Winding up A process by wh the company is dissolved and the assets are collected, debts paid and surplus if any distributed among its members. Most obvious and common reason for winding up is insolvent.
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A process by wh the company is dissolved and the assets are collected, debts paid and surplus if any distributed among its members.
Most obvious and common reason for winding up is insolvent.
Other reasons include members oppression or members may voluntarily agree to wind up because they want to realise their investment.
S 211 – 2 modes of winding up
1- voluntary winding up
2-winding up by the order of the court (Compulsory winding up)
i- voluntary winding up
a) If the MOA/AOA fixed a period for the life
of the company, or provides when certain
event occurs the company comes to an end, when
the period expires or the event occurs, and
members in a general meeting passed a resolution
to wind up the company – its life ends; or
b) A special resolution passed by the company to wind up the company.
1 voluntary winding up
I- members voluntary winding up
II- creditors voluntary winding up
Members voluntary winding up can be done
only in case of a solvent company.
Creditors voluntary winding up – in case the
Directors did not declare that it is solvent or when
it is believed to be insolvent by liquidator
I- Members’ voluntary winding up
(1)-Directors must make a written declaration of the
company solvency - that they have made an inquiry
into the affairs of the company, and that at a meeting
of directors they are of the opinion that the company
will be ableto pay its debts in full within a period of
12 months after the commencement of the winding
To be an effective declaration it must be
made [s 257(3)]:
(a) at the meeting of directors;
(b) w/in 5 weeks before the passing of the resolution for voluntary winding up; and
(c) lodged with the Registrar before the date on which the notices of the meeting at which the resolution for the winding up of the company is to be proposed are sent out.
The declaration must be sent together with a
statement of affairs [ Companies Regulation 1966 -
(2)- Call a general meeting of the members, pass a special resolution.
(3)-S 254(2) A company must
(4) – Appointment of liquidator – in the meeting where the members passed a resolution to wind up the company.
Winding up commence at the time the resolution to
wind up the company was passed.
Members’ voluntary winding up may be converted
into a creditors’ winding up if the liquidator is of
the opinion that debts of the company will not be
paid in full w/in the period stated in the Directors’
II- Creditors’ voluntary winding up
Despite its name, it cannot be initiated by creditors.
Take place in 2 circumstances:
i- members propose a resolution to wind up the company but the directors did not make a declaration of solvency; or
ii- declaration was made and a special resolution to wind up the company was passed by members, and liquidator was appointed but the liquidator formed an opinion th the company is unable to pay its debt w/in the period stated in the directors’ declaration – convene creditors meeting.
- no declaration made by BOD ; or ,
appointed a liquidator - he opined that
company cannot pay the debt
(2) Directors/liquidator call for a meeting of creditors. S 260
- Notice of meeting (1) and (2) must be sent by
post simultaneously. [s 260(1)]
(3) The creditors meeting shall be attended by any director appointed as a representative of the BOD with the company secretary. [s260(5)]
(4)the meeting shall appoint a liquidator.
Creditors are given priority right to appoint
liquidator. If they did not appoint the
company can appoint a liquidator. But if
both parties appointed a liquidator, the one
appointed by the creditors will take the job.
If different persons are nominated, any
member, creditor or director may,
within 7 days after the date of the
nomination was made by the creditors,
apply to the Court for an order
directing that the person nominated as
liquidator by the company shall be
liquidator instead of or jointly with the
person nominated by the creditors.
Grounds for winding up by the court
i- s. 218(1)(a)
special resolution was passed by the company– the solvency of the company is not relevant
ii- s. 218(1)(b) default in filing statutory
report & holding statutory meeting –
petition by contributory/minister – after 14
days from the last date for the meeting
May wind up or order the meeting to be held
iiis. 218(1)(c) failure to commence business
After one year of its incorporation – fail to do
business / suspend business for one whole year
ivs. 218(1)(d) – members – reduced below 2.
