Voluntary Winding Up - Disclaimer: As for reference only. Please use it wisely. PDF

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LAW 4270 BANKRUPTCY, COMPANY WINDING UP & FORECLOSURESemester 1, 2021/VOLUNTARY WINDING UPPrepared by:MESSRS NURHAZIQAH AIN AND PARTNERSSECTION 1Group Members Muhammad Nurkhadzim bin Ahmad Sharibi Nurhaziqah Ain binti Mohd Ismail Nur Ainna Arisyah binti Busrah Nur Arifa binti Roslan 1. Introduct...

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LAW 4270 BANKRUPTCY, COMPANY WINDING UP & FORECLOSURE Semester 1, 2021/2022

VOLUNTARY WINDING UP

Prepared by: MESSRS NURHAZIQAH AIN AND PARTNERS SECTION 1

Group Members 1.

Muhammad Nurkhadzim bin Ahmad Sharibi

2.

Nurhaziqah Ain binti Mohd Ismail

3.

Nur Ainna Arisyah binti Busrah

4.

Nur Arifa binti Roslan

1. Introduction Voluntary Winding Up (Mode of initiating the winding up) Section 439(1)(a) -

when the period, if any, fixed for the duration of the company by the constitution expires, or the event, if any, occurs, on the occurrence of which the constitution 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.

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By special resolution.

Procedure - S 439(2) The company shall; -

(a) Within 7 days from the passing of the resolution, lodge a copy to the Registrar

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(b) Within 10 days, a notice of resolution to be advertised in both the national language and in English newspaper.

(Declaration of solvency) Voluntary winding-up can be made when the company is solvent (assets exceeds the liability). Section 443 (1) -

(a) A written declaration that the directors have made an inquiry into the affairs of the company

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(b) At the meetings of directors, they have formed an opinion that the company will be able to pay its debts in full within a period not exceeding 12 months after the commencement of winding up.

The WUC must make a written declaration of solvency after investigating the condition of the company, within 12 months after commencement of winding up Section 443(3) - What should be in the declaration? = A statement of affairs of the company on: -

a) the assets of the company, and the total amount expected to be realized

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b) the liabilities of the company; and

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c) the estimated expenses of winding up

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(Effectivity of declaration of solvency) Section 443(4): -

must be made at a directors’ meeting; Not earlier than 5 weeks before the passing of the resolution for the Voluntary Winding Up; must be lodged with the Registrar before the date on which the notices of the meeting are sent out.

Date of commencement of VWU Section 441(1) -

a) upon the appointment of a provisional liquidator which is done by the members before the passing of the resolution for voluntary winding up

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b) at the time of passing of the resolution for VWU

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2. Types of Voluntary Winding Up As far as the Companies Act 2016 is concerned, the two modes of voluntary winding up are Creditor’s Voluntary Winding Up (“CVWU”) and Member’s Voluntary Winding Up (“MVWU”).

The first mode of voluntary winding up is defined under section 432(2)(b) of the Companies Act 2016 (“CA 2016”) where it allows a company to be wound up or liquidated voluntarily even when it is in a situation where it is unable to pay off its debt. The members of the company will usually consider initiating the process of CVWU to avoid the company from being compulsorily wound up. As compared to a compulsory winding up, one of the advantages of CVWU is that the company may nominate its own liquidator.

Nonetheless, the nomination is subject to the creditor’s approval at the creditor’s meeting. The creditors have the right to either agree to the person nominated by the members or to nominate their own candidate as liquidator. Since the CVWU process is voluntarily started by the members of the company, it is said to be more efficient and cost-effective.

Next, by virtue of section 432(2)(a) of CA 2016, a voluntary winding up may be affected by a resolution by MVWU where the company is solvent and the liquidator is appointed by the members at the member’s meeting. A company may voluntarily wind up its

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affairs under several circumstances. Amongst others, when it is unable to carry on its business or is unable to meet its financial obligation.

However, it is important to note that MVWU is only applicable to a company that is solvent. Section 433(1)(a) and (b) of CA 2016 requires the director or majority of the directors if the company has more than one director, to make a written declaration to the effect that the directors have made an inquiry into the affairs of the company and at a meeting of directors formed the opinion that the company will be able to pay its debts in full within a period not exceeding twelve months after the commencement of the winding-up. To initiate the process, the signing of the Declaration of Solvency (“DOS”) is generally the first statutory requirement. The DOS must be executed and lodged with the Companies Commission of Malaysia.

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3. Procedures of Voluntary Winding Up

a. Member’s Voluntary Winding Up (MVWU) 1. Obtain a written declaration of solvency in accordance with Section 443(1). This declaration must: (a) state that the company will be able to pay its debts within 12 months (b) show assets fewer liabilities and expenses of the winding-up made up to the nearest practicable date before the making of the declaration of solvency.

