Winding Up of A Company

What is Winding Up or Liquidation of a Company?

The Winding-up or liquidation of a company is the process by which a company’s assets are collected and sold to pay its debts. Any monies remaining after all debts, expenses, and costs have been paid off are distributed amongst the shareholders of the company. When the winding-up has been completed, the company is formally dissolved, and it ceases to exist.

Broadly speaking, a company can be wound up in one of two ways: 

• A court can compulsorily wind up a company. 
• The shareholders or the creditors of the company can themselves apply to wind up the company in proceedings known as “voluntary winding up”.  The following is a brief overview of compulsory winding up.
  
  

A) Compulsory Winding Up

Under Section 272 of the Companies Act, the petition for winding up of a company can be initiated. There are certain grounds upon which a company can be wound up compulsorily by the court. A company’s inability to pay its debts is a common ground for presenting an application for compulsory winding up. A company is deemed to be unable to pay its debts if:

• When the company has passed the special resolution stating that the company is wound up by the court or tribunal.  
• Has acted against the interest of the sovereignty and integrity of the country.
• The company has defaulted in filing its financial statement or annual returns for five consecutive financial years. 
• Tribunal or court believes that the company is conducting its affairs fraudulently or the formation of the company was for a fraudulent/unlawful purpose. 
• The Tribunal or court is of the opinion that it is just and equitable to wind up the company. 
• Execution of a judgment obtained by a creditor against a company remains unsatisfied in part or whole; or
• It is proved to the court’s satisfaction that the company is unable to pay its debts.
  
  

An application to wind up a company compulsorily may be filed by:

• The company itself;
• Any director of the company;
• A creditor of the company;
• A contributory;
• A liquidator of the company;
• A judicial manager of the company;
• Where the company is carrying on or carried on banking business
• Various Ministers on grounds specified under the law.
  
  

Procedure for Compulsory Winding Up:

• The application for the winding up of a company by the Court in either Form CIR-11 or Form CIR-12 of the Insolvency, Restructuring, and Dissolution (Corporate Insolvency and Restructuring) Rules 2020 must be filed together with a supporting affidavit.
• In addition, the plaintiff or applicant needs to pay a deposit to the Official Receiver before the filing of the application. (https://io.mlaw.gov.sg/corporate-insolvency/practice-circulars/ )
• When filing the winding-up application, the plaintiff or applicant can nominate a licensed insolvency practitioner to be appointed as the liquidator if a winding-up order is made by the court.
• Before the hearing of the application, the plaintiff or applicant, must obtain and file the written consent of the nominated licensed insolvency practitioner to be appointed as liquidator.
• The winding-up application must be served on the company, the Official Receiver, and the nominated licensed insolvency practitioner (if any). An affidavit of service in either Form CIR-13 or Form CIR-14 must be filed at least 5 days before the hearing of the winding-up application.
• An advertisement of the winding-up application is required to be placed in an English local daily newspaper or any other newspaper directed by the court, as well as in the Government Gazette not less than 7 days before the hearing of the winding-up application.
• If any person intends to appear at the hearing, a notice of intention to appear in Form CIR-15 must be served on the applicant.
• Any person who wishes to oppose the winding up application may file an affidavit in opposition which must be served on the applicant at least 5 days before the hearing of the winding-up application.
• The hearing of the winding-up application is usually fixed within 6 weeks from the date of its filing. Hearings are usually conducted in open court before a High Court Judge each Friday. The Judge may dismiss the winding up application, adjourn the hearing or make a winding-up order or an interim order.
  
  

Effects of a Compulsory Winding-Up Order:

When a company is wound up compulsorily by the court, the winding-up is deemed to have commenced at the time of the making of the application for the winding up.

Within 14 days of the winding-up order, the directors and the secretary of the company must deliver a statement of the company’s affairs to the liquidator, who must then file a copy of the statement with the court. The statement of affairs contains, amongst others, details of the company’s assets and liabilities and other information required by the Official Receiver or the liquidator and enables the liquidator to carry out investigations into the affairs of the company.

After the winding-up application is filed, the company, its creditors, or its shareholders may apply to restrain any pending proceedings against the company. Once the winding-up order is made, no action against the company may be commenced or continued without the leave of the court. Any disposition of the company’s property and any transfer of its shares after the commencement of winding up shall be void unless the court orders otherwise.

The court fees payable for the filing of documents in respect of compulsory winding up proceedings may be found in the Second Schedule of the Insolvency, Restructuring, and Dissolution (Corporate Insolvency and Restructuring) Rules 2020.

B) Voluntary Winding Up

Voluntary winding up of a company takes place by mutual agreement of the members of the company. Voluntary winding up may take place either by the passing of a special resolution or by passing an ordinary resolution by the members as a result of the expiry of its period as fixed by the Articles of Association or the completion of the project or event for which it was constituted. The companies have to comply with the following procedure for winding up as provided by the Companies act, 2013-

• The company shall conduct a meeting with at least two directors with the agenda to initiate the winding up of the company. The directors shall ensure that the company does not have any third-party debts or it will be able to repay its debts in case it’s wound up.
• The company shall issue a written notice in this regard to conduct a general meeting of all the shareholders for passing a resolution for the same.
• The company in the general meeting shall pass an ordinary resolution to wind up the company by a simple majority or special majority of 3/4th members.
• After passing the resolution, the company shall conduct a meeting of all the creditors. If the majority of creditors think that winding up would be beneficial for the company, the company may proceed with the same.
• Within 10 days of the passing of the resolution, the company shall file a notice of winding up with the registrar of companies for the appointment of an official liquidator.
• Within 14 days of the passing of the resolution, the company shall give notice regarding the winding up of the company in the official gazette as well as advertise it in the newspaper.
• Within 30 days of the passing of the resolution, the company shall file the certified copies of ordinary or the special resolution passed in the general meeting.
• The company shall wind up the affairs of the company and prepare the liquidator’s account and get the same audited.
• The company shall again conduct a general meeting in furtherance of the winding-up objective.
• In the general meeting, the company shall pass a special resolution for the disposal of books and all necessary documents.
• With 15 days of the passing of the resolution, the company shall submit the copy of accounts and apply for winding up in the tribunal for passing the order for dissolution of the company.
• The tribunal shall, if satisfied with the documents submitted by the company, pass an order within 60 days to effect of dissolution of the company.
• After the order to this effect has been passed by the tribunal, the official liquidator shall file a copy of the order with the registrar of companies.
• After receiving the order passed by the tribunal, the registrar shall then publish a notice in the Official Gazette declaring that the company is dissolved.