Company closures are mainly precipitated by the economic downturn and rapid market changes. When it comes to the stage where business owners have decided to put an end to the business of a company, or it has gradually stopped being operational or eventually become inactive.
So what is to expect next?
There are two common methods for closure of a company:
1. Strike Off / De-registration
2. Winding Up (Compulsory winding up OR Voluntary winding up)
Strike Off / De-registration
A company may be struck off or deregistered from the register if the Registrar has reasonable cause to believe that the company is not carrying on business or is not in operation. The effect is the same as de-registration whereby a company makes an application to the Companies Commission under s.308 of the Companies Act to deregister their company which is to have its name struck off from the Register.
This situation occurs when a company is dormant and has no intention to do business. A company will be considered dissolved once the Notice is published in the Gazette. For more info, please click here.
The Registrar is empowered under s. 308 of the Companies Act to strike the name from the Register if it has reasonable cause to believe that the company has ceased to operate or in other means, no longer operating. It will then be considered dissolved upon the publication of the striking off notice in the Gazette.
Normally, the Registrar will never exercise its power under s.308, but instead would let companies themselves do the initiative. It’s highly advisable that company owners who do not intend to use the company to do business to not just abandon it as this can result in a huge fine.
A company can be deregistered by submitting an application to the Companies Commission under s.308 of the Companies Act to have its name struck off from the Register. The Registrar then will strike the name off the Register if the application is satisfied, that the company has fulfilled all the requirements.
|To apply under s. 308, the company must fulfil the following conditions:
– It has not commenced business or has stopped its operation
– It has no intention of doing business in the future
– Has no property or assets
– Has no liabilities to creditors
– Is not a guarantor corporation
– Has not been placed under receivership
Conditions for Striking Off
Before a strike off exercise can commence, a company has to fulfill the following conditions:
- Dormant and inactive i.e: not receiving any revenue nor incur any expenses at all
- Consented from the majority of the shareholders
- No assets and liabilities
- No bank account
- No outstanding tax or other liabilities including compound with any government bodies such as EPF, SOCSO, LHDN, and etc.
- No outstanding penalties or compound due to SSM under CA 1965
- Updated the latest information with SSM
- Not involved in any legal proceedings within or outside Malaysia
- Does not have any charges in the Register of Charges
- Has not made any return of capital to shareholders
- Not a holding company or subsidiary of another corporate body
- Not a Guarantor Corporation
However, this decision can be aggrieved by any one who wants the company to be restored, he or she can apply to the court under the same section to have the company’s name restored to the Register. But he or she must prove to the court that the company is actually still active in operation at the time of striking off.
Winding up is the process of dissolving a company. Where the business operation of a company is terminated and its purpose is to sell off all the assets to pay off the creditors according to priorities.
Winding up can be initiated with compulsory winding up by the court or a voluntary winding up by the creditors or members. For more info, please click here.
- Compulsory Winding Up (Company Winding Up by Court)
It begins with the presentation of a petition in Court. The petitioners include creditors, liquidator, the Registrar of companies or the Official Receiver under section 217(1) of the CA 1965 or section 464 of the CA 2016.
The creditors of a company may apply to the court to compulsorily wind up the company if it is trading unprofitably or is insolvent. The company is usually insolvent and a director makes a Statutory Declaration that the company cannot continue business because of its liabilities and that meetings with the creditors have been summoned for a date within one month of the date of declaration.
There are 2 categories:
- Members’ voluntary winding up (MVWU)
- Creditors’ voluntary winding up (CVWU)
In a members’ voluntary winding up, the company is solvent and a declaration of solvency is made by a majority of the directors. Directors must declare that the company will be able to pay its debts in full within a period of twelve (12) months after the commencement of winding up. Under this winding up process, the company has the ability to settle all debts.
For Creditors’ voluntary winding up, if the company is not able to meet its liabilities, the company can convene a meeting with its creditors to consider its proposal for a voluntary winding up of the company.
Conditions for Winding up
In order for a company to wind up, a company has to fulfill the following conditions:
- Solve/ insolvent and active company.
- Special resolution to be passed or the court makes an order.
- Latest mandatory submissions are completed with SSM (i.e. Annual Return and Audited Financial Statements) before commencement of winding up process.
- Appointment of liquidator by the shareholders and/or the creditors or by the court.
- Advertise winding up status in local newspaper (2 times, each on both Malay & English newspapers)
- Any surplus after payment to creditors is distributed to the company’s members.
|Where the whereabouts of the creditor is unknown, the shareholder must provide proof that he/she has made attempts to trace the whereabouts of such creditor by writing to the address stated in the company’s records or any other records available. Attempts must be made by way of registered post. Where the notification from the postal agency is being relied on as proof, it should be submitted as an attachment to the application. Proof of any other modes of attempt (if any) must also be attached to the application.
If you need help in striking off or winding up your company, please contact us for a free consultation!
The view expressed in this article is intended to provide a general guide to the subject matter and does not constitute professional legal advice. You are advised to seek proper legal advice for your specific situation.