Modes of winding up
There are two modes of winding up, namely:
1. A voluntary winding up.
2. A winding up by the Court.
When a company is being wound up whether by the court or voluntarily, every invoice, order for goods or business letter issued by or on behalf of the company or a liquidator of the company, or a receiver or manager of the property of the company, being a document on or in which the name of the company appears, shall contain a statement immediately following the name of the corporation that a receiver or manager has been appointed (Section 187). However, the company is still the same legal person as before; its control has changed in that the powers of the directors and other officers have ceased but the legal entity has not.
Voluntary winding up
A voluntary winding up can be either a members’ voluntary winding up or a creditors’ voluntary winding up. Both require the passing of a special resolution that the company to be wound up. In a members’ voluntary winding up the company is solvent, while in a creditors’ voluntary winding up it is usually insolvent.
A members’ voluntary winding up is often the result of a reconstruction or merger. A creditors’ voluntary winding up is brought about by a resolution of the company resolving that by reasons of its liabilities, it can no longer carry on with the business and that the company should be wound up. A liquidator is appointed at a meeting of creditors convened within one day of the passing of such a resolution. A company may be wound up voluntarily in the following circumstances (Section 254):
1. when the period, if any, fixed for the duration of the company by the memorandum or articles expires, or the event, if any, occurs, on the occurrence of which the memorandum or articles provide that the company is to be dissolved and the company in general meeting has passed a resolution requiring the company to be wound up voluntarily, or
2. if the company so resolves by special resolution.
After the passing of the resolution for voluntarily winding up, the company must:
(a) within seven days lodge a printed copy of the resolution with the Registrar (Section 254(2)(a)), and
(b) within ten days give notice of the resolution in a local newspaper (Section 254(2)(b)).
Failure to lodge the resolution with the Registrar and to give notice is an offence (Section 254(3)).
A voluntary winding up commences with the passing of the special resolution (Section 254(1)).
Members’ voluntary winding up
Notice of resolution on voluntary winding up must be lodged with the Registrar within seven days of passing and must be published in the local newspapers within 10 days of passing (Section 254(2)).
Declaration of solvency
A members’ voluntary winding up means a winding up in which a declaration of solvency has been made and delivered in accordance with the requirements of the Act (Section 257).
The majority of the directors may (before the date on which the notices of the meeting at which the resolution for the winding up is to be proposed are sent out) make a statutory declaration to the effect that they have inquired into the affairs of the company and have formed an opinion that the company is able to pay its debts in full within a period of 12 months of the commencement of the winding up as specified in the declaration of solvency.
If, however, at any time during the continuance of a members’ voluntary winding up, the liquidator is of the opinion that the company will not be able to pay its debts in full within the period in the declaration of solvency, the liquidator must forthwith summon a meeting of creditors. The liquidator must also present a statement of the company’s affairs before that meeting (Section 259). This is then called a creditors’ voluntary winding up.
Annual meeting of members
If the winding up continues for more than a year, the liquidator must summon a general meeting of the company and lay before an account of his/her acts and dealings, and of the conduct of the winding up during the preceding year. Similar meetings must be summoned at the end of each succeeding year where the winding up continues (s 271). As the meeting is a meeting of the company, the requirements and procedures for the summoning of a general meeting is governed by the articles of association.
Creditors’ voluntary winding up
A creditors’ voluntary winding up is a winding up in which a declaration of solvency has not been made and delivered to the Registrar within the time prescribed by the Act (Section 257).
Meeting of the company
If the company considers that it is insolvent and should be wound up, it may report the matter to its members. The members at the meeting specifically called to consider the matter may:
(a) resolve by special resolution that the company be wound up
(b) appoint a liquidator.
A meeting of creditors must be summoned for the day or the day following the shareholders’ meeting (Section 260). At this meeting a statement of affairs must be tabled. A director and the company secretary must attend to explain the situation.
