enterpreneur's guide to company winding up in malaysia

A Quick Guide To Company Winding Up In Malaysia

Winding up is where a company is closed down and its assets are seized, sold off, and used to settle debts with any balance distributed equitably among shareholders.

empty jar to show no assets returned to shareholders after winding up
Normally it’s just the jar.

Statistics from Malaysia’s Department of Insolvency shows that in 2023, an average of three to four companies filed for winding up every day.

Unable to pay debts1,4111,9681,1911,1131,3321,2618,276
Director or shareholder disputes0000336
Special Meeting Resolution0000123
A good day for limited liability protection.

It’s an unpleasant truth that many business owners in Malaysia will experience winding up a company as part of their entrepreneurial journey.

It’s good to be prepared, and this guide arms readers with an overview of the wind-up process, including:

  • reasons for winding up
  • the role of a liquidator in a company wind up
  • types of company wind ups
  • what happens at the conclusion of a wind up, and
  • the difference between striking off and winding up

Let’s begin.

Reasons for winding up a company

Winding up simply means liquidating the company, which can be for many reasons including:

  • no longer trading or doing business
  • management or leadership deadlocks 
  • breaching statutory requirements, or
  • corporate restructuring such as mergers or acquisitions

That said, the table above shows that in most cases, a company is wound up due to outstanding debt.

And speaking of debts, we might as well clarify the meaning of a key role in winding ups.

What is a liquidator?

Due to conflict of interest, company stakeholders cannot manage their own winding up – it could lead to assets being hidden and creditors unfairly treated. 

That’s why a professional liquidator is appointed to manage a company’s winding-up

hand squeezing lemon as ananalogy of a company liquidator function to liquidate a company during winding up
Gotta get every last drop.

A liquidator must hold a valid license and cannot handle a specific case if they:

  • owe the company more than RM 25,000
  • are related to the company or creditors
  • go bankrupt, or
  • get sentenced to at least three months imprisonment for fraud

In overseeing a wind up, liquidators aim to settle as many of the company’s obligations to staff and creditors as possible before the company is shut down.

Who is an Official Receiver?

The Official Receiver is a government officer appointed to perform the functions of a liquidator and in Malaysia is held by the Director General of Insolvency (DGI).

It’s the public servant version of a private liquidator with the same duties and powers.

When is it by a liquidator vs Official Receiver?

A private liquidator is appointed by the company or creditors in voluntary wind ups.

The Official Receiver serves as the default liquidator in court-ordered wind ups, unless the creditors and company would like to appoint their own liquidator.

In practical terms, there’s no difference in how either handles a winding up.

Types of company winding up

There are three types of company winding up:

  1. Compulsory winding up
  2. Members’ voluntary winding up, and
  3. Creditors’ voluntary winding up

Let’s look at what each of these entail.

Compulsory winding up

This is a court-ordered winding up based on a petition by one of several parties under Section 464 of the Companies Act, including:

  • the company itself
  • creditors, or
  • shareholders or their representatives

The threshold for initiating winding-up proceedings against a debtor company is currently RM50,000 and the debtor has 21 days after receiving a demand letter to settle the debt.

screenshot of news aticle raising indebtedness for compulsory wihnding up in malaysia to tm50000
It was RM10,000 before 2021.

If the court issues a winding up order, it appoints a liquidator or the Official Receiver to handle the wind up.

As with anything that involves the courts, a compulsory winding up is expensive and time consuming, which is why a voluntary winding up is generally preferable.

Members’ voluntary winding up

This is where a company is still solvent, and shareholders pass a special resolution to wind up the company and appoint a liquidator to return proceeds to them.

Upon passing the resolution, the company is required to:

  1. Lodge a printed copy of the resolution with the Registrar within seven days.
  2. Publish a notice of the resolution in a widely circulated newspaper in Malaysia in both Bahasa Melayu and English within ten days.

Directors must lodge a Declaration of Solvency with SSM to declare the company is solvent.

Creditors’ voluntary winding up

If the company cannot pay its debts, after passing a resolution to wind up the company, a meeting must be held with the company’s creditors to propose a voluntary wind up.

If there is a disagreement on who to appoint as liquidator, the company must follow the creditors’ choice.

The company is also required to:

  1. Give creditors at least seven days notice of the meeting
  2. Advertise the notice at least seven days before the meeting in a widely circulated newspaper in Malaysia in both Bahasa Melayu and English 

Note: If a company appointed liquidator feels the business cannot remain solvent for the next 12 months, they may also initiate a creditors’ voluntary winding up.

The end of a voluntary winding up

Once a voluntary winding up is completed, the liquidator will:

  1. Prepare a detailed account of the distribution of company assets.
  2. Publish a notice of the final meeting at least 30 days in advance in one widely circulated newspaper in Bahasa Melayu and English.
  3. Hold a meeting with shareholders and creditors, during which they present the account.
  4. Submit a meeting return and copy of the account to SSM and the Official Receiver.

Three months after lodging these documents, the company will officially be dissolved.

Winding up vs striking off a company

Both winding up and striking off a company mean formally dissolving it.

However, striking off is when the company has no assets or debts and shareholders simply don’t want to continue paying for its maintenance.

a successfully wound up company that has ceased to exist
Time to start anew.

Winding up is when there is a need for a liquidator to take stock of company assets and liquidate them to settle debts and obligations before distributing any balance to shareholders based on equity. Compulsory winding ups will also involve legal proceedings.

For that reason, winding up more complicated, time-consuming, and costly compared to striking off.

Either way, it is the end of a company but only part of an entrepreneur’s journey!

Let MISHU help with your winding up

MISHU partners with corporate lawyers to help our clients navigate the legalities of a company winding up and other corporate exercises, and we are committed to serving your best interests. Get in touch with us today! 

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