursuant to a court order or decree in favor of the company’s creditor is returned in full dissatisfaction. or in part, or if it is shown convincingly to the court that the company is unable to pay its debts and the court has to accept their accounts.
Sections 316-321 of the Companies Act deal with judicial oversight. The court may issue an order requiring voluntary winding up but subject to scrutiny from the court and any conditions the court deems necessary when a company agrees to voluntary winding up by way of unique or exceptional measures. The liquidator can exercise all powers, subject to any restrictions imposed by the court, as if the company were to be voluntarily wound up entirely if a supervisory winding-up order is made.
In conclusion, it is important to mention that in Bangladesh, there is a frequent misunderstanding about the process of closing a company and non-payment of mortgage loans. S.S. in the matter of Bangladesh Shilpa Bank v. M/s. Mujibullah (1977) 29 DLR 67, all property and assets of the mortgagee company were assigned and mortgaged to the bank, so there was no reason to say section 162 of the Companies Act. Also, it was decided that an organization violating the state policy should not be closed down because it was temporarily unable to pay its debts.