Partner disputes, a request for liquidation, and a challenge to general-assembly decisions
A disagreement among partners over the management of the company, over a general-assembly decision, or over whether the company itself is to continue, is read from Companies Law No. 21 of 1997, as amended, not from an unwritten internal custom. The frame is on company registration. The general-assembly meeting is on its page. Bankruptcy and protective composition are a separate commercial path, on their page.
Article 4, third paragraph, prevents the owners of capital from using voting powers to harm the company for their own benefit at the expense of the other owners, or to endanger creditors' rights by withdrawing capital or transferring assets when insolvency is imminent or when the law so prohibits.
Causes of the company's ending, and a liquidation decision
A company ends for one of the causes article 147 lists: failure to begin activity although two years have passed since formation, without a lawful excuse; cessation of activity for a continuous period of more than two years without a lawful excuse; completion of the project for which the company was formed, or the impossibility of carrying it out; merger or transformation under the Law; loss of seventy-five per cent of the nominal capital without the prescribed step being taken within sixty days of that loss being established by the accounts; or a general-assembly decision to liquidate the company. The seventy-five per cent figure is a statutory threshold in the text, not a fee.
If the general assembly decides on liquidation, or if a cause in paragraphs first, second, third and fifth of article 147 is established and the assembly recommends liquidation, the company must appoint a liquidator, fix that person's powers and remuneration, and send the decision or recommendation to the Registrar, under article 158, first paragraph. The liquidator is an agent of the company within those powers for the duration of the liquidation. If the company does not recommend liquidation although a cause in paragraphs first, second and third of article 147 has arisen and sixty days have passed since the Registrar's warning, the Registrar must issue a liquidation decision directly, unless a period is granted for the company to remedy its position where there are grounds for that, under article 158, second paragraph. The company may object to the liquidation decision within thirty days of being notified of it. The text allows that objection before a court it does not name in that paragraph, and then makes that court's decision subject to cassation before the Court of Appeal in its cassation capacity, without a path of correction of the cassation decision. The Court of Appeal in its cassation capacity is therefore named as the text names it, and no extra name is added for the court to which the objection is first taken.
The liquidation decision, or the recommendation of liquidation, must state its reasons, and is sent to the Registrar within fourteen days, under article 159. If the Registrar is satisfied that the causes of liquidation do not involve fraud or an unlawful act, the Registrar issues the decision and appoints the liquidator within ten days of the causes being established, under article 160.
How liquidation proceeds after the decision
Upon being notified of the liquidation decision, the company ceases to make any change in its membership and to incur any new obligation, and its activity continues only to the extent needed to discharge its obligations in the work of liquidation, under article 163. It keeps its personality during the liquidation, provided that it is stated to be in liquidation wherever its name appears, under article 164. Liquidation does not release the founders, the members or the officers of management from a liability that arose during their activity, under article 165. Any person with an interest may challenge the validity of a financial obligation the company incurred in the six months before the liquidation decision was issued. The text allows that challenge before a court, without naming the court.
The liquidator takes possession of the assets and the registers, prepares a comprehensive report, and, within ten days, invites the creditors by an announcement in two daily newspapers to meet at a stated time and place so that the debts and rights outstanding against the company may be set out, under articles 168 and 170. Debts are paid, after liquidation expenses are deducted, in the order article 174 lays down. When the work is finished, the liquidator prepares a final report, calls the general assembly to discuss it, and the Registrar then issues a decision striking the name off and publishes it, under articles 176 and 177. The liquidator distributes what remains to the members according to their shares within thirty days of being notified of the striking-off decision, under article 178, and keeps the registers for five years from the date of striking off, under article 180.
Challenging general-assembly decisions
Any member may challenge before the Registrar the regularity of the steps from the invitation to the issue of the decisions, within three days of the end of the meeting, under article 96, third paragraph, as set out on the meeting page. An objection to the decisions themselves, if made by persons representing at least five per cent of the members within seven days of the decisions being taken, is decided by the Registrar within fifteen days, and the Registrar's decision may be challenged before the Court of First Instance, under article 100. The Court of First Instance is named as the text names it, without adding a description that does not appear there.
If the votes in a limited company are equal, or unanimity in a partnership cannot be reached, on the matters for which article 98 requires a special majority or unanimity, the text allows resort to a court for a decision on the issue, without naming that court.
The Law Office of Ali Barakat follows this reading of disputes and liquidation from Baghdad, al-Yarmouk.
Legal basis and sources
Frequently asked questions
Before which court is the Registrar's decision on a five-per-cent objection challenged?
Before the Court of First Instance, under article 100, after the Registrar has decided the objection within fifteen days. The objection itself is submitted to the Registrar within seven days of the decision being taken, by persons representing at least five per cent of the members.
Does liquidation release the managing director or the members from an earlier liability?
No. Article 165 provides that liquidation does not release the founders, the members or the officers of management from any liability that arose while they were carrying on their activity in the company.
What if the company does not recommend liquidation although a cause in article 147 has arisen?
If a cause in paragraphs first, second and third of article 147 has arisen and sixty days have passed since the Registrar's warning, the Registrar must issue a liquidation decision directly unless a period is granted, under article 158, second paragraph. The company may object to that decision within thirty days of notification, and cassation then lies to the Court of Appeal in its cassation capacity, as the text names it.
Related topics and articles
- 01General assembly meetings, quorum and minutesA general assembly meeting: the invitation, quorum, minutes and decisions under the Companies Law, and sending those decisions to the Registrar.
- 02Amending the company contract, changing the managing director and transferring sharesAmending the company contract, changing the managing director and transferring shares under Companies Law No. 21 of 1997 as amended.
- 03Bankruptcy and protective composition under the Commercial LawBankruptcy and protective composition: Commercial Law 30 of 1984 kept Book Five of Law 149 of 1970 until insolvency is regulated.
- 04Obligations that recur after a company is recordedFinal accounts, the audit, the general-assembly meeting and copies sent to the Registrar, distinct from post-incorporation steps and from branch duties.
- 05The address of a company or branch, a lease and a title deedThe company's address in its contract, before the Registrar and in the commercial register; a lease or deed may evidence it. Not a real-estate page.