What is Winding Up?
Winding Up is a regulated process to liquidate a company by turning the company assets into cash, to pay off debt. This tool is commonly used when a company declares insolvency and the assets are distributed to pay off the company creditors, outstanding bills, and divides the remainder and distributes among shareholders, company members, partners, or any other investors.It is regulated by Article of Association of the Company and Companies Act 1994. The High Court of Bangladesh holds the original jurisdiction for such Company matters.
Eligibility for Winding Up:
· Private or Public Limited Company incorporated under Companies Act 1994
· Registered under laws of Bangladesh
Who can Wind Up a Company?
· Supervision of the Court
· Company’s voluntary motion
· Involuntary Winding Up- Petition under section 245of Companies Act 1998 made by creditors and/or contributors
Winding Up by Court
Winding up by the Court refers to the Court’s power to facilitate winding up of a Company, this option may be availed by the Company by passing a Special Resolution or on submission of petition by the Creditors and Contributors or in suo moto of Court’s own accord.
By the supervision of the Court, in any of the following circumstance company may be wound up by Court:
I. Special resolution – where the company has decided to be wound up by Court, by passing a special resolution;
II. When the Court finds default in filing statutory report or improper holding of statutory meeting;
III. Court may wind up a company if it does not commence business within a year of incorporation or suspend its business for a whole year;
IV. If the number of members reduced below the permitted value under Companies Act 1994;
V. Company has become insolvent and is unable to pay its debt;
VI. Court is of the opinion that it is just and equitable to wind up the company.
Voluntary Winding Up – Voluntary winding refers to winding up of the company’s own motion to liquidate the assets in order to pay creditors, settling bills, distribution of assets to the shareholders.
Phase 1:In consultant of a lawyer the company should prepare a Declaration of Solvency, Profit and Loss Account, Audited Balance Sheet with an accountant.
Phase 2:It is pertinent that an application for liquidation is made to Registrar of Joint Stock of Companies (RJSC), upon 5 weeks from approval of Declaration of Solvency by the board of directors.
Phase 3:Extra ordinary general assembly is required to pass a special resolution stating the motif to wind up and liquidate the company and stating the company’s will appointment of a liquidator or receiver, in this process. Special resolution will be published in official gazette and circulated is districts where the company is registered and operate its business.
Phase 4:Appointment of Receiver or Liquidator – when the liquidator or receiver is officially appointed RJSC must be notified.The Deputy Commissioner of taxes must be informed within 30(thirty) days of the appointment.
Phase 5: It is advised to file application or petition for winding up under section 245of Companies Act 1998, to the Court to avoid fraud in the future.
Phase 6: Record of winding up must be made to RJSC
Involuntary Winding Up
Phase 1: Petition or application made under section 245 of Companies Act 1998. An order for winding up of a company shall operate in favour of all creditors and contributors of the company.
Phase 2:Upon issuing a winding-up order by the Court, the petitioner and the company are obliged to file a copy of the order with the Registrar of RJSC within 30 (thirty) days from the date of the request. The Registrar shall register a summary in his company related books upon filing a copy of a winding-up order. The registrar then notifies by Official Gazette that such an order has been made.
Phase 3:Appointment of Receiver or Liquidator – The Court will appoint Receiver or Liquidator in accordance with Companies Act 1998.
Phase 4: The liquidator shall prepare a Final Account showing how the winding ups has been conducted and the assets distributed. Subsequently, an extra ordinary general meeting shall be called by the liquidator. The notice of the meeting must be given by way of advertisement which must not be less than one month before the meeting. Such an advertisement shall be given in the official Gazette, and in a newspaper circulating in the district where the registered office of the company is located. A special resolution shall be passed in the extraordinary general meeting with regards to the disposal of the books and papers of the company.
Phase 5:Official liquidator shall report the order to the registrar within 15 (fifteen) days of the order. The registrar shall record a minute of the company’s dissolution in his books.
Stay the Order of Winding Up: The Court at any time upon application of any creditor or contributor may stay the order of wound up, on proof to the satisfaction of the Court that all proceeding in relation to the winding up ought to be stayed, either altogether or for a limited time.
Injunction to stay other suits or proceeding during Winding Up: The Court may at any time after presentation of the application of winding up and before declaring an order, may grant injunction to restrain further proceedings in any suit or proceedings in any suit or proceeding against the company may also pass other similar order upon such terms the Court thinks fit. Once a winding up Order is declared by the Court or a provisional liquidator is appointed no suit or other legal proceeding shall be maintainable against the company except by the permission of the Court.
Legal Services
Winding up being a regulated process it is complex and demanding of expertise knowledge and skills, moreover, there may be unanticipated legal repercussion to any action of default made by the company. It is advisable that any company which may consider the possibility to wind up must consult a legal expert and hire an accountant to prepare financial documentation. A company will require legal assistance in preparing documentation for winding up, settling ongoing legal disputes, arrange meeting for settlement with creditors, selling off assets and pay off creditors and fulfill formalities with RJSC.
