Liquidation or Winding up is the process of dissolving a company. The term used here is Company but not Businesses, because sole proprietorships or partnership business do not follow the similar term or procedure like liquidation or wind up in Bangladesh. Therefore, in order to proceed with the liquidation procedure one must need to have or had an operational company, duly incorporated/registered under the laws of Bangladesh.
Liquidation of a company in Bangladesh is a company dissolution mechanism by which a company brings an ending to its existence, the process is also called Winding Up of the company in Bangladesh. Company winding up mechanism is the way by which a company cease to exist. This mechanism converts the assets of a company into cash. In other words, this process creates a monetary funds through which a company pay its debts, outstanding bills, and divides the remainder and distributes among shareholders, company members, partners, or any other investors. A receiver may be appointed to monitor such a distribution process of assets (known as “Liquidator”). Winding up a business is a legal process regulated by company laws of Bangladesh as well as a company’s MoA (Memorandum of Association), AoA (Articles of association) or Partnership Agreement (if any).
Formation of winding up
Liquidation can categorize into forms: voluntary liquidation and involuntary liquidation. In Bangladesh, there are three ways by which winding up takes place. A company may be wound up either:
- Compulsory Winding Up by the Court.
- Voluntary Winding Up by the members themselves or by the creditors
- Voluntary Winding Up under the supervision of the Court.
Who can file the petition of winding up in Bangladesh?
A winding-up petition can be filed jointly or separately by a creditor, the business or the company (i.e., shareholders) or lender under section 245 of the Companies Act 1994. In the event of a company winding up, section 235 of the Companies Act notes that each of the company’s current and former owners will be liable to contribute to an amount adequate to cover the company’s debts, liabilities, costs and liquidation expenses. Section 237 describes the term contributory; it means that in case of wound up each individual is liable to contribute to the assets of a corporation. (For Liquidation or Winding up a company in Bangladesh)
Hence to summarize,
- A petition for winding up can be filed by:
- Creditor or,
- the Company (i.e., shareholders) or
- Contributory (who contributes to a companies’ assets in paying the debts and costs of the company), together or separately.
Winding up a Company by the court in Bangladesh
Winding Up of a company by court may be done in certain circumstances which are:
- if the company through the special resolution decided that it must be winded up by the court; or
- if default is made in filling the statutory report or in holding the statutory meeting; or
- if the number of members reduced below the required number as per the Company Law; or
- the company is incapable of paying its debts; or
- if the court is of opinion that it is just and equitable to wind up the company.
- Power of court
- List of contributories
- Adjustment of the rights of the contributories
- Delivery to the liquidator: money. property or books and papers in the custody or control of any Contributory, Trustee, Receiver, Banker, Agents, Officer or Employee of the Company, to which the Company is prima facie entitled.
- Payment of calls
- Proof of the claims
- Giving Priority
- Summon for questioning
- Public Examination: any officer of the Company is guilty of fraud, the Court may direct his public examination
- Arrest of a contributory.
- PROCEDURE FOR Compulsory WINDING UP:
The process of winding up by court has been discussed very briefly in order to give an idea of the process.
Step one: Filing Petition to Court
In order to wind up a company by the court, a petition has to be filled the company court of High Court Division of Supreme Court. It is to be noted that, according to section 247 of the 1994 Act, a winding up of a company by the court shall be deemed to commence at the time of the presentation of the petition for the winding up. Upon hearing the application, the court will pass an order for winding up of the company.
Step two: Notification to registrar
On the making of a winding up order, it is the duty of the petitioner and of the company to file with the Registrar a copy of the order within 30 (thirty) days from the date of the order. On the filing of a copy of a winding up order, the Registrar shall register a summary in his books relating to the company. Thereafter, the registrar will notify the official Gazette that such an order has been made. Such order shall be deemed to be notice of discharge to the servants of the company except when the business of the company is continued.
Step three: Appointment of Liquidator
The court will then appoint an official liquidator and the liquidator will perform its duties as per the Companies Act 1994. In case of winding up by the court, all the property and effects of the company shall be deemed to be in the custody of the Court as from the date of the order for the winding up of the company.
Step four: Information recorded with RJSC
When the affairs of a company have been completely wound up, the Court shall make an order that the company be dissolved from the date of the order, and the company shall be dissolved accordingly. The order shall be reported to the registrar by the official liquidator within 15 (fifteen) days of the order. The registrar shall record in his books a minute of the dissolution of the company.
- Winding up a Company by VOLUNTARY in Bangladesh
A company may be winded up voluntarily:
- when the period, if any, fixed for the duration of the company by the articles expires or any event occurs for which the articles provides 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 winded up voluntarily;
- if the company resolves by extraordinary resolution to the effect that it cannot by reason of its liabilities continue its business, and that it is advisable to wind up.
It is to be noted that commencement of voluntary winding up shall be deemed to commence at the time of the passing of the resolution for voluntary winding up. (Liquidation or Winding up a company in Bangladesh)
- PROCEDURE FOR VOLUNTARY WINDING UP:
FIRST STEP: PREPARING DOCUMENTS:
The first step on the process of winding up is to prepare documents. The documents that need to be prepared are:
- Declaration of Solvency, (which includes information such as the company has no debts among other things) and
- Profit and Loss Account and
- Audited Balance.
The above-mentioned documents will have to be approved by the majority directors of the company.
Step Two: Submission to RJSC
The next step is to file the approved Declaration of Solvency to the RJSC within 5 (five) weeks from the approval by directors.
