Winding Up a Singapore Company: Grounds and Procedure
The winding up of a company, or liquidation, is a process where the company’s assets are seized and realised (converted into cash), with the proceeds from the seized assets being used to pay off the company’s debts, creditors and liabilities.
It ensures a fair distribution of the company’s assets amongst its creditors and members/shareholders, and terminates the company’s existence once all its debts and liabilities have been paid off (i.e. once it has been wound up).
The Insolvency, Restructuring and Dissolution Act (IRDA) sets out Singapore’s laws pertaining to the winding up of a company, and this article will cover:
- The difference between winding up and striking off a company
- Methods of winding up a company in Singapore
- Winding up of a solvent company: Members’ voluntary winding up
- Winding up an insolvent company in Singapore
- Alternative reasons for winding up a company through court process
- The procedure to wind up company through court process
- The winding up process (including order of payment of debts)
- What happens after a company has been wound up
Winding up should not be confused with striking off.
While striking off is another way of closing a company, it is suited for companies that are not actively in business and do not have any assets or liabilities. If your company is insolvent, it can only be wound up and not struck off.
Methods of Winding Up a Company in Singapore
A company can be wound up while it is still solvent, or after it has become insolvent. Solvent companies can voluntarily apply to be wound up through a “members’ voluntary winding up”.
On the other hand, there are 2 ways in which insolvent companies can be wound up:
- Voluntarily applying to be wound up through a “creditors’ voluntary winding up”; or a “members’ voluntary winding up”;
- Being involuntarily wound up (e.g. upon application of a creditor) by an order of the court (“compulsory winding up”).
Establishing the solvency of the company
Given that the solvency status of the company determines how it should be wound up, it is important to first ascertain whether a company is solvent.
Under the law, there are two tests in order to determine the solvency of a company:
- The cash flow test, where the company has failed to meet a current demand for a debt; or
- The balance sheet test, where the company presents a deficit on an overall balancing of liabilities against its assets.
Additionally, under the IRDA, a company can also be presumed to be insolvent if certain conditions are met. This happens when:
- A creditor has served a statutory demand on the company for a sum of S$15,000 or above, and the company fails to pay the sum, or to secure or compound it to the creditor’s reasonable satisfaction, 3 weeks from the date that the demand was served;
- A creditor tries to enforce a court judgment or order for a certain sum of money against the company, but is unable to recover the entire sum; or
- It is proven to the satisfaction of the court that the company will be unable to pay its debts. In making this assessment, the court must take into account the contingent and prospective liabilities of the company.
Winding up of a solvent company: Members’ voluntary winding up
For members of a company to initiate a voluntary winding up, the company must be ascertained to be solvent. This means that the company must be in a position to pay its debts in full within 12 months of the commencement of the winding up procedure.
There could be many reasons why a company would want to wind up despite being solvent. This could be, for example, if:
- The company is not profitable;
- The company has ceased its business activities;
- There are irreconcilable disputes amongst shareholders that make continued operations of the company unfeasible or impractical;
- Corporate or financial restructuring of the group to which the company belongs occurs;
- The company is a dormant one, and the owner(s) do(es) not want to incur ongoing compliance and maintenance costs; or
- The company (or its officers) have breached their statutory duties (such as director’s duties), or have committed an offence.
How to commence a members’ voluntary winding up in Singapore
There are a few steps to be taken in order to commence a voluntary winding up of the company.
The Declaration of Solvency should state that:
- The directors have made an inquiry into the company’s affairs; and
- At a meeting of the directors, they have formed the opinion that the company will be able to pay its debts in full within 12 months after it commences winding up.
Directors who make this declaration without having reasonable grounds for such an opinion will be guilty of an offence and will be liable to either a fine of $5,000, or an imprisonment term of up to 12 months, or both.
A statement of affairs should also be attached to the Declaration of Solvency. This statement has to be made up to the latest practicable date before the making of the Declaration, and show:
- The company’s assets and the total amount expected to be realised from the assets;
- The company’s liabilities; and
- The estimated expenses of winding up.
The Statement of Affairs must be in accordance with Form VWU-9. This form can be found on the website of the Insolvency Office of the Ministry of Law.
Once the Declaration of Solvency has been filed with ACRA, a special resolution for the purpose of winding up the company will have to be passed within 5 weeks. The special resolution will be passed in an Extraordinary General Meeting (EGM) of the company’s members.
After the special resolution has been passed, the company must:
- Within 7 days after the passing of the resolution for voluntary winding up, lodge a copy of the resolution with ACRA; and
- Within 10 days after the passing of the resolution, give notice of the resolution in the Gazette and at least one English local daily newspaper.
Additionally, the company must appoint a liquidator for the purpose of winding up the affairs and distributing the assets of the company. Once the liquidator is appointed, all the powers of the directors of the company cease to exist, unless the liquidator approves the continuance of those powers.
Winding up an insolvent company in Singapore
The abovementioned steps are applicable to a company that is solvent.
However, say for example, the directors of the companies find out that the company is insolvent, and will not be able to pay its debts in full within 12 months of the commencement of the winding up process. How would the company proceed with the winding up?
There are two ways to wind up an insolvent company:
- Apply for a creditors’ voluntary winding up; or
- Apply for a winding up by an order of court
Creditors’ voluntary winding up
Despite its name, the creditors’ winding up is actually not initiated by the creditors themselves. Rather, it is the company that proceeds to commence such proceedings. However, the creditors do have a say in deciding the appointment of the liquidator or determining whether the company should be wound up.
