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liquidation-winding-up-of-company-in-bangladesh

Liquidation / Winding up of company in Bangladesh

Kazi Law Chamber

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21 Jan 2024

Winding up a company in Bangladesh is a legal process that entails the permanent closure of a business entity. This intricate procedure involves filing for dissolution under the supervision of a liquidator, whose responsibility is to manage the company's assets while ensuring the protection of stakeholders' interests. The ultimate step involves the Registrar of Joint Stock Companies And Firms (RJSC) officially removing the company from its register, marking the conclusive end of its existence.

⦿ GROUNDS FOR WINDING UP

As per judicial precedent (31 DLR 28), three grounds have been specified for the winding up of a company. Firstly, if there is a default in filing a statutory report. Secondly, if the company fails to hold statutory meetings. And thirdly, if the company is unable to pay its debts, or if the Court deems it just and equitable to wind up the company. These criteria provide a basis for initiating the winding-up process under various circumstances.

In addition, Section 241 provides further grounds for winding up. These encompass situations where the company, through a special resolution, decides to undergo Court-initiated winding up, failure to commence business within a year of incorporation, or a suspension of business for a complete year. Furthermore, a reduction in the number of members below two for a private company or below seven for any other company constitutes an additional basis for the initiation of the winding-up process.

⦿ MODES OF WINDING UP

According to Sections 234, there are three modes of winding up a company in Bangladesh:

1) By the Court - Filing petition to the Court (procedure outlined below)

2) Voluntarily -

A company is eligible for voluntary winding up when the specified period in its articles of incorporation expires or an event triggering dissolution occurs, leading to the passing of a resolution for voluntary winding up in a general meeting. Additionally, voluntary winding up can be initiated through a special resolution or an extraordinary resolution if the company acknowledges an inability to continue operations due to liabilities. It is crucial to emphasize that the voluntary winding-up process is considered officially underway once the resolution for voluntary winding up is passed, marking a significant starting point for the company's dissolution proceedings.

3) Subject to the Supervision of the Court
 -

In cases where a company decides to dissolve voluntarily through special or extraordinary resolutions, the court may order the voluntary liquidation to proceed under its supervision and with terms it deems appropriate. Section 250 of the Companies Act underscores that when a court orders the winding up of a company at its discretion, no legal proceedings can be pursued without the court's permission. Sections 316-321 address judicial supervision, allowing the court to order voluntary winding up with scrutiny and conditions in cases of unique or exceptional measures. These sections collectively provide a legal framework for court-ordered winding up and supervision in accordance with the Companies Act.


⦿ LIQUIDATION / WINDING UP PROCEDURE IN BANGLADESH

➤ Step 1: Filing Petition to Court

Initiating the winding-up process involves filing a petition in the High Court Division. As outlined in Section 245, a petition for winding up is permissible and may be filed by a creditor, the company itself, or a contributory. This petition can be submitted either jointly by these entities or separately, allowing flexibility in initiating the winding-up process.

➤ Step 2: Notification to Registrar

Within 30 days of the petition date, the petitioner and the company must file a copy of the winding-up order with the Registrar. The Registrar records a summary in company-related books, and the official Gazette is notified. Unless the company continues operations, the order serves as notice of discharge to the company's employees.

➤ Step 3: Appointment of Liquidator

The court appoints an official liquidator, whose responsibilities align with the Companies Act. The liquidator, under court supervision, possesses powers akin to those in a voluntary winding-up, subject to court restrictions. In the case of a court-ordered winding up, all company assets are deemed to be in the custody of the court from the order date.

➤ Step 4: Information Recorded with RJSC

Upon fully winding up all company affairs, the court issues an order dissolving the company. Within 15 days of this order, the official liquidator notifies the registrar, who then records the company's dissolution in official books.

⦿ JUDICIAL OVERSIGHT

Section 242 addresses situations where a company is unable to pay its debts. The court's discretionary powers come into play, allowing scrutiny during voluntary winding up. Importantly, when the court issues a winding-up order, no legal proceedings can be pursued without its permission (Section 250 of the Companies Act). Sections 316-321 of the Companies Act deal with judicial supervision, allowing the court to order voluntary winding up subject to scrutiny and any necessary conditions.

⦿ CONTRIBUTION & EXEMPTIONS

Section 237 of the Companies Act defines "contributory," emphasizing the obligation for every person associated with the company to contribute to its assets during the winding-up process. As outlined in Section 235, current and former members are legally bound to cover the company's outstanding debts, liabilities, charges, and liquidation expenses and other financial obligations during the winding-up process.

According to 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. However, in the case of insolvency, the assignee assumes the role of the contributor, and any payment made as a contribution is the responsibility of the insolvent estate

Noteworthy exemptions apply to former members, particularly if they've been inactive for more than a year before the commencement of the winding-up, or if the obligations relate to the period when they were not a member, or if current members are unable to fulfil the required contribution, the former member is exempt from the duty to contribute.

However, in the case of a limited company, no member, whether present or past, is required to contribute an amount exceeding any unpaid portion on the shares for which they are liable. In the dissolution of a limited company, the liability of directors, whether current or past, remains unlimited.

In conclusion, a solid understanding of the legal intricacies surrounding company winding-up in Bangladesh is paramount. It is crucial for businesses and stakeholders to be well-informed to ensure a smooth and lawful winding-up process. Our lawyers at Kazi Law Chamber have an excellent track record in helping companies in winding up their operations, and are always available to guide and assist you throughout the liquidation procedure.