Step Three: Pass Special Resolution
The third step requires the Extraordinary General Assembly to pass a special resolution. This is to approve the company’s decision to wind down and the liquidator appointment. It should be noted that the meeting ‘s content is also to be filed with the RJSC. The special resolution will then be published in the official Gazette, and in a newspaper circulated in the district where the company’s registered office is located. It will be achieved within 10 (ten) days of the special resolution passing it.
Step Four: Appointing Liquidator
Once the chosen liquidator has been approved by the extraordinary general meeting and the liquidator has accepted the appointment, such must be notified to the RJSC. In addition, the Deputy Commissioner of Taxes will also be informed of the same within 30 (thirty) days of the said appointment.
Step Five: Final Report by Liquidator
At this stage the liquidator needs to prepare a Final Account. The Final Account must have the details of how the winding up has been conducted and the assets distributed. Thereafter, the liquidator will call an extraordinary general meeting and the notice for that must be circulates by advertisement in the official Gazette, and in a newspaper. Such a notice must be given not less than one month before the meeting.
The special resolution will be passed in the extraordinary general meeting with regards to the disposal of the books and papers of the company.
Step Six: Documents filing to RJSC
Lastly, a final meeting must be hold and a return of the meeting must be submitted to the RJSC upon which the company will be winded up. The submission must be made within one week of the meeting.
Step Seven: Petition filing to Court for Winding Up
For voluntary winding up, the petition to the court is made at this stage. All the documents relevant to the winding up of the company are submitted to the court. The court being satisfied, declares that the company has been dissolved. This stage is essential to avoid any allegation of fraud later on.
- WINDING UP A COMPANY BY VOL-UNTARY under the supervision of the Court IN BANGLADESH
Each and every time, after a company has passed a resolution for voluntary winding up, the Court may give an order that the voluntary winding up will continue but subject to the supervision of the Court. The supervision orders are usually made for the protection of the creditors and contributories of the company. Such an order can be passed if
- the Liquidator under voluntary liquidation is partial or is negligent in collecting the capital
- the rules which are relating to winding up are not being observed, or
- The resolution for winding up was obtained by fraud.
The supervision order has the following effects:
- It gives jurisdiction to the court over suits and legal proceedings against the company to the same extent as in a winding up directly by the court
- The court has got the power to appoint an additional liquidator or liquidators. The court can also remove any liquidator and fill up any vacancy caused by removal, death or resignation.
- Powers of the Liquidator: Here, the liquidators in a winding up under the supervision of the Court can exercise all the powers of a liquidator in voluntary winding up. But the Court can modify or limit the powers and can also give him additional power; it depends on the court itself.
- After a supervision order is passed the court can exercise all powers which it might have exercised if an order had been made for winding up by the court.
- Consequences of winding up
The consequences which follow from winding up proceedings can be divided under three heads:
- those which follow all types of winding up;
- certain other consequences in a compulsory winding up; and
- Other consequences of a voluntary winding up.
- Consequences which follow all types of Winding Up, for ex:
- The Board of Directors of the Company ceases to have any powers.
- The property and effects of the company come under the custody of the Liquidator who has to realize the assets and distribute them.
- Every invoice, order for goods or business letters issued on behalf of the company by the liquidator and others and in which the name of the company appears, shall contain a statement that the company is in liquidation.
- Fraudulent Preference: All transactions of the company, made within six months previous to the commencement of the winding up, which amount to fraudulent preferences, are invalid.
- Any transfer or assignment by a company of all its properties to trustees for the benefit of all its creditors becomes void upon the winding up order being passed.
- Certain other consequences of Compulsory Winding Up, for ex:
- When a winding up order is passed the court has to send intimation thereof forthwith to the Official Liquidator and the Registrar.
- A certified copy of the winding up order must be sent to the Registrar by the petitioner and the company within one month of the date of the order. Failure to do so is a punishable offence.
- The winding up order operates as notice of discharge to the officers and employees of the company, except where the business of the company is continued according to the provisions of the Act.
- Additional consequences in a Voluntary Winding Up
- The company shall, from the commencement of the winding up, cease to carry on its business except so far–as may be required for the beneficial winding up of such business.
- Any transfer of shares and alteration in the status of any member made without the leave of the liquidator is void.
- Mode of distribution of assets
Preferential Payments: the costs of the winding up proceedings are to be paid first out of the assets. Next in order of priority come the following debts:
- All revenues, taxes, ceases and rates due to the Central or a State Government or a local authority.
- Wages and salary of any employee for a period not exceeding 4 moths within the 12 months before the relevant date, and, subject to certain limits, the compensation payable to any workman under the Industrial Disputes Act.
- The company’s contribution as an employer under the Employees’ State Insurance Act during the 12 months next before the relevant date.
- Payments due to a workman under the workmen’s Compensation Act, for death or disablement.
- All sums due to an employee from a provident fund, pension fund, gratuity fund or any other fund maintained for the welfare of the employees.
- Expenses of enquiries and investigations, payable by companies.
- Creditor’s payment
If any money remains after meeting the costs and the preferential payments, it is used to pay the creditors of the company.
- Contributories payment
If any money remains after paying the costs, the preferential payments and the creditors in full, it is paid to the contributories according to their rights.
Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due. Every one’s right is ensured by The Companies Act, 1994 including court, company owners, liquidators, employees, related financial institutions, debtors, creditors, Etc. a provision should be like that. Everything is mentioned in the act is too specific and accurate making it sustainable and sufficient for the people.
This Article has been prepared by “Tuhin & Partners” for the purposes of providing an overview of Liquidation or Winding up of a Bangladeshi Company. It is not designed to provide legal or other advice.