Anika Mardiah Chowdhury
Winding up a company means ceasing 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 differ slightly; 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, including liquidation. Though the winding up or liquidation seems uncomplicated, 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 D.L.R. A.D.D.) 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 D.L.R. A.D.D.) 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, Courtcourt fixes a liquidator. Also, the order of winding up has to be filed in the Registrar of the Joint Stock Companies and Firms. There are several grounds for winding up a company, as in the case of Rohimuddin Ahmed vs. Bengal Water Ways Ltd. (1979) 31 D.L.R. 28 states 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 the opinion that it is just and equitable, the Company should be wound up.
Under the Company Act 1994, there are three ways in which a company can be winded up in Bangladesh. The winding-up of a company may be either:
- byCourtcourt or
- voluntarily or
- Subject to the supervision ofCourtcourt.
Winding up by the Court
According to the 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 BLB.L.C..A.D.D.170, The High Court Division was very much conscious of the broad fact of huge loan liabilities of the Company. It was of the view that the same has to be put at a halt. Accordingly, the Court allowed the application for the winding up of the Company to appoint an official receiver as the liquidator and pass other incidental orders.
Also, on just and equitable grounds, the Court can order 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 not be just and equitable if there are 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 compshareholderso shareholders rejected as there is no ground that it is equitable to do so. Rather, special circumstances of the case demanded an assurance from the respondent that he would act in a way that did not in any manner affect the interest of the other sharer.
Voluntarily winding up
company closure in bangladesh voluntary winding up occurs when a resolution passes 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 that has 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 winshareholdershe. The shareholders resolve, but the creditors do the formalities. This winding-up process is done voluntarily, and the court orders that the process will occur under its supervision with such liberty.
It is to be mentioned that when an order of winding up is made at the discretion of Courte court, then no suit or legal proceeding shall proceed without leaving Courte 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 shareholders, shareholders and stakeholders get the advantage of winding up the Company as they get their interest back. Also, it is easy to process. The Court oversees the process. Still, the disadvantages are that the Company loses its identity along with its goodwill, intellectual properties, licenses, bonds, and all others.
Lastly, it has to be taken into account that as the process of mortgage and winding up is a different issue, 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 DLD.L.R.7 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 and procedure are provided inP.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 in company closure in bangladesh.
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Initiating the Liquidation Process in Bangladesh
The process begins by filing a petition under the Companies Act, after which the court may appoint an official liquidator. The winding-up order must also be filed with the Registrar of Joint Stock Companies and Firms (RJSC).
In Rohimuddin Ahmed vs. Bengal Water Ways Ltd. (1979) 31 DLR 28, the court identified several grounds for winding up under Section 162 of the Companies Act, 1913 (corresponding to Section 241 of the 1994 Act):
Failure to file a statutory report.
Not holding statutory meetings.
Inability to pay debts.
If the court finds it just and equitable to do so.
Three Legal Modes for Closing of Companies in Bangladesh
According to the Companies Act, 1994, a company can be closed through one of the following three legal procedures:
1. Winding Up by the Court
The court may order winding up if:
The company fails to commence operations within one year of incorporation.
It suspends its operations for a full year.
Membership falls below the legal minimum (less than 2 for a private company or 7 for a public company).
The company is unable to pay its debts.
It is just and equitable to do so.
Case example:
In Prime Finance and Investment Ltd vs. Delwar H Khan (15 BLC (AD) 170), the court allowed winding up due to unmanageable loan liabilities, appointing an official receiver as liquidator.
In Yunus Bhuiyan & Others Vs. Bashati Property Development Ltd. (4 BLC 249), the court found a deadlock among directors and lack of compromise to justify winding up on just and equitable grounds.
However, as held in Rahimuddin Vs. Bengal Waterways Ltd. (1974) 26 DLR 285, winding up will not be granted if there are alternative remedies available.
2. Voluntary Winding Up
Voluntary closure happens when:
A resolution is passed in a general meeting.
The company’s term expires as per its Articles of Association.
Directors issue a declaration of solvency confirming the company’s ability to pay its debts.
The declaration must be verified by affidavit and signed by all or the majority of directors, depending on board size.
3. Winding Up Under Supervision of the Court
Known as creditors’ voluntary winding up, this is initiated by shareholders but carried out under court supervision. The process ensures that creditor rights are preserved while allowing shareholders to initiate closure.
Advantages and Disadvantages of Company Winding Up
Advantages:
Stakeholders and creditors can recover dues from asset liquidation.
Clear legal closure of obligations and liabilities.
Court supervision ensures transparency and fairness.
Disadvantages:
The company loses its corporate identity.
Assets such as goodwill, licenses, bonds, and intellectual property are dissolved.
The process can be lengthy and complex if not planned properly.
Important Clarifications
Unpaid mortgage debt alone is not a valid ground for winding up, as held in Bangladesh Shilpa Bank Vs. M/s. S.S. Mujibullah (1977) 29 DLR 7.
The process of mortgage enforcement is separate and governed by other specific laws such as P.O. 129 of 1972.
Conclusion
The closing of companies in Bangladesh is a multifaceted legal process governed by the Companies Act, 1994. It provides several options for companies depending on their financial and operational status. Whether through court intervention, voluntary decision, or creditor-driven closure, each method is designed to protect the rights of all stakeholders while ensuring legal compliance.
If your company is considering winding up or liquidation, it is recommended to consult legal experts to ensure the process is handled properly.