The creditors must be given at least seven clear days’ notice by post of the meeting. Each notice must contain a statement showing the names of all creditors and the amounts of their claims (Section 260(2)). The company must also advertise the
notice of the meeting of creditors in a local newspaper at least seven days before the meeting (Section 260(3)). A notice may take the following form:
|NOTICE OF MEETING OF CREDITORS
NOTICE IS HEREBY GIVEN that a meeting of the Creditors of the above named Company will be held at 15 Jalan Ipoh, 51100 Kuala Lumpur on 14 February 1990 at 3.00 pm for the purposes of nominating a person to be liquidator, appointing members of a Committee of Inspection and to consider and approve the costs of winding up incurred to date.Proxies must be lodged at the Registered Office not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
BY ORDER OF THE BOARD
The creditors may nominate a liquidator. The liquidator may be also appointed by the members in which case, the creditors’ nominee supersedes the members’ appointed liquidator (Section 261(1)). Any director, member or creditor may apply to the court for an order directing that the person nominated as liquidator by the company shall be liquidator instead of the person nominated by the creditors. This application must be made within seven days after the date on which the nomination was made by the creditors (Section 261(2)). The creditors may also appoint a committee of inspection (Section 262).
Annual meeting of creditors
If the winding up continues for more than a year, the liquidator must summon a creditors’ meeting of the company and table before that meeting an account of his/ her acts and dealings and of the conduct of the winding up during the preceding
year. Similar meetings must be summoned at the end of each succeeding year where the winding up continues (Section 271).
Committee of inspection
Although the liquidator is charged with the ultimate responsibility of administering the winding up, he/she may be assisted in the performance of this duty by a committee of inspection.
The Act provides (Section 241) that the liquidator must, if requested by any creditor or contributory, summon separate meetings of the creditors and contributories for the purpose of determining whether the creditors or contributories require the appointment of a committee of inspection to act with the liquidator, and if so, who are to be its members. If there is a difference between the determinations of the meetings of the creditors and contributories, the court must decide and give its order.
Creditors at a creditors’ meeting may appoint representatives to the committee. Although the company may appoint representatives, the creditors may resolve that only their representatives may act as members of the committee, and unless the court otherwise directs, it is the creditors’ appointees who may act. The maximum membership is five (Section 262).
Some of the powers vested in the committee are as follows:
1. Sanctioning certain powers of the liquidator (Section 269(1)(a), 285).
2. Sanctioning the continuance of directors’ powers in a creditors’ voluntary winding up (Section 261(4)).
3. Fixing the liquidators’ remuneration in a creditors’ voluntary winding up (Section 261(3)).
4. assisting the liquidator, and in this respect, members of the committee may have the relevant experience and expertise to advise the liquidator about some of the activities which the company may have undertaken before it entered liquidation.
Winding up by the court
A winding up by order of the court commences at the date of presentation of the winding up petition. In a winding up by the court, a company may be wound up on petition of (Section 217):
1. the company itself
2. any creditor including a contingent or prospective creditor of the company
3. a contributory or any person who is the personal representative of a deceased contributory or the trustee in bankruptcy or the Official Assignee of the estate of a bankrupt contributory
4. the liquidator
5. the Minister pursuant to Section 205 i.e., following the report of an inspector appointed under the Special Investigations provisions
6. the Central Bank (in the case of banks and finance companies) (Section 217)
7. the Registrar of Companies, on the grounds that:
a. the company is being used for unlawful purposes or any purpose prejudicial to or incompatible with peace, welfare, security, public order, good order or morality or
b. the company is being used for any purpose prejudicial to national security or public interest (Section 217(1)).
Grounds for compulsory winding up
The court may order a company to be wound up if (the use in Section 218 of “may” rather than “shall” gives the court a discretion whether to grant an order for the company to be wound up):
1. The company has by special resolution resolved that it be wound up by the court.
2. Default is made by the company in lodging the statutory report or in holding the statutory meeting.
3. The company does not commence business within a year from its incorporation or suspends its business for a whole year.
4. The number of members is reduced to (other than a company in which the whole of its issued shares is held by a holding company) below two.
5. The company is unable to pay its debts.
6. The directors have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever which appears to be unfair or unjust to other members.
7. An inspector appointed under Pt IX has reported that he/she is of the opinion:
a. that the company cannot pay its debts and should be wound up, or
b. that it is in the interests of the public or of the shareholders or of the creditors that the company should be wound up.
8. When the period, if any, fixed for the duration of the company by the memorandum or articles expires or the event, if any, occurs on the occurrence of which the memorandum or articles provide that the company is to be dissolved.
9. the court is of the opinion that it is just and equitable that the company be wound up (here, the mutual trust and underlying confidence which formed the basis of the association must have ceased).
