Winding Up of companies in Bangladesh -case law & precedents.
Anika Mardiah Chowdhury
Winding up a company means ceasing up its existence and this winding up or liquidation is possible if the company is registered as per the law of Bangladesh. In some cases, the liquidation process and winding up differs slightly, while liquidation is specifically about selling off company assets to pay creditors and then closing the company and winding up includes all the processes and affairs include liquidation. Though the winding up or liquidation seems uncomplicated but the winding up matter is a serious affair which is evident from the perusal of the entire Part V of the Company Act as held in the case of Ellal Textile Mills Ltd. Vs. Abdul Awal, 38 DLR (AD) 26.
This winding-up process or liquidation is not applicable for a sole proprietorship or partnership business. As in the case of Bengal Waterways Ltd. Vs. Rahimuddin Ahmed (1982) 34 DLR (AD) 47 states that a private limited company and partnership firm will be dissolved by following the same principles.
The liquidation process starts with filing a petition under the Company Act after that the court fixes a liquidator. Also, the order of winding up has to file in the Registrar of the Joint Stock Companies and Firms. There are several grounds for winding up a company as under the case of Rohimuddin Ahmed Vs. Bengal Water Ways Ltd., (1979) 31 DLR 28states 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 the following 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.
Under the Company Act 1994, there are three modes of winding up a company in Bangladesh. The winding-up of a company may be either:
- by the court or
- voluntarily or
- Subject to the supervision of the court.
Winding up by the Court– According to Company Act, 1994 the company may be wound up if the company does not commence its business within a year of its incorporation or suspends its business for a whole year and if the number of members is reduced in the case of private company below two members and for the public company below seven members.
Also, if the company is unable to pay its debt and others. 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.
Also, on the just and equitable ground, the court can order for winding up a company, for example in the case of Yunus Bhuiyan & Others Vs. Bashati Property Development Ltd. 4 BLC 249 held that Since there is a misunderstanding among the directors and total deadlock in the business of the Company and since there is no chance of any compromise between the two groups of Directors hence the Company is liable to be wound up on just and equitable ground and for ends of justice and also for the benefit for all concern. On the other hand, it will be not just and equitable if there have other ways or alternative remedies for the petitioner to redress, as in the case of Rahimuddin Vs. Bengal Watennays Ltd. (1974) 26 DLR 285 an application for winding up of a private limited company which runs by two share-holders rejected as there being no ground that it is just and equitable to do so rather special circumstances of the case demanded an assurance from the respondent that he will act in a way which does not in any manner affect the interest of the other sharer.
Voluntarily winding up voluntary winding up occurs when a resolution pass in a general meeting or the company expires by the article. Then a declaration of solvency has to be prepared and signed by the directors. The declaration must be verified by an affidavit to the effect that the directors have made a full inquiry into the affairs of the company. The declaration will be signed by all the directors of the company or in the case of a company having more than two directors, the majority of the directors.
Subject to the Supervision of the Court– this winding-up process is sometimes called the creditor’s voluntary winding up as the shareholders make a resolution but the creditors do the formalities. This winding-up process is done voluntarily and the court order that the process will occur under its supervision with such liberty.
It is to be mention that when an order of winding up is made in the discretion of the court then no suit or legal proceeding shall be proceeded without leave of the court as under section 250 of the Company Act, but if requirements of section 241 of the Company Act satisfies, then shall not be disallowed to do so just because other equally efficacious remedies available to the petitioner as held in the case of Amir Hossain Vs. Homeland Footwear Ltd and others, 55 DLR 478.
Furthermore, the petitioner has to prove that he has an interest in the winding-up process as in Mazharul Haque Vs. Bulk Management (Bangladesh) Ltd. and others 48 DLR 453 where the petitioner has not shown how he would derive any advantage or minimize some disadvantage from winding up of the respondent company thus it held that he has no locus standi for its winding up.
Though the person has an interest like shareholders and stakeholders get the advantages of winding up of company as they get their interest back also it is easy to process if the court oversees the process but the disadvantages are the company losses of its identity loses along with its goodwill, intellectual properties, licenses, bonds, and all others.
Lastly, it has to take into account that as the process of mortgage and winding up is different issues thus not paying the mortgage debt shall not be the reason for winding up a company. Also, in the case of Bangladesh Shilpa Bank Vs. M/s. S.S. Mujibullah (1977) 29 DLR 67 no occasion arises for invoking the provision of section 162 of the Companies Act when all the assists and property of the mortgagor companies are assigned and mortgaged to the Bank and specific remedy sand procedure are provided in P.O. 129 of 1972. The following case also held that temporary inability to repay the debt should not be an occasion for winding up of a company that is opposed to the State’s policy.