Merger & Liquidation under Bangladesh Laws

-by Barrister Shajib Mahmood Alam

Amalgamation

Ordinarily amalgamation means merger. Merger is a combination of two or more companies into a single company where one survives and the others lose their corporate existence. The survivor acquires the assets as well as liabilities of the merged company or companies.

Procedure:

As per section 12 of the Companies Act 1994, a company by special resolution may alter the provisions of its memorandum with respect to the objects of the company, so far as may be required to enable it to amalgamate with any other company. Where an amalgamation arrangement is proposed between companies, the companies showing a scheme to amalgamate will jointly file a petition to the Court under section 228 of the Companies Act 1994. The Court will notify public and creditors if they have any objection and/or confirm merger. Then the Court will order a meeting of the creditors or class of creditors, or the members of the company or class of members. If the majority agrees to the amalgamation arrangement and the Court sanctions in favor of the arrangement, that will be binding on all the creditors or the class of creditors, or all the members. After that, a certified copy of that Order has to be filed with the Registrar. Then as per section 229 of the Companies Act 1994 all the properties of the merging company will be transferred to the merged company. Finally, the merged company will publish a notice regarding this in newspapers.

Advantages:

  1. In merger the goodwill, intellectual properties, licenses, bonds are transferred to the merged company. Hence, all assets remain intact and not sold for liquidation. The merged company acquires all these properties of the merging company. So, the merged companies need not to go to the concerned govt. authorities for seeking permission to acquire those licenses, bonds again. 
  2. The merged company can make use of the very best minds from both companies and make up for shortfalls in the individual companies’ skill-sets.
  3. In merger, for regular return and for all tax, VAT single file is maintained. So, it is less expensive.

Disadvantages:

  1. If both of the companies are profit making company, merger may not be beneficial for them. Because they may lose their business focus.
  2. In case of merger, there will be a single account for two companies which may higher the risk as everything come under one umbrella and it will be risky as all the eggs are put in one bucket. In case of govt. interference both companies may suffer. If one of them is collapsed, other one will automatically collapse.

Liquidation:

Liquidation is the process by which a company is brought to an end, and the assets and property of the company are redistributed amongst creditors, shareholders.

Procedure:

The winding up of a company may be either by the Court, or voluntarily, or subject to supervision of court. An application to the Court for the winding up of a company shall be filed either by the company (shareholders), or by any creditor or creditors or by all or any of those parties, together or separately under Section 245 of Companies Act 1994. The Court will notify public and creditors if they have any objection and/or confirm liquidation. For the purpose of winding up, the court may fix an official receiver known as liquidator. On the making of a winding up order, the petitioner will file the order in the Office of the Registrar of the Joint Stock Companies and Firms. Liquidator will then file a statement of all of assets, debts and liabilities, creditor details and debts due to the company and these will be verified by the Court. All properties of the company will be under the custody of Liquidator. The liquidator shall use his own discretion in the administration of the assets of the company and in the distribution among the creditors. When the affairs of the company are fully wound up, liquidator shall make up an account of the winding of up showing how the winding up has been conducted and the property of the company has been disposed of by sale proceeds account to distribute amongst the creditors, shareholders and shall call a general meeting for the purpose of laying before it the account, and giving explanation thereof. Notice of resolution for winding up a company shall be given by the company by advertisement in the official Gazette, and also in some news paper.

Advantages:

  1. In case of liquidation, shareholders and stakeholders get their proceeds suitable where the company is not a going concern struggling with its debts back.
  2. The court appoints a liquidator and that liquidator takes over all the responsibilities, liabilities of the company. Hence, no more responsibilities for directors toward lenders.
  3. In liquidation, the company loses its identity. Thus no continuation of liabilities for tax, loan, etc.  

Disadvantages:

  1. Liquidating company loses its identity completely.
  2. In liquidation the company with the loss of its identity loses all its businesses, clients, goodwill, intellectual properties, licenses, bonds and assets as it is sold.
  3. In case of liquidation the liquidating company may get lower value than expected for assets as it is sale by court.
  4. The matter to the hand of liquidator and director does not have much say.