This document discusses types of winding up, the differences between compulsory and voluntary winding up, procedures for members' voluntary liquidation and creditors' voluntary liquidation, powers and duties of a liquidator, and priorities for distributing funds in winding up. It provides details on: - Grounds and processes for compulsory (court-ordered) winding up versus voluntary winding up initiated by shareholders or creditors. - Requirements and steps for members' voluntary liquidation when a company is solvent, and creditors' voluntary liquidation when insolvent. - Acceptance of a liquidator's authority, their main functions of taking control of assets and distributing proceeds, and who can be appointed. - Evidence and priorities for

2. TYPES OF WINDING UP
Winding Up by the Court
(Compulsory Liquidation)
Voluntary Winding Up

3. DIFFERENT BETWEEN COMPULSORY AND
VOLUNTARY WINDING UP
Winding Up by the Court
(Compulsory Liquidation)
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Section 218 - the company is unable
to pay its debts (the most common
ground)
section 218(1) - 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
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when the period, if any, fixed for
the duration of company by its
articles, has expired
an event has taken place, on the
occurrence of which the articles
provide that the company is to
be dissolved
if the company passes a special
resolution that the company
should be wound up
voluntarily
In circumstances (a) and (b), an
ordinary resolution passed in a
general meeting for winding-up is
sufficient.

4. PERSON WHO HAS LOCUS STAND IN
COMPULSORY WINDING UP
Initiated on petition of a creditor
or other person with locus standi:
• Locus standi requires manifestation
of tangible interest: e.g., directors,
contributories

5. 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

6. 
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.
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Definition

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 this declaration 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.

7. WHAT IS THE PROCEDURE FOR MEMBER
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.

8. 
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.
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Definition

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 the liquidator. See
also members' voluntary liquidation.

9. 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.

10. 7.2 DISCUSS THE ACCEPTANCE OF AUTHORITY & THE
PRIMARY FUNCTIONS OF A LIQUIDATOR & EVIDENCE &
PRIORITIES OF DEBTS

Powers of a Receiver where a
Liquidator is Appointed
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The main function of a
Liquidator
 Evidence
& priorities of debts

11. POWERS OF A RECEIVER WHERE A
LIQUIDATOR IS APPOINTED

Where a receiver has been appointed to a company
and a liquidator is subsequently appointed, the
receiver’s appointment is not affected per se.
However, the liquidator can apply to the High Court
to have the receivership determined or limited. In
such circumstances, the Court may order that the
receiver shall cease to act or shall from a certain
time act only in respect of certain assets specified
by the Court46. An examiner cannot be appointed
to a company where a receiver has been appointed
for a continuous period of at least three days.

12. THE MAIN FUNCTION OF THE LIQUIDATION

To take control of the assets of the estate, collect
the assets wherever it may be found and to
“liquidate” the assets to cash by selling the assets
once authorized to do so. The proceeds are then
distributed to creditors in terms of the provisions of
the Insolvency Act, subsequent to the confirmation
of a Liquidation and Distribution account by the
Master of the High Court.

13. EVIDENCE & PRIORITIES OF DEBTS

Priority debts are paid first if a trustee disburses
property in the course of the case. This can be very
helpful when the priority debt can’t be discharged in
your bankruptcy (which is usually the case). For
example, liability for a recent income tax is both a
priority debt and a debt that can’t be discharged in
bankruptcy. Having your property pay off the tax
debt—which you will have to pay anyway—is a lot
better than having your property go to pay off debts
that would otherwise be discharged n your
bankruptcy.

14. WHO CAN BE APPOINTED AS OFFICIAL
LIQUIDATOR
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A member from the panel of the professional firms
of chartered accountants, advocates, company
secretaries, cost and work accountants which the
central government may constitute.
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Body corporate approved by central government
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Whole-time or part-time officer appointed by the
central government

15. THE MAIN DUTIES OF A LIQUIDATOR
Identify and taking control of the Assets of the
Company or Close Corporation and ensure that the
assets are protected until they are sold;
 Realise the cash value of those Assets by way of
Private or Public Auction;
 Recover monies wherever possible, from debtors;
 Investigate the financial dealings of the Company or
Close Corporation to uncover any suspicious
transactions or possible fraudulent behaviour.
 Issue a Detailed Report to Creditors and Master of
the High Court;
 Draft a Liquidation & Distribution Account;
 Distribute dividend payments to Creditors;
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16. POWER OF LIQUIDATOR IN WINDING UP
In compulsory winding up
of a company
In voluntary winding up of
company
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to institute and defend any suit,
prosecution or other legal
proceeding, civil or criminal, in
the name and on behalf of the
company;
to carry on the business of the
company;
to sell the immovable and movable
property and actionable claims of
the company by public auction or
private contract;
to raise on the security of assets of
the company any money requisite;
to do all such acts necessary for
winding up the affairs of the
company and distributing its
assets.
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to institute and defend any
suit, prosecution or other
legal proceeding, civil or
criminal, in
the name and on behalf of
the company;
to carry on the business of
the company;
to sell the immovable and
movable property and
actionable claims of the
company by public auction
or private contract;
to raise on the security of
assets of the company any
money requisite.

