CHAPTER 7 :
Winding up or liquidation of a company is the ending of a company's life, its property
administered for the benefit of its creditors and members. At the end of the winding-up, the
company will be dissolved.
TYPES OF WINDING UP
There are two types of winding up :
1. Winding Up by the Court (Compulsory Liquidation)
2. Voluntary Winding Up
7.1.1 DIFFERENT BETWEEN COMPULSORY AND VOLUNTARY WINDING UP
Winding Up by the Court (Compulsory Liquidation)
The company, any creditor or any member may petition the court to wind up the company on
any of the grounds, only two need particular mentioned :
Section 218(e) - the company is unable to pay its debts (the most common ground)
section 218(i) - the court is of the opinion that it is just and equitable that the company
be wound up (which, as we have seen, may be useful in the event on unfairness or
deadlock or if the substratum of the company has been destroyed).
if the company has, by special resolution, resolved that the company should be wound
up by the court.
the company does not commence its business within a year from its incorporation, or
suspends its business for a whole year.
Voluntary Winding Up
A voluntary winding-up may be made on any one of the following grounds :
(a) when the period, if any, fixed for the duration of company by its articles, has expired
(b) an event has taken place, on the occurrence of which the articles provide that the
company is to be dissolved
(c) if the company passes a special resolution that the company should be wound up
voluntarily (section 484 (1) of the Act ).
In circumstances (a) and (b), an ordinary resolution passed in a general meeting for windingup is sufficient.
7.1.2 PERSON WHO HAS LOCUS STAND IN COMPULSORY WINDING UP
Winding up proceedings have the potential to expose the company to ultimate dissolution.
Thus, the issue of locus standing to petition the court for a winding up order assumes some
importance. Under section 217 (1) (a) of the Malaysian Companies Act 1965, the 'company'
has standing to petition the court. However, under article 73 of Table A of the Act, the
directors are delegated the management power. The question then arises as to whether the
management power encompasses the power to petition the court for winding up without a
resolution of the members in general meeting. There appears to be a serious conflict of
judicial opinion on the issue. This article traces the case law on the subject, focusing on the
recent Malaysian case of Miharja Development Sdn Bhd & Ors v Tan Sri Datuk Loy Hean
Heong & Ors and Another Application (1995) 4 MSCLC 91,285.
7.1.3 MEMBERS VOLUNTARY WINDING UP AND CREDITORS VOLUNTARY
A voluntary winding-up may be :
(a) a members' voluntary winding-up
(b) a creditors' voluntary winding-up
Members' Voluntary Liquidation
This is where the shareholder of company decide to put company into liquidation, and there
are enough assets to pay all the debt of the company i.e. company is solvent.
Liquidation of a solvent firm by adoption of a resolution for voluntary winding up of
the business by its shareholders who also choose and appoint the liquidator. Since it is not
an insolvency procedure, it requires a statutory declaration of solvency by the firm's board of
directors (it is commonly a criminal offense to make thisdeclaration without sound grounds).
Although the involvement of a court is not required, a qualified liquidator must be appointed
after the resolution. If it is discovered that the firm's assets will not be sufficient
to cover its debts, the unsecured creditors can take charge of the liquidation process which is
then termed a compulsory liquidation. Also called members' voluntary winding up, or just
voluntary winding up.
What is the procedure for a Members' Voluntary Liquidation?
The procedure for a Members' Voluntary Liquidation is fairly straightforward. The directors
of the company swear a Statutory Declaration of Solvency to the effect that the company is
able to pay all its liabilities in full within 12 months. A meeting of the shareholders is
convened in order to pass a winding-up resolution and appoint a Liquidator.
The duly appointed Liquidator then realises the company's assets, pays all creditors together
with statutory interest and returns any surplus money to shareholders.
Creditors' Voluntary Liquidation
Where the director of the company decide to place the company into liquidation, because
there are not enough assets to pay all the creditor i.e company is insolvent.
Sale of the assets of an insolvent firm by its stockholders (shareholders), without a statutory
declaration of solvency and without involving any court procedure. Although it is initiated
when the shareholders adopt a resolution for voluntary winding up of the business, it is
the unsecured creditors who have the right to appoint theliquidator. See also members'
How does a Creditors’ Voluntary Liquidation work?
A Creditors’ Voluntary Liquidation is an insolvent Liquidation where the assets owned by the
company are insufficient to pay creditors in full.
Again, the procedure is fairly straightforward. The directors instigate the process by
convening meetings of shareholders and creditors. At the shareholders’ meeting a resolution
is passed to wind-up the company and appoint a Liquidator. A creditors’ meeting follows
immediately after the shareholders’ meeting where creditors may then, if they so wish, put
forward an alternative nomination for Liquidator which is then subject to a vote.
Please note that even if entering Administration isn’t the most suitable way out of your
financial difficulties then we are still able to help. We deal with company debts of all types
and can assist with business recovery, liquidations, receivership, etc.