The process of a creditors’ winding up is similar to that of the members’ voluntary winding up. However, there are two additional steps that are required to be accomplished in a creditors’ voluntary winding up as compared to a members’ voluntary winding up. These are to:
- Include the appointment of a provisional liquidator; and
- Include the holding of a creditors meeting.
Appointment of provisional liquidator
A provisional liquidator is a licensed insolvency practitioner whose main purpose is to ensure that the company’s assets are preserved between the time the winding up petition is made and the time the company is actually wound up.
Prior to the appointment of a provisional liquidator, the directors of the company have to make and lodge a statutory declaration with the Official Receiver. They also have to lodge a declaration with ACRA stating that:
- The company cannot continue its business as a result of its liabilities; and that
- They will hold a meeting with the creditors of the company within 30 days of making this declaration.
The declaration to ACRA must be in Form VWU-1 and must include:
- The name of the company; and
- The identities of the directors who are making the declaration.
When a provisional liquidator has been appointed, the statutory declaration mentioned above and the notice of appointment of the provisional liquidator must be advertised in the Gazette and at least one English local daily newspaper within 14 days of his or her appointment.
The provisional liquidator’s appointment will last for 1 month or until a liquidator has been appointed for the company, whichever occurs first. It is also possible for the Official Receiver to extend the provisional liquidator’s appointment to more than 1 month as required.
Holding of a creditors’ meeting
The company has to hold a meeting of the company’s creditors on the day (or the day after) that the special resolution for the winding up is to be proposed. This creditors’ meeting has to be held at a time and place that is convenient to the majority in value of the creditors.
The notice of the creditors’ meeting must be sent:
- Together with a statement showing the names of all creditors and the amounts of their claims;
- Simultaneously with the sending of the notices of the meeting of the company; and
- On a date that will give creditors at least 10 days’ notice of the creditors’ meeting.
The notice of the creditors’ meeting also has to be advertised in at least one English local daily newspaper at least 7 days before the date of the meeting.
Do take note that if you are a director of the company, you must be able to produce the following to be laid before the meeting:
- A full statement of the company’s affairs showing the method and manner in which you arrived at the valuation of the company’s assets
- A list of the creditors and the estimated amount of their claims to be laid before the meeting
At least one director is also required to be present at this meeting.
Winding up by order of court
Another way of winding up an insolvent company is through obtaining a court order for the company to be wound up.
Apart from the company itself applying to court to be wound up, it is also possible for parties to ask for the assistance of the court to wind up a particular company. Those who can make such an application include:
- A director of the company;
- A creditor of the company;
- A liquidator of the company; and
- A judicial manager appointed for the company.
Alternative Reasons for Winding Up a Company Through Court Process
Insolvency is not the only reason why a company may have to be wound up through court process. The court may order the winding up of the company in certain situations, such as where the:
- Company has no members;
- Company does not commence business within a year of its incorporation, or suspends its business for a whole year;
- Directors have acted in the affairs of the company in their own interests rather than in the interests of members as a whole;
- Court is of the opinion that it is just and equitable for the company to be wound up; or
- Company had carried on any illegal multi-level marketing or pyramid selling activities
Just and equitable grounds to wind up the company
It is possible to ask the court to wind up the company on the basis that it is just and equitable to do so. There is no one particular way to show that the company should be wound up on such a basis. Instead, there have been many different factual scenarios which an applicant can show why it would be just and equitable to wind up a company.
Some examples of when it might be considered just and equitable to wind up a company include:
- When the company’s main objects (i.e. purpose for setting up the company) cannot be achieved;
- When there is deadlock in the management of the company;
- When a minority shareholder of the company has applied for it to be wound up due to oppression by majority shareholders of the company; or
- When the company is carrying on business in a fraudulent manner.
Procedure to Wind Up a Company Through Court Process
In order to obtain a court order to wind up a company, you need to file Form CIR-12 together with a supporting affidavit.
This winding up application must be served on the company’s members, officers and employees, the Official Receiver and any licensed insolvency practitioner who has been nominated to be the company’s liquidator if the company winds up (if any).
An affidavit of service must also be filed with the court at least 5 days before the hearing of a winding up application.
You also need to pay a total deposit fee of $10,400 to the Official Receiver to make the winding up application.
Additionally, you also need to give notice of the winding up application at least once in the Gazette and once in an English local daily newspaper at least 7 days before the hearing of a winding up application.
If any interested party wishes to attend the hearing of the winding up application, that party must serve a notice of intention to appear as against the party making the application. The notice of intention to appear should be in accordance with Form CIR-15.
Additionally, any party who wishes to oppose the winding up application must file and serve an affidavit as against the party filing for winding up at least 5 days before the hearing of the winding up application.
The Winding Up Process (Including Order of Payment of Debts)
A winding up process normally involves the company ceasing its operations, paying its debts to creditors, and realising its assets before final payments are made to the members of the company. When closing its business, companies should take steps such as:
- Properly retrenching its employees;
- Terminating any contracts that it may have with business partners;
- Terminating its phone and Internet Service Provider subscriptions; and
- Informing customers that the business will no longer be continuing.
The company being wound up will also need to include the words “in liquidation” next to its name on its website, invoices and business correspondences. This is to inform parties that it deals with that it is currently being wound up, and may not be able to pay any debts it incurs to them.
The liquidator will also distribute the assets of the company to its creditors and members in a certain order of preference.
Keep in mind that creditors will need to file a proof of debt against the company before they can claim their debts from them. Payments received from the company being wound