10. The company has held a licence under the Banking Act 1973 or the Islamic Banking Act 1983 and that licence has been revoked or has expired and has not been renewed
11. The company has carried on with the banking business in contravention of Sections 3, 5 or 6 of the Banking Act 1973.
Inability to pay debts (Section 218(g) CA)
A company will be taken to be unable to pay its debts if:
1. A creditor whom the company is indebted in a sum exceeding RM500 serves on the company a statutory notice of demand for repayment of the sum and the company has neglected to pay the sum, or secure or compound it to the reasonable satisfaction of the creditor, within three weeks of the said demand, or
2. An execution or other process issued on a judgment, decree or order of court in favour of the creditor is returned unsatisfied, or
3. The court is satisfied, taking into account the contingent and prospective liabilities of the company, that the company is unable to pay its debts.
Statutory notice of demand
The most common ways of showing that a company is unable to pay its debts referring to Section 218 are:
1. The debt must be RM500 or more.
2. The debt must be due and not a contingent liability. However, there is no need for a judgment to precede this demand.
3. The debt must be due to the creditor making the demand.
4. The demand must be in writing.
5. It must be signed by the creditor or his/her (its) lawfully authorised agent.
6. It must specify the sum due.
7. It must be served by being left at the registered office of the company. Postal service will not do. Being delivered to a place other than the registered office (e.g., the office of the company’s accountant) is not sufficient.
Although the notice of demand in writing need not be in any special form, it must strictly comply with the requirements of Section 218(2)(a) of the Companies Act 1965. The whole purpose of the demand is to warn the debtor of an impending petition.
The presumption of inability to pay its debts only arises if the requirements of the section relating to the demand have been complied with and the company has for three weeks after service of the demand neglected to pay the sum or to secure or
compound for it to the reasonable satisfaction of the creditor.
The presumption of insolvency arises when the requirements of Section 218(2)(a) of the Act have been satisfied and it is for the company to prove that it is able to pay its debts. If the company does not have assets available to meet its current liabilities,
it is commercially insolvent and may be wound up.
Form of notice
The form of notice of demand might take the following form when the creditor is a person:
|To (name of debtor)
TAKE NOTICE that I, Mohamed Ali trading as “Kedai Sukaramai” being person to whom you are indebted in a sum exceeding Ringgit Malaysia Ten thousand Ringgit Malaysia (RM10,000) namely in the sum of Ringgit Malaysia Ten thousand and forty three (RM10,043) require you to pay to me or to secure or compound to my reasonable satisfaction the sum of Ringgit Malaysia Ten thousand and forty three (RM10,043) being an amount owing in respect of professional fees for work done and services performed on your behalf particulars whereof have already been supplied AND FURTHER TAKE NOTICE that if at the expiration of twenty one (21) days from the date of service of this notice on you fail to comply with the terms here of the said [name of debtor ] will pursuant to s 218(2)(a) of the Companies Act 1965 be deemed unable to pay its debts as and when they fall due and proceedings may thereafter be commenced to wind up the said company pursuant to the said Act.
Dated this ____________ day of ____________ 2000
Signed by ____________
When the creditor is a company the form is slightly different, i.e.:
|To (name of debtor company e.g., Mahjong Berhad)
TAKE NOTICE that Siew Mai Sdn Bhd being a company to which the said Mahjong Berhad is indebted in a sum exceeding Ringgit Malaysia Five hundred (RM500) namely in the sum of Ringgit Malaysia Twelve thousand (RM12,000) requires the said Mahjong Berhad to pay to it, the said Siew Mai Sdn Bhd, or to secure or compound to its reasonable satisfaction the sum of Ringgit Malaysia Twelve thousand (RM12,000) being the amount owing in respect of work done and materials supplied concerning (further details) particulars whereof have already been supplied AND TAKE FURTHER NOTICE that if at the expiration of twenty one (21) days from the date of service hereof the said Mahjong Berhad has failed to comply with the terms hereof the said Mahjong Berhad will pursuant to s 218(2)(a) of the Companies Act 1965 be deemed unable to pay its debts as and when they fall due and proceedings may thereafter be commenced to wind up the said Mahjong Berhad pursuant to the said Act.
Dated this ____________ day of ____________ 2000