DOING BUSINESS IN MALAYSIA
WINDING UP A LOCAL COMPANY
There are two (2) modes of winding up under section 211 of the CA:
Voluntary Winding Up
Voluntary winding up is divided into two (2) categories, namely:
- Voluntary winding up; or
- Winding up by the Court (also referred to as compulsory winding up).
- Members’ voluntary winding up; and
- Creditors’ voluntary winding up.
The liquidator must then convene the creditors’ meeting and lay before the creditors the statement of assets and liabilities of the company and draw their attention of their right to appoint a new liquidator.
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- Both members’ and creditors’ voluntary winding up are initiated by a special resolution of the company under section 254 of the CA.
- Before proceeding with a voluntary winding up, the directors must make a written declaration to the effect that the have made an inquiry into the affairs of the company and are of the opinion that the company will be able to pay its debts in full within a period of 12 months after the commencement of the winding up [section 257(1) of the CA].
- The declaration and the statement of the company’s affairs must be lodged before the notice of the meeting at which the resolution for winding up is to be proposed, are sent.
- Upon a resolution being passed by members, a liquidator is appointed.
- Where the company is insolvent, creditors may supervise the liquidator’s conduct of the liquidation.
Winding Up by the Court
1. A compulsory winding up is initiated by an application to the court by any of the persons listed under section 217(1) of the CA namely:
2. The grounds for winding up are:
- The company;
- A creditor (including a contingent or prospective creditor of the company);
- A contributory or any person who is the representative of a deceased contributory or the trustee in bankruptcy or the Official Assignee of the estate of a bankrupt contributory;
- A liquidator appointed in a voluntary winding up;
- The Minister pursuant to sections 205 or 218(1)(d) of the CA;
- The Central Bank in the cases of banks and finance companies under the purview of the Ministry of Finance;
- The Registrar on the grounds specified under section 218(1)(m) or (n) of the CA; or
- The Malaysia Deposit Insurance Corporation in the case of a member institution.
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- Pursuant to a special resolution - A company may be wound up where the members have by a special resolution resolved that it be wound up compulsorily;
- Default in lodgement of statutory report – This applies only to public companies limited by shares;
- Failure to commence business within a year – To enable members to recover their investment;
- Membership of the company falls below two (2) - However this does not apply to a wholly owned subsidiary of a holding company that is permitted to own all the shares of its subsidiary under section 36 of the CA;
- Inability of the company to meet its debts – This is the most common ground relied upon to wind up a company. The amount of debt outstanding must be in excess of RM500.00;
- Where Directors are acting in their own interest [section 218(1)(f) of the CA];
- Where an inspector appointed under Part IX of the CA is of the opinion that the company is unable to meet its debts or that it is in the interest of the public, shareholders or creditors;
- Required to wind up as stated in its Memorandum and Articles of Associations;
- The Court is of the opinion that the Company be wound up;
- License held under the Banking and Financial Institutions Act 1989 (BAFIA) or the Islamic Banking Act 1983 (IBA) has been revoked or surrendered;
- Contravention of the BAFIA or IBA, as the case may be;
- License held under the Insurance Act 1996 (IA) has been revoked or other grounds as laid out in the IA;
- Company is being used for any unlawful purposes or any purpose prejudicial to national security, public interest or morality.