Companies are closed for many reasons. It can be a voluntary or court ordered closure.
Companies that become insolvent are unable to repay their debts and dues. Their creditors first try to recover the dues following the due legal process at their own level and then through a court order. If they fail to get their money, they can go back to the court which can order winding up of the company.
The proceeds obtained from selling the company and its properties are used to clear the dues of the creditors and other related groups like the suppliers.
Companies are generally closed for the following reasons:
- Insolvency
- Ceased business operation
- Making losses
- A dispute among the shareholders
- Parent company’s restructuring
- A dormant company
- Government and court ordered closure due to financial or other offenses
Companies are liquidated in two ways – “Struck Off” and “Wind Up”. While the end result in both cases is same – the company ceases to exist, the process for each closure method is different. A company that has ceased to trade can go to the company registrar and apply to be declared “Struck Off”.
It works well for dormant and small companies that meet certain conditions. This process cannot take place if the company is undergoing an insolvency process or there is an ongoing agreement process with its creditors or members.
The “Wind Up” process is more formal and complex. A liquidator is appointed to close the company’s operations, manage the sales of its assets, and pay off its debts and dues.
THE REQUIREMENTS FOR STRIKING OFF THE COMPANY
A company that wants its name struck off the Register has to apply to the Accounting and Corporate Regulatory Authority (ACRA). It must fulfill certain conditions before ACRA strikes it off the Register. The requirements include:
- Ceased Trading
- No court proceedings against it in or out of Singapore
- No Liabilities and Assets
- No pending penalties
- No composition offers due to the Registry
- No pending tax liabilities with the Inland Revenue Authority of Singapore (IRAS)
- No pending ACRA summonses against the company secretary and directors
- The directors have same particulars as provided to ACRA
- Consensus among all shareholders to get the company struck off
THE PROCESS FOR STRIKING OFF
The company has to apply to the Company Registrar for striking off its name in the Register. Processing of this application can take 7 working days.
The striking off notice is issued by ACRA if the applicant fulfills the required conditions. The notices are sent to the company’s registered office address, residential addresses of the company secretary and the directors, and Singapore tax authorities.
A final notification is issued after four months to declare the company being struck off in the Register. Any person objecting to the closure of the company can file an objection at this time. The whole process of striking off the company can take 5-6 months.
WIND UP PROCESS
This process is started in two ways – voluntary and compulsory. In case of the voluntary winding up, the company members or creditors decide to liquidate the company voluntarily.
THE WINDING UP PROCESS STARTED BY THE MEMBERS
Members start this process when the directors have determined the company can repay its debts within 12 months of starting the winding up process. The directors in a meeting have to issue a Declaration of Solvency in writing. A notice for an EGM (Extraordinary General Meeting) is issued to the members after filing this declaration.
A Special Resolution is passed at the EGM to initiate the process of winding up the company. The appointment of the liquidators and their remunerations are approved in a separate Ordinary Resolution. Accountants are generally preferred for the positions of liquidators.
After issuing the Declaration of Solvency and before holding the EGM, a provisional liquidator is appointed by the directors or partners. The notice of this appointment and statutory declaration are advertised in at least four local newspapers. These four notices are issued as one each in Malay, English, Chinese and Tamil language newspapers.
A Special Resolution is passed at the EGM to resolve the voluntary closure of the company. It must get approval from at least 75% of the members who have voting rights. Another Special Resolution is passed to empower the liquidators to divide the company’s assets and properties among the members.
The resolution document must be submitted to ACRA within seven days and the notice about the resolution is published in the local newspapers within 10 days of passing the resolution. The term “In Liquidation” must now accompany the name of the company in all its documents.
The liquidators must be given full access to all company records and books. The liquidators start the process of liquidating the company. They issue notices and advertisements as required for this purpose. The dues of the creditors and income tax department are paid before paying the shareholders.
In the end, the liquidators call a general meeting and present the details that show how the company’s property has been disposed. A return about holding this meeting and the account data are submitted to ACRA within seven days of this meeting.
The company is finally dissolved after 3 months of submitting this data to the Registrar. At the same time, the liquidation of the company can be termed void at any time by a court within next two years.
VOLUNTARY WINDING UP BY THE CREDITORS
This method of liquidation process is started if the directors believe the company can no longer function due to its liabilities. A liquidator is appointed to wind up the company. The same procedure as above is followed in this winding up process.
VOLUNTARY WINDING UP BY THE CREDITORS
- The company stops its business operations once the Special Resolution is passed.
- It can continue only with the liquidator recommended activities.
- The directors lose all powers unless the liquidator decides differently.
- Share transfer is prohibited unless it is approved by the liquidator.
COMPULSORY WINDING UP
A company can be ordered to wind up by the court order. This method of liquidation process is started by the creditors, shareholders, liquidators or judicial manager.
The Official Receiver initiates the liquidation process if the court does not appoint any liquidator. The company’s officers lose their powers to operate the company. The liquidators allow only those business operations that are considered beneficial in the interests of the company.
Everyone associated with the company affairs has to cooperate and assist the liquidator. The liquidator has the power to reject or admit claims to the company’s assets.
COMPULSORY WINDING UP EFFECTS
A court application can be filed to get a restraining or stay order against any pending court proceedings. Once the provisional liquidator is appointed or winding up order is issued, anyone can proceed against the company only after obtaining a leave of court order.
No share can be transferred and no company property can be disposed without getting the requisite sanctions from the court.
Once the winding up petition is filed, creditors cannot continue with any attachment proceedings.
The winding up order does not affect realizing the security by the secured creditor. However, no interest on the debt can be claimed by the creditor if there is no realization of the security within six months of the winding up process, or longer if the Official Receiver allows it.
If any business of the company was conducted to defraud the creditors or carry fraudulent activities, the person responsible for such acts can be held liable for the company’s debts. The creditor, contributory or liquidator has to initiate the court proceeding and obtain a court order to proceed against that person or entity.
The mutual deals, debts and credits between a creditor and the company are settled against one another and only the balance sum can be claimed by the company or the creditor against the other.
No claim is acknowledged if the creditor was aware of the winding up petition filed against the company.
REQUIREMENTS FOR THE NOTIFICATION
Information about initiating the liquidation process of the company must be notified to the following parties:
- ACRA – Accounting and Corporate Regulatory Authority
- IRAS – Inland Revenue Authority of Singapore
- CPF Board – Central Provident Fund
- Relevant licensing departments
WHY SEEK PROFESSIONAL HELP TO WIND UP YOUR COMPANY?
It is a complex legal process that requires support from certified, trained and experienced professionals. Making mistakes at this stage when the company is finally winding up can prove costly.
Failure to comply with the statutory and legal winding up requirements can create new problems. It is strongly advised to use the services of a professional firm that specializes in the company liquidation process. You will receive a custom solution and professional guidance based on your specific needs.
