Liquidation is the process of closing the business and distributing its assets to claimants. As company’s operation ends, the remaining assets are used to pay creditors and shareholders, based on their priority of the claims.
A company which is established under the laws of the kingdom of Bahrain shall be liquidated in accordance to the provisions of the companies commercial law 21 of 2001.
A company should wound up for the reasons which are stated under the law. If the dissolution of the company is voluntary, then the liquidation of the company shall be in liquidation procedure provided in company’s MOU, in absence of any such provisions the guidelines laid down by law should be followed.
During the liquidation process of the company, the company shall maintain its corporate entity to the extent required by the liquidation activities, however the phrase “under liquidation” shall be added to the name of the company till the completion of the liquidation procedure and the powers of the company shall thereafter vest with the appointed liquidator.
Liquidation of the company shall require:
- A resolution which is approved in extra-ordinary general meeting.
The resolution shall state:
(a) The reason for liquidation
(b) The unanimous decision of all the members to liquidate the company
(c) The appointment of one or more liquidators (by simple majority), who can be director or a non-director of the company. Where there is more than one liquidator, the acts of the liquidators shall not be valid unless taken through a unanimous decision.
(d) The remuneration of the liquidator.
(e) The term of the liquidation process, within which the liquidation procedure shall be completed. This term may be extended upon submission of a report by the liquidator to the company’s management and the company through a resolution agrees to extend the same.
2. The resolution should be registered at the company registry, who shall thereon publish the same in a local newspaper. The Liquidator shall be responsible for following up with the Company Registry for the entry procedure. The appointment (or dismissal and reappointment) of the liquidator or the liquidation procedure shall not be effective against third parties unless published in a local newspaper.
3. After the appointment of the liquidator, the liquidator shall carry out an inventory of the assets and liabilities of the company, with the agreement of the company’s director. Also a detailed inventory and the balance sheet shall be prepared and signed by the liquidator, managers and the board of directors of the company.
4. The board of directors shall thereon submit the accounts of the company to the liquidator and shall also handover the books, properties and other documents of the company. The liquidator being the agent of the company shall be responsible for acting to safeguard the interest of the company.
5. Liquidator has to maintain a separate register to record the liquidation acts. The liquidator shall be particularly responsible for:
(a) Representing the company against all third parties.
(b) Selling the companies movable and immovable properties (if required), but not without the prior consent of the company directors or the ordinary general assembly.
(c) Paying company’s dues and debts.
(d) The liquidator shall not initiate any new activities unless the same is necessary for completion of the previous activities.
6. All money received by the liquidator shall be deposited in the company’s accounts.
7. The liquidator has to inform all the creditors of the company of the commencement of the liquidation procedure and invite them to submit their claims.
8. Without prejudice to the rights of the privileged creditors the liquidator shall start paying company’s debts. Debts arising from the liquidation process shall have priority in payment from the company’s funds over the other debts.
9. A liquidation report should be provided by the liquidator to the company’s management in every six months. The right to initiate court proceedings against the liquidator for his malafide acts is reserved by the directors of the company.
10. The liquidator shall enter the completion of the liquidation in the Commercial Registry, who shall thereon publish it in the local newspaper so as to be effective against all third parties.
11. After the completion of liquidation process, the liquidator shall apply for striking of the company’s name from the commercial registery.
12. The company’s books and register shall be maintained for a period of 10 years from the date of striking off the name of the company from the Commercial Registry.
Also, many amendments are also made under commercial companies law and one which is applicable to liquidation is that “where the company is under liquidation, whether voluntary or by court order, the New Law allows the liquidators to institute a liability lawsuit, and removes the requirement for a resolution of the General Assembly. Essentially, this simplifies the process of filing a lawsuit”.
Where a shareholder is looking to initiate a lawsuit for invalidity and claim compensation in respect of any resolution issued by the Ordinary or Extraordinary General Assembly on the grounds that it violates the Commercial Companies Law, public order or the company’s constitutional documents must file a claim before the courts. If the claim is successful and the court renders the resolution null and void, the judgment should be published by the board of directors in a local daily newspaper. The New Law sets a limitation period so that a claim should be made within 60 days from the date of the shareholder’s knowledge of the resolution or one year from the date of its issuance, whichever less.