Lecture on Winding Up

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Winding up is a method of putting an
end to the life of a company. In the
words of Professor Gower, “Winding up
of a company is the process whereby its
life is ended and its property is
administered for the benefit of its
creditors and members. An
administrator, called as a liquidator is
appointed and he takes control of the
company, collects its assets pays its
debts and finally distributes any surplus
among the members in accordance with
their rights.”
The company is not dissolved
immediately at the commencement of
the winding up. Its corporate status and
power continues until it is formally and
completely dissolved.
Types of Winding up:
According o the Companies Act 1994,
winding up may be of three types—
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1. Compulsory Winding by the Court
2. Voluntary Winding up
3. Winding up under the Supervision of
Court
1. Compulsory Winding up:
A company may be compulsorily wound
up by an order of the court.
According to Section 241 of the
Companies Act, a company may be
compulsorily wound up on following
grounds—
i. If the company has, by a special
resolution, resolved that the company be
wound up.
ii. If the company fails to call statutory
meeting or submit statutory report in
time.
iii. If a company fails to commence
business within a year from its
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incorporation or suspend its business for
a whole year.
iv. If the number of the members of the
company is reduced in case of private
company below two and in case of
public company below seven.
v. If the company is unable to pay its
debt.
vi. If the court is of the opinion that it is
just and equitable that the company
should be wound up.
The Meaning of ‘Just and Equitable’:
What is just and equitable is a question
of fact and therefore it is unwise to
categorize the grounds on which the
court decided a situation to be just and
equitable for winding up. The following
factors had been considered for past
cases—

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a. Deadlock: Where there is a deadlock
in the management of the company it is
just and equitable to order winding up.
(Re Yenidje Tobacco Co Ltd. 1916)
b. Loss of Substratum: It is just and
equitable to wind up a company when its
main object has failed to materialize or it
has lost its substratum. (Re German Date
Coffee Co – 1882).
c. Carrying on Business at losses: It is
considered just and equitable to wind up
a company when it cannot carry on
business except at losses.
d. Oppression on Minority: It is just
and equitable to wind up a company
where the principal shareholders have
adopted an aggressive or oppressive
policy towards the minority.
e. Fraudulent purpose: It is just and
equitable to wind up a company if it has
been conceived and brought forth in
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fraud or for illegal purpose. For example,
if a company is formed for the purpose
of gambling or for the sole purpose of
lottery, it is just and equitable to wind up
such company.
f. Incorporate and quasi partnership:
Where a private company is in essence
or substance a partnership, it may be
wound up under the just and equitable
clause as interpreted in accordance with
the partnership principles.
In Re Yenidje Tobacco Co Ltd, the
company was wound up not only
because of deadlock, but also for the
reason that the members had forfeited
mutual confidence beyond repair which
is a ground for dissolution of
partnership.
Who can apply to the Court:
1. The Company:

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The company may itself present a
petition for winding up if it has passed a
special resolution to that effect. Petition
must be submitted by the person
authorized by the Board of Directors.
2. Shareholders:
Shareholders can apply to the court for
compulsory winding up if company fails
to hold statutory meeting or submit
statutory report within due time provided
that at least 14 days have passed after the
date on which the company is in default.
3. Contributories:
On the commencement of winding up,
shareholders are known as
contributories. Any contributory can
apply to the court for winding up on the
ground of reduction of membership. If
the application is funded on any other
ground it will be requisite that the shares
in respect of which the petitioner is a
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contributory, were originally allotted to
him or he has been the registered holder
for at least 6 months during 18 months
immediately before the commencement
of winding up or shares have been
devolved upon him through the death of
a former holder.
4. Registrar:
The Registrar can file a petition for the
winding up of a company. No special
resolution is required in this case. The
Registrar can also apply on the ground of
company’s inability to pay its debts, if
such inability appears from the balance
sheet or auditor’s report or from the
report of the Inspector. In all cases he
must take permission from the
government.
5. Creditors:
Creditors may apply for winding up of a
company. Here the term ‘creditors’
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includes secured creditor, debenture
holder and a trustee for the debenture
deeds. Two conditions must be fulfilled
in such application—
i. Reasonable security must be
provided to the company to bear the cost
of litigation in case of creditors’ defeat
ii. A prima facie case for winding up
must be established.
Powers of the Court:
A. Ordinary Powers:
1. Power to appoint a Liquidator under
section 255 to conduct the process of
winding up.
2. Power to dismiss petition, adjourn
hearing or to make interim order which it
deems just under section 249.
3. Power to stay winding up
proceeding, either altogether or for a

