Every company has its own identity which is made by law. It is a common term which is an association of some directors, shareholders, lanched for a common purpose where law is present according to the company. The people who contribute it and to whom it belongs its members. The contributions of members are required as the company capital. A company law or act gives the clear guidelines about how the organization can be managed and executed. However company can not executed itself .There are group of directors, chairman, top level managers also other people to launch the organization.
According to the company act 1994 any seven or more people can form a public limited company and any two or not more than fifty persons can be eligible to form a private limited company, but there must be an existence of law and lawful purpose.
From the very beginning of the formation of the company there are remaining some rules for the company. These rules and regulations are helping to launch the company in a proper way.
The winding up of a company or an organization requires the termination of a company’s legal existence through stopping there current business. For this reason the assets of the company are sold and the earning from those distributed among the shareholder as well as its creditors which is actually laid down in the company act.
Formation of winding up
As far we know, there are three kinds of winding up a company. Those are
- Compulsory Winding Up by the Court.
- Voluntary Winding Up by the members themselves or by the creditors
- Voluntary Winding Up under the supervision of’ the Court.
1. Compulsory winding up: It is the situation when a company or an organization is totally unfit for carry on there business for future then the court will directed the company to wound up.
Situations for compulsory wound up:
A company may be wind up if it falls in these circumstances-
- Special resolutions of the company
- Not suspending the company
- Reduction of members
- Inability to pay debts
- The just and ‘equitable clause, ex, when the majority of the shareholders are using their powers unfairly.
- Default: If default is made in delivering the statutory report to the Registrar or in holding the statutory meeting.
The appliers for winding up-
- The company
- Any creditors
- Any contributory
- The registrar
- Authorized person by the central government
Power of court
Court may appoint a Liquidator for completing the wind up process and to facilitate the winding up Process Company act gives the following power to the court-
ü List of contributories
ü Adjustment of the rights of the contributories
ü Delivery to the liquidator: money. property or books and papers in the custody or control of any Contributory, Trustee, Receiver, Banker, Agents, Officer or Employee of the Company, to which the Company is prima facie entitled.
ü Payment of calls
ü Proof of the claims
ü Giving Priority
ü Summon for questioning
ü Public Examination: any officer of the Company is guilty of fraud, the Court may direct his public examination
ü Arrest of a contributory.
2. VOLUNTARY WINDING UP:
When the members of a company want to wind up the company willingly and there is no intervention of the court then it is called voluntary winding up. A company can voluntarily winding up under the following circumstances-
- By an Ordinary Resolution of the members passed in a general meeting in the, following cases-
a) where the duration of the company was fixed by the articles and the period has expired; and
b) Where the articles provided for winding up on the occurrence of any event and the specified event has occurred.
- By a Special Resolution passed by the members in all other cases.
There are two types of voluntary winding up
v Members’ Voluntary Winding Up.
v Creditors’ Voluntary Winding Up.
Process of voluntary winding up
In a Members’ Voluntary Winding Up-
- Declaration of Solvency.
- Statutory Declaration to the Registrar.
- A Resolution in a general meeting of the Company within 5 weeks of Declaration of Solvency.
- Appointment of Liquidator.
- Collecting the company’s assets, pay the liabilities of the company and pay the balance of the proceeds to the contributories
In a Creditors’ Voluntary Winding Up:
- A Resolution for the winding up of the company in a general meeting of the Company.
- On the same day or the following day there must be a meeting of the creditors. In the meeting of creditors the directors must state the position of the company and the list of creditors.
- A liquidator or liquidators are appointed by the meeting of members and the meeting of the creditors. The nominees of creditors are preferred.
- A Committee of Inspection.
- The work of winding up according to Statute
3. WINDING UP SUBJECT TO THE SUPERVISION OF COURT:
Each and every time, after a company has passed a resolution for voluntary winding up, the Court may give an order that the voluntary winding up will continue but subject to the supervision of the Court. The supervision orders are usually made for the protection of the creditors and contributories of the company. Such an order can be passed if
(a) the Liquidator under voluntary liquidation is partial or is negligent in collecting the capital
(b) the rules which are relating to winding up are not being observed, or
(c) The resolution for winding up was obtained by fraud.
The supervision order has the following effects:
- It gives jurisdiction to the court over suits and legal proceedings against the company to the same extent as in a winding up directly by the court
- The court has got the power to appoint an additional liquidator or liquidators. The court can also remove any liquidator and fill up any vacancy caused by removal, death or resignation.
- Powers of the Liquidator: Here, The liquidators in a winding up under the supervision of the Court can exercise all the powers of a liquidator in voluntary winding up. But the Court can modify or limit the powers and can also give him additional power; it depends on the court itself.
- After a supervision order is passed the court can exercise all powers which it might have exercised if an order had been made for winding up by the court.
Consequences of winding up
The consequences which follow from winding up proceedings can be divided under three heads:
(a) those which follow all types of winding up;
(b) certain other consequences in a compulsory winding up; and
(c) Other consequences of a voluntary winding up.