2. Hold a directors’ meeting to resolve and to wind up the company. The declaration of solvency must be presented at this meeting. The directors will then call an extraordinary general meeting of the company to have it wound up - Section 443(4)(a). The declaration of solvency is only valid if it is made within five weeks immediately preceding the date of the passing of the resolution for winding up based on Section 443(4)(b).

3. The declaration must be delivered to the Registrar 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 under Section 443(4)(c). 4. 5. Convene an extraordinary general meeting of members of the company to pass the special resolution. The meeting must be convened in accordance with the company’s articles of association. Section 292 regarding Special Resolutions

6. Where the company to be liquidated has corporate shareholders, ensure: a. that the shareholder-company holds a directors’ meeting to appoint a representative to act on its behalf at the extraordinary general meeting b. that the shareholder-company notifies the directors of the company being liquidated in writing of the appointment.

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7. Hold the meeting and pass the special resolution. At the meeting, further resolutions may be passed are: (a) appoint a person to be the liquidator - Section 445(1) (b) define the liquidator’s remuneration - Section 454(1)

8. The company must, within ten days after the passing of the winding-up resolution, advertise that fact by notice published in a local newspaper (Section 439(2)(b).

9. A copy of the winding up resolution must be forwarded to the Registrar within seven days of passing (Section 439(2)(a)).

10. The liquidator must within 14 days after his/her appointment deliver to the Registrar and the Official Receiver a notice of his/her appointment (Section 447(4)).

11. Liquidator takes over all affairs of the company and proceeds with winding-up.

12. Prepare the balance sheet and accounts up to the date of winding up. Open a liquidator’s bank account (i.e., a general account) if necessary. Realise all assets and pay dividends to all creditors whose proofs of debt have been proved and admitted. Make a distribution to members.

13. If the liquidation takes more than one year, the liquidator must summon a general meeting of the company at the end of the first year from the commencement of the winding up and of each succeeding year or not more than three months thereafter, and give an account of his/her actions to the meeting (Section 458(1)).

14. Advertise a final meeting of members. The meeting must be called by advertisement in a local newspaper circulating generally throughout Malaysia specifying the time, place and object and be published at least one month before the meeting (Section 459(2)).

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15. Prepare an account of the winding up showing how the winding up has been conducted and the property disposed of. This account must be presented at the final meeting (Section 459(1)).

16. Within one week after the meeting the liquidator must lodge with the Registrar and the Official Receiver a copy of the account and make a return to him/her of the holding of the meeting and of its date as required under Section 459(3).

17. If no quorum is present, the return is lodged with a statement that a meeting was duly summoned but no quorum was present Section 459(4).

18. On the expiration of three months after receipt of the account and return by the Registrar and the Official Receiver, the company is deemed to be dissolved Section 459(5).

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b. Creditor’s Voluntary Winding Up (CVWU) 1. Members of the company to propose a resolution for voluntary winding up under Section 449(1). 2. Give written notice by post to all creditors for a Creditors Meeting. Notice to be given at least seven (7) clear days before the date of commencement of the meeting under Section 449(2) and (3).

3. Winding-up notice to be advertised in a widely circulated newspaper in Malaysia in both the national language and in English as provided in Section 449(4).

4. Creditors Meeting to convene at a time and place agreed upon by majority attendees and to decide on: a. Appointment of Liquidator; and - Section 450(1) b. Appointment of Committee of Inspection (if necessary) - Section 450(4)

5. Liquidator takes over all affairs of the company and proceeds with winding-up under Section 450(6).

6. A copy of the resolution for winding-up is to be lodged with the Registrar Companies Commission of Malaysia within seven (7) days from the date the resolution was passed (Section 439(2)(b)).

7. A copy of the resolution for winding-up is to be posted in a widely circulated newspaper in Malaysia in both the national language and in English ten (10) days from the date the resolution was passed (Section 439(2)(a)).

8. The liquidator takes over all affairs of the company and proceeds with winding up.

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4. Grounds of Voluntary Winding Up

1. Expiry of the constitution period - can initiate the process of winding up. 2. In the event that the constitution provides a situation whereby the company must be wound up on the occurrence of an event, then it can be wound up of the situation occurs. 3. Special resolution (75% majority) that the company is to be wound up voluntarily. -

It can only be done if the company is solvent. If it is insolvent, it must be converted to creditors.

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Section 439(1)(a) Companies Act 2016 (CA). “(1) A company may be wound up voluntarily— ► (a) when the period, if any, fixed for the duration of the company by the constitution expires, or the event, if any, occurs, on the occurrence of which the constitution 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 ► (b) if the company so resolve by special resolution.”

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