Pls s. s 4 and s. 36
Lim Sooi See @ Lim Soh se & Anor v Koay
Thye Hong Sawmill Sdn Bhd - number below 2
and the only one left acted in a dictatorial and
fraudulent manner – proper to order winding up
vs. 218(1)(e) – inability to pay debt
s. 218(2)(a)(b)(c) - Presumption of inability to pay debts:
Notice of demand –signed, sent to the
registered office, (proof of physical delivery
the amount of debt must be ascertained/
capable of being ascertained
Undisputed amount exceed the statutory
minimum - unable to pay debt
(b)execution or other process issued on court’s judgment, decree or order in favour of the creditor is returned unsatisfied in whole or in part
(c)Prove to court’s satisfaction that the company is unable to pay its debt – take into account the contingent and prospective liabilities
vi s. 218(1)(f) directors acted in their own interests / acted in the manner appear to be unjust or unfair to the members of the company
[even if the directors preferred their own
interests to the interest of one, more or perhaps
a significance number of the members but
coincided with the majority’s interest]
viis. 218(1)(g) – inspection under part IX
Inspector reported (read s. 205)
viiis. 218(1)(h)- dissolution under the MOA or AOA) – based on the period fixed by these documents, or the occurrence of the event specified by them
ixs. 218(1)(i) just and equitable
Some cases where it is just and equitable to
wind up the company
whole business for wh. the com. was set up
to carry become impossible – final and
conclusive abandonment of the com’s
business. (look at the main purpose – not at
Re German Date Coffee Co
The purpose the com was set up – to purchase and work henley’s German patent at Frankfort – to manufacture coffee substitute from date fruit. German empire refused to grant patent. So the company cannot acquire the patent.
Failure of substratum- on appeal the court was wound up
(b) Business is carried in a fraudulent manner
Re Thomas Edward Brinsmead & Sons
John Brinsmead & sons– noted piano makers.
Employees set up a com Thomas Edward
Brinsmead & sons – they produced piano to be
passed of as the products of John Brinsmead.
John obtained an injuction to refrain the
company fr using the name on Brinsmead.
When a petition was made to wind up the
company – court order the winding on the
ground that the com was set up to defraud John
(c) where members can no longer work in association
Deadlock situation – relationship between
members has broken down irretrievably
Re Yenidje Tobacco Co Ltd
Two members Rothman and Weinberg. They
were the directors. Equal voting rights. They
fell out, could not longer get along. Ceased to
communicate except through the secretary. R
sued W in action on ground of fraud.
The court ordered winding up since in the
circumstances it said that the members could
not be expected to work together
(d) members lost confidence in the management – lack of probity(integrity,
honesty, decency,virtue, honour etc) in the
conduct of the company’s affairs.
What is important is that the petitioner must
not be the one who caused the breakdown in
confidence bet him and the other parties
(e) Breakdown of quasi partnership
This type of company is in effect, small
partnership of a limited number of individuals
which, although operating as a limited
company, is in practical terms run as if it was a
partnership between those individuals at
the helm. Commonly, the business was
originally run as a partnership and later
incorporated as a limited Company
x s. 218(1)(j) revocation or surrendering of of banking licence
Licence under BAFIA or Islamic Banking
xi s. 218(1)(k) contravention of certain licence
Acting in contravention of BAFIA or Islamic Banking Licence 1983
xii s. 218(1)(l) revocation of insurance licence
s. 58(1) of the Insurance Act - the available assets of a licensed insurer are just adequate or less than adequate to meet its margin of solvency
s. 58(4) (Bank Negara) may petition for the winding up of a licensed insurer if it— (a) fails to submit a plan to restore its margin of solvency; or (b) submits a plan which is unacceptable to the (Bank Negara)
xiiis. 218(1)(m)- company being used for
unlawful purpose, purpose prejudicial or
incompatible with peace, welfare, security,
public order, good order or morality in
Malaysia – ROC may apply for the
winding up of the company
xiv s. 218(1)(n) – company being used for purpos prejudicial to national security, public interes – ROC may apply for winding up order
xv –s.100A(1) of the Security Industry Act
Security commission, stock exchange,
recognised clearing house may petition for
the winding up of a company: