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Understanding the Winding-Up Process : dissolving or Winding up company in Bangladesh is a legal procedure that terminates the existence of a company. This process involves liquidating the company’s assets, converting them into cash to pay off any outstanding debts, and distributing the remaining balance among the shareholders. Shareholders receive their shares only after all creditors have been fully paid.
It’s important to differentiate between a private limited company, a joint stock company, and a public limited company in Bangladesh, as the process of winding up specifically pertains to registered companies in line with company law and company registration regulations.
Legal Framework: Companies Act, 1994
Under the Companies Act 1994, there are three modes of winding up a company in Bangladesh:
- Voluntary Winding Up
- Winding Up by the Court
- Winding Up Subject to the Supervision of the Court
Voluntary winding up is typically undertaken by solvent companies, except in the case of creditor’s voluntary winding up.
Procedure for Voluntary Winding Up
Step 1: Preparing Documents
Declaration of Solvency
Directors must prepare and sign a declaration of solvency, detailing the company’s assets and liabilities. This declaration must affirm that the company can pay its debts within a specified period, not exceeding three years. An affidavit verifying the directors’ full inquiry into the company’s affairs must accompany the declaration, signed by all directors or the majority if there are more than two.
Accounts and Audit
Ensure a profit and loss account and an audited balance sheet up to the most recent applicable date are meticulously prepared and verified in accordance with the requirements of the Bangladesh Bank. It is imperative for a solvent company to obtain an auditor’s report to comply with regulatory standards.
Step 2: Board Meeting and Extraordinary General Meeting
Board Meeting
A board meeting should be convened according to the company’s rules and the Companies Act. The directors will approve the audited accounts and the declaration of solvency. They will also call an extraordinary general meeting to pass a special resolution to wind up the company. The declaration and affidavit must be notarized after the meeting.
The shareholders play a crucial role in the process of winding up a company in Bangladesh. During the board meeting, the shareholders’ interests and rights concerning the distribution of assets, including the share capital, need to be carefully considered. Proper documentation and approval by the shareholders are essential steps in the declaration of solvency and the subsequent winding up process.
Filing with the Registrar
The declaration must be filed with the Registrar of Joint Stock Company and Firms (RJSC) within five weeks of its preparation.
Extraordinary General Meeting
At this meeting, a special resolution to wind up the company and appoint a liquidator, along with their remuneration, will be passed. The resolution and appointment details must be filed with the RJSC.
Step 3: Appointment of Liquidator
Liquidator
Once the special resolution is passed, the liquidator accepts the appointment and notifies the RJSC. Within thirty days, the liquidator must inform the Deputy Commissioner of Taxes about the appointment.
Gazette Publication
A notice of the resolution for voluntary winding up must be published in the official Gazette and a local newspaper within ten days of passing the resolution. The liquidator’s appointment should also be included in this notice.
Annual General Meeting (AGM)
If the winding up extends beyond one year, the liquidator must hold an AGM at the end of each year, presenting an account of their actions and the status of the liquidation.
Step 4: Final Meeting and Filing with RJSC
Final Account
The liquidator prepares a final account detailing the winding up process and asset disposal. An extraordinary general meeting is then called.
Extraordinary General Meeting
Notice of this meeting must be advertised at least one month in advance in the official Gazette and a local newspaper. At this meeting, a special resolution regarding the disposal of the company’s books and papers will be passed.
Filing
A return of the winding-up meeting must be filed with the RJSC within one week. After the final meeting and submission of necessary documents, the company’s legal entity will be officially dissolved.
By following the prescribed steps, companies in Bangladesh can streamline the winding-up process while ensuring adherence to regulations. It is recommended to consult with a knowledgeable legal expert proficient in Bangladeshi corporate law to obtain the requisite assistance, especially in matters concerning trade license, secured creditor rights, employment law, liaison office establishment, and proper company formation.
FAQs on Winding Up a Company in Bangladesh
1. What is winding up a company?
Winding up a company is the legal process of dissolving a company, liquidating its assets to pay off debts, and distributing any remaining funds to shareholders.
2. What law governs winding up in Bangladesh?
The Companies Act, 1994 governs the winding-up process.
3. What is voluntary winding up?
Voluntary winding up is initiated by the company, typically when it is solvent. It involves preparing a declaration of solvency and appointing a liquidator.
4. What is a liquidator?
A liquidator manages the winding-up process, including liquidating assets and paying creditors.
5. How are creditors protected?
Secured creditors have priority in claims against the company’s assets before distribution to shareholders.
6. What documents are needed for voluntary winding up?
Key documents include the Declaration of Solvency, audited balance sheet, and resolutions from board and general meetings.
7. What is the Declaration of Solvency?
A statement by directors affirming the company can pay its debts within a specified period, not exceeding three years.
8. What happens at the final meeting?
The final account of the winding-up process is presented, a special resolution is passed, and the company is officially dissolved after filing with the RJSC.
9. What is the High Court’s role in winding up?
The High Court can order the winding up of a company, supervise the process, and appoint a liquidator.
10. Voluntary vs. Compulsory winding up?
Voluntary winding up is initiated by the company. Compulsory winding up is ordered by the court, usually due to insolvency.
11. Impact of employment law?
Employee dues must be settled before finalizing the winding-up process.
12. Winding up a liaison office?
A liaison office can be wound up following similar procedures, with compliance to FDI regulations.
13. What happens to intellectual property?
Intellectual property assets are valued and sold to pay off creditors during the liquidation process.
14. What does the Bankruptcy Court do?
The Bankruptcy Court oversees cases of insolvency and ensures fair treatment of creditors.
15. Role of a trade license in winding up?
Trade licenses must be surrendered or managed during the dissolution process.
