A Comprehensive Guide to Company Winding Up in Bangladesh
Introduction
This guide outlines the procedures and grounds for winding up private companies in Bangladesh, as prescribed by the Companies Act, 1994. It also incorporates insights from Mahbub & Company and FM Associates.
Modes of Winding Up
The Companies Act, 1994 provides three primary methods for winding up a company:
- Compulsory Winding Up by the Court (Sections 234-247)
- Voluntary Winding Up (Sections 248-254)
- Members’ Voluntary Winding Up (Sections 248-251)
- Creditors’ Voluntary Winding Up (Sections 252-254)
- Winding Up Subject to Court Supervision (Section 253)
1. Compulsory Winding Up by the Court
Grounds for Winding Up:
- Failure to Commence Business or Suspension (Section 241(i)): If the company does not begin business within a year or suspends operations for a year.
- Inability to Pay Debts (Section 241(ii)): If the company cannot pay debts exceeding BDT 10,000 within three weeks after a demand.
- Just and Equitable Grounds (Section 241(vi)): The court may decide it’s equitable to wind up a company due to issues like management deadlock or minority shareholder oppression.
Procedure:
- Petition Filing: Can be filed by the company, creditors, or contributories (Section 245).
- Appointment of Liquidator: The court appoints an official liquidator (Section 246).
- Dissolution: After the winding-up process, the court will dissolve the company (Section 247).
2. Voluntary Winding Up
a. Members’ Voluntary Winding Up:
- Initiated by a special resolution from shareholders (Section 284).
- Requires a solvency declaration (Section 290) from directors confirming the company can pay its debts in full within three years.
- A liquidator is appointed to manage the winding-up (Section 291).
b. Creditors’ Voluntary Winding Up:
- Initiated when the company is insolvent and cannot declare solvency (Section 286).
- Creditors meet to appoint a liquidator (Sections 287-288).
- Notice of Resolution: The company must notify the Registrar within 10 days (Section 289).
- Final Meeting: Held to present final accounts and dissolve the company (Sections 296-297).
3. Winding Up Subject to Supervision of the Court
- If voluntary winding up cannot proceed fairly, an application can be made to the court for supervision (Section 310).
- The court may continue the process with supervision and liberty for creditors or others to apply (Section 311).
Comparison of Winding Up Modes
| Mode | Initiated By | Court Involvement | Applicability |
|---|---|---|---|
| Compulsory Winding Up | Creditors, Company, or Contributories | Yes | Insolvent or inactive companies |
| Members’ Voluntary Winding Up | Shareholders | No | Solvent companies wishing to dissolve |
| Creditors’ Voluntary Winding Up | Creditors | No | Insolvent companies unable to pay debts |
| Winding Up Under Court Supervision | During Voluntary Winding Up | Yes | When fairness of voluntary winding up is in question |
Judicial Precedents on Winding Up of Companies in Bangladesh
Several landmark cases in Bangladesh have shaped the interpretation of winding-up laws:
- Ellal Textile Mills Ltd. vs. Abdul Awal – Emphasized that winding up must follow the statutory procedures under the Companies Act.
- Bengal Waterways Ltd. vs. Rahimuddin Ahmed – Differentiated the winding up of a private limited company from that of a partnership firm.
- Prime Finance and Investment Ltd vs. Delwar H Khan – Established that a company burdened with excessive liabilities could be wound up to protect creditors’ rights.
- Yunus Bhuiyan & Others vs. Bashati Property Development Ltd. – Allowed winding up due to director deadlock, but only when no alternative remedies were available.
Conclusion
The winding-up process in Bangladesh is governed by clear statutory provisions in the Companies Act, 1994. Companies must adhere to these regulations to ensure an orderly dissolution, whether through compulsory, voluntary, or supervised winding up. Understanding these processes is critical for companies and stakeholders to navigate dissolution legally and effectively.
Prepared by: Samiul Huq
Advocate, Appellate Division, Supreme Court of Bangladesh
Managing Partner at Credence LP
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