I. Consequences which follow all types of Winding Up, for ex:
- The Board of Directors of the Company ceases to have any powers.
- The property and effects of the company come under the custody of the Liquidator who has to realize the assets and distribute them.
- Every invoice, order for goods or business letters issued on behalf of the company by the liquidator and others and in which the name of the company appears, shall contain a statement that the company is in liquidation.
- Fraudulent Preference: All transactions of the company, made within six months previous to the commencement of the winding up, which amount to fraudulent preferences, are invalid.
- Any transfer or assignment by a company of all its properties to trustees for the benefit of all its creditors, becomes void upon the winding up order being passed.
II. Certain other consequences of Compulsory Winding Up, for ex:
- When a winding up order is passed the court has to send intimation thereof forthwith to the Official Liquidator and the Registrar.
- A certified copy of the winding up order must be sent to the Registrar by the petitioner and the company within one month of the date of the order. Failure to do so is a punishable offence.
- The winding up order operates as notice of discharge to the officers and employees of the company, except where the business of the company is continued according to the provisions of the Act.
III. Additional consequences in a Voluntary Winding Up
- The company shall, from the commencement of the winding up, cease to carry on its business except so far–as may be required for the beneficial winding up of such business.
- Any transfer of shares and alteration in the status of any member made without the leave of the liquidator is void.
Mode of distribution of assets
Preferential Payments: the costs of the winding up proceedings are to be paid first out of the assets. Next in order of priority comes the following debts:
- All revenues, taxes, ceases and rates due to the Central or a State Government or a local authority.
- Wages and salary of any employee for a period not exceeding 4 moths within the 12 months before the relevant date, and, subject to certain limits, the compensation payable to any workman under the Industrial Disputes Act.
- The company’s contribution as an employer under the Employees’ State Insurance Act during the 12 months next before the relevant date.
- Payments due to a workman under the workmen’s Compensation Act, for death or disablement.
- All sums due to an employee from a provident fund, pension fund, gratuity fund or any other fund maintained for the welfare of the employees.
- Expenses of enquiries and investigations, payable by companies.
If any money remains after meeting the costs and the preferential payments, it is used to pay the creditors of the company.
If any money remains after paying the costs, the preferential payments and the creditors in full, it is paid to the contributories according to their rights.
Reasons supporting my Argument:
Yes, I think our country’s present provisions are sufficient and sustainable. According to the rules or provisions it is said that The company can call a meeting of the creditors to be held on the day or the day following the date on which the company will hold a general meeting of the members to pass the resolution for winding up. It eventually help the both side to decide about the winding up. Again, The Board of directors shall cause a full statement of the affairs of the Company and a list of creditors to be prepared and laid before the creditor’s meeting. A Director is to be nominated to preside over the creditors’ meeting. Here it is mostly applicable for creditor’s voluntary winding up. It helps the board of director s to decide what to do at that time. The liquidator or any contributory or creditor can apply to the Court for direction on any matter arising out of the winding up proceedings. This how the right of the liquidator and creditor is being ensured. The costs of winding up, including the remuneration of the liquidator are payable out of the assets of the company in priority to all other claims. This is how the cost is being divided into essential shares according to ownerships ratio. The liquidator in a voluntary winding up has all the powers which a liquidator in a compulsory winding up has. Winding up will continue but subject to the supervision of the Court. A supervision order is usually made for the protection of the creditors and contributories of the company. After a supervision order is passed the court can exercise all powers which it might have exercised if an order had been made for winding up by the court. Supervision of the court is necessary to ensure the liquidation. In compulsory winding up , When a winding up order is passed the court has to send intimation thereof forthwith to the Official Liquidator and the Registrar. A certified copy of the winding up order must be sent to the Registrar by the petitioner and the company within one month of the date of the order. Failure to do so is a punishable offence. The winding up order operates as notice of discharge to the officers and employees of the company, except where the business of the company is continued according to the provisions of the Act. This processes show transparency to both the court and the liquidators. the costs of the winding up proceedings are to be paid first out of the assets. Next in order of priority come the following debts. All revenues, taxes, ceases and rates due to the Central or a State Government or a local authority. Wages and salary of any employee for a period not exceeding 4 moths within the 12 months before the relevant date, and, subject to certain limits, the compensation payable to any workman under the Industrial Disputes Act. All sums due to an employee from a provident fund, pension fund, gratuity fund or any other fund maintained for the welfare of the employees. Expenses of enquiries and investigations, payable by companies. This is how the act is ensuring the right of employees and creditor’s .here winding up not only means to vanish the company’s legal right but also to ensure everyone’s right related to it.
The present provisions are almost perfect till now. Everyone’s right is ensured by this law including court, company owners, liquidators, employees, related financial institutions, debtors, creditors, Etc. a provision should be like that. Every thing is mentioned in the act is too specific and accurate making it sustainable and sufficient for the people.
- Articles of Agreement law &legal definition
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- Vakilno1,retrievedfrom http://www.vakilno1.com/saarclaw/bangladesh/companies_act.htm