Winding UpVoluntary Winding UpCompulsory Winding Up
Meaning of Winding UpA process where a company is dissolvedWhere the business is closed down, allassets are sold off to pay the creditors,balance goes to the members- company ceases to existAlso known as liquidation
Types of Winding UpVoluntary Winding UpCompulsory Winding Up
Members’ Voluntary WU(Liquidation of a solvent company)Sec 254(1)(b)-Company’s members ingeneral meeting pass a special resolutionSec 257 – Declaration of SolvencySec 258 – members appoint a liquidator
Creditors’ Voluntary WU(Liquidation of an insolvent company)Sec 259 – The liquidator shall summon a creditorsmeeting when he is in the opinion that company isinsolvent instead of solvent as been declared by thedirectors under sec 257.Sec 260(1) – To summon meeting of the company’screditors the same day or the following day-issuance ofnotice.Sec 261 - The creditors may nominate the liquidator
Other mattersEffect of voluntary Winding up:Sec 256 (1)– From the commencement ofthe winding up the company ceasebusiness but the corporate state andcorporate power continues until it isdissolved.
Compulsory Winding UpApplication can be made to the courtby those persons listed in Sec 217 .The court may order winding up if thecircumstances of the company is withinthose listed in Sec 218(1) (a) – (n)
Common grounds for CWUSec 218(1)(f) – directors acted in their owninterests or in a manner which is unfair tomembers.Re National Discounts LtdH: If directors act in the interests of anothercompany which they control, they can besaid to be acting in their own interests
Sec 218(1)(i)- Court is of opinion it is just andequitablei) DeadlockRe Yenidje Tobacco Co LtdF: R & W – shareholders and directors of acompany. Could not get along, communicatethrough the company secretary.H: Order winding up, though company made profit
Re Semantan Estate LtdF: Two permanent directors were not on speakingterm. One of them petitioned for winding up.COA: Refused to order winding up. The companycould still be carried on and there was areasonable hope of reconciliation.
ii) Fraud or misconductLoch v John Blackwood LtdF: Directors failed to provide the minority memberswith financial reports as required by the law. Themembers petitioned for winding up.H: Allowed the petitioned.
iii) Object of the company cannot be achievedRe German Date Coffee CoF: The company was formed to manufacture a coffeesubstitute out of dates. Failed to acquire the patent forthat purpose.H: The company was wound up because it was set up fora specific purpose and that purpose failed to beachieved.
Re Tivoli Freeholds LtdF: The object of the company was to carry onentertainment business. One of the theatres wasdamaged by fire. The theatre and the land weresold and the money was used to purchaseshares of other companies. Members objected.H: Company was wound up on the ground of justand equitable.
iv) Petitioner has been excluded from the management incontravention of an understanding.Ebrahimi v Westbourne Galleries LtdF: N & E – both directors & shareholders. N’s son joinedthe company. Father & son controlled the company.Removed E from directorship. E petitioned for windingup.H: Company was wound up.
Sec 218(2)(a) – a company is presumedto be insolvent if it fails to comply with astatutory demand( debt worth at least RM500 payable withinthree weeks after issuance of thestatutory demand)
Appointment of liquidatorFor Compulsory WU-Sec 227Provisional Liquidator-sec 231
Commencement of winding upA compulsory winding up: sec 219(2)- is deemed tocommence at the time of presentation of the petition forwinding up.A voluntary winding up commenced :255(6)(a) – upon appointment of provisional liquidator[refer to sec 255(1)]255(6) (b)- at the time of passing of the resolution .
Effect of winding upCreditorsAfter commencement, any disposition ofcompany’s property other than made theliquidator is void, unless the court orderotherwise-sec 223Cannot enforce judgment or orders theyobtained after commencement of wu- sec224
CompanyFor voluntary WU- Legal entity continue to existsafter commencement of wu but it is preventedfrom carrying on business except for thepurpose of wu.- sec 256(1)For Voluntary WU-Transfer of shares are void-sec 256(2)
In both voluntary and compulsory wu, thedirectors lose their power to manage thecompany’s affairs- Re Farrow Bank Ltd  2Ch 164- Members lose their right to transfer shares withthe commencement of wu-sec 223(1)
EmployeesFor compulsory wu, the publication of the wuorder serve as a notice of dismissal to thecompany’s employees-Re General Rolling StockCo. (1872) 7 Ch App 646For voluntary wu, the order does not necessarilyoperate to dismiss the company’s employee –Re Matthew Bros.Ltd  VR 262
Other mattersAll documents issued by the company while thecompany in a wu process must have the words“in liquidation” set after its name-sec 283.