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limited time on such terms as it thinks
fit on the application of any creditor or
contributory according to the provisions
of section 253.
4. Court will prepare a list of
contributories and collect the assets of
the company to discharge the debts
under the power given by section 267.
5. Court may require the contributories,
trustees, receiver, agent, bank or officer
to pay, deliver, surrender or transfer any
money, property or document in his hand
to the liquidator. (Section 268)
6. Court may order payment of debts by
contributory or make calls on the
contributories to the extent of their
liability. (Section 269 & 270)
7. Court will adjust the rights of the
contributories among themselves and
distribute surplus accordingly. (Section
275)
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8. If the company’s assets are not
sufficient to the liability, court may order
payment out of asset of the cost, charges
or expenses in such order of priority as t
thinks fit. (Section 276)
9. After the affairs of the company have
been completely wound up, court may
dissolve the company by an order of
dissolution (Section 277)
10. Liquidator will report such order to
the Registrar within 15 days. In default,
a fine of an amount not exceeding 100
taka may be imposed on him for each
day of such default.
B. Extraordinary Powers:
1. Court may issue summons to any
person suspected of having property of
the company or supposed to be indebted
to the company or to any person whom
the court deems capable of giving
information concerning affairs of the
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company and may examine such person
if necessary. (Section 278)
2. Court may direct any person
involved in promotion or formation of a
company, to attend the court and provide
explanations publicly. (Section 279)
3. Section 280 empowers the court to
arrest a person from absconding if he is
proved to be absconding.
Effects of Winding Up:
i. Winding up shall operate in favour of
all creditors and all contributories
irrespective of who made the application
(Section 246)
ii. It shall be deemed that winding up
has been commenced at the time of
presentation of petition. (Section 247)
iii. The petitioner and the company must
file with the Registrar a copy of the
winding up order within 30 days and
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Registrar shall register a summery and
notify the public by an official Gazette.

2. Voluntary Winding Up:

Voluntary winding up of a company may
be affected by any of the following three
ways—
I. By ordinary resolution –
i. if the period for which the company
was formed expires
ii. an event occurs which under article
calls for dissolution of the company
II. By special resolution – The
Company may affect voluntary winding
up any time by special resolution.
III. By extraordinary resolution – if the
company by reason of its liabilities
decides to close its business by an
extraordinary resolution.
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Kinds of Voluntary Winding up:
Voluntary winding up may be of two
kinds—
A. Members’ Voluntary Winding up
B. Creditors’ Voluntary Winding up
In case of voluntary winding up, the
company is required to submit a report
of solvency to the Registrar. The
solvency report must accompany the
auditor’s report and it must be submitted
by holding a meeting before or on the
date of resolution. If the company can
prove itself as solvent, the winding up
will be members’ winding up.
But if the company is unable to submit
solvency certificate, the winding up will
be considered as creditors’ winding up.
Procedure in case of Members’ voluntary
winding up:

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In case of Members’ voluntary winding
up, the procedure is as follow—
• The company will pass a declaration
of solvency and file such declaration
with the Registrar
• A special resolution is to be passed to
affect the voluntary winding up and the
resolution must be notified by a Gazette
• An official Liquidator will be
appointed to conduct the proceeding and
the liquidator will call a meeting at the
end of each year and submit a report of
his activities, transactions and
proceedings
• As soon as the affairs of the
company are fully wound up, liquidator
will make up an account showing how
the company has wound up and the how
the assets are disposed and place it
before the members at final meeting.

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• The copy of such account will be
filed with the Registrar for registration
and on the expiry of three months the
company will be dissolved.
Procedure in case of Creditors’ voluntary
winding up:
• The company will pass a special
resolution to affect the creditors’
voluntary winding up.
• On the day of resolution or on
following day, the creditors will have a
meeting, held by advertisement and
receive the statement given by the
directors stating the financial position of
the company.
• Creditors will appoint an official
liquidator and objection of the company
will be considered in such appointment.

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• A five members’ inspection
committee will be appointed to inspect
the proceeding
• The Liquidator will call an annual
general meeting of the company and the
creditors at the end of each year to give
account
• After all affairs are complete, a final
meeting will be held and a return of
liquidators account will be registered
with the Registrar. After the expiry of
three months the company will be
dissolved.
3. Winding up under the Supervision of
Court:
In case of voluntary winding up, court
may make order that the liquidation
process shall continue under the
supervision of the court. In such case
court can remove the liquidator or can

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make the liquidator act according to the
directions of the court.
It was decided in the case of Prince of
Wales State Quarry Co. -1868, in
following cases the court may order
winding up under its supervision—
i. If the liquidator is negligent or partial
ii. If the resolution was taken by fraud
iii. If the liquidator does not follow the
procedure properly.

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