17. STATUS OF LIQUIDATION

RAMESHBHAI TANK v. OFFICIAL LIQUIDATOR OF
VIJAY MILLS LTD. [(2008)

The applicants, who were the ex-employees of the
company, were occupants of rooms situated on land
owned by the company-in-liquidation. They filed the
instant company application praying for setting aside the
notices issued by the Official Liquidator calling upon
them to hand over the premises belonging to the
company-in-liquidation. But the applicants were not the
tenants under any agreement and they were not in
possession of the premises under a lease from the
company. Also Court has power to order a former
employee of a company in winding up, who still has in
his possession the property of the company, to deliver
possession thereof to the Official Liquidator. In view of
this position, none of the applicants deserved any relief
from the Court.

18. RANK THE ORDER OF FUNDS TO BE
DISTRIBUTED IN WINDING UP
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Section 292. Priorities :
(1) Subject to this Act, in a winding up there shall be paid in
priority to all other unsecured debts :
(a) firstly, the costs and expenses of the winding up including
the taxed costs of a petitioner payable under section 220, the
remuneration of the liquidator and the costs of any audit
carried out pursuant to section 281;
(b) secondly, all wages or salary (whether or not earned
wholly or in part by way of commission) including any amount
payable by way of allowance or reimbursement under any
contract of employment or award or agreement regulating
conditions of employment, of any employee not exceeding
one thousand five hundred ringgit or such other amount as
may be prescribed from time to time whether for time or
piecework in respect of services rendered by him to the
company within a period of four months before the
commencement of the winding up;

19. 
(c) thirdly, all amounts due in respect of worker's
compensation under any written law relating to
worker's compensation accrued before the
commencement of the winding up;
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(d) fourthly, all remuneration payable to any employee
in respect of vacation leave, or in the case of his
death to any other person in his right, accrued in
respect of any period before the commencement of
the winding up;

20. 
(e) fifthly, all amounts due in respect of
contributions payable during the twelve months
next before the commencement of the winding up
by the company as the employer of any person
under any written law relating to employees
superannuation or provident funds or under any
scheme of superannuation or retirement benefit
which is an approved scheme under the federal law
relating to income tax;
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(f) sixthly, the amount of all federal tax assessed
under any written law before the date of the
commencement of the winding up or assessed at
any time before the time fixed for the proving of
debts has expired.

21. 
(2) The debts in each class specified in subsection (1)
shall rank in the order therein specified but as between
debts of the same class shall rank equally between
themselves, and shall be paid in full, unless the property of
the company is insufficient to meet them, in which case
they shall abate in equal proportions between themselves.

(3) Where any payment has been made to any employee
of the company on account of wages, salary or vacation
leave out of money advanced by a person for that purpose,
the person by whom the money was advanced shall, in a
winding up, have a right of priority in respect of the money
so advanced and paid, up to the amount by which the sum
in respect of which the employee would have been entitled
to priority in the winding up has been diminished by reason
of the payment, and shall have the same right of priority in
respect of that amount as the employee would have had if
the payment had not been made.

22. 
(4) So far as the assets of the company available for payment of
general creditors are insufficient to meet any preferential debts
specified in paragraphs (1)(b), (d) and (e) and any amount
payable in priority by virtue of subsection (3), those debts shall
have priority over the claims of the holders of debentures under
any floating charge created by the company, and shall be paid
accordingly out of any property comprised in or subject to that
charge.

(5) Where the company is under a contract of insurance (entered
into before the commencement of the winding up) insured against
liability to third parties, then if any such liability is incurred by the
company (either before or after the commencement of the
winding up) and an amount in respect of that liability is or has
been received by the company or the liquidator from the insurer,
the amount shall, after deducting any expenses of or incidental to
getting in the amount, be paid by the liquidator to the third party in
respect of whom the liability was incurred to the extent necessary
to discharge that liability or any part of that liability remaining
undischarged in priority to all payments in respect of the debts
referred to in subsection (1).

23. 
(6) If the liability of the insurer to the company is less than
the liability of the company to the third party nothing in
subsection (5) shall limit the rights of the third party in
respect of the balance.
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(7) Subsections (5) and (6) shall have effect
notwithstanding any agreement to the contrary entered into
after the commencement of this Act.

(8) Where in any winding up assets have been recovered
under an indemnity for costs of litigation given by certain
creditors, or have been protected or preserved by the
payment of moneys or the giving of indemnity by creditors,
or where expenses in relation to which a creditor has
indemnified a liquidator, have been recovered the Court
may make such order as it deems just with respect to the
distribution of those assets and the amount of those
expenses so recovered with a view to giving those creditors
an advantage over others in consideration of the risk run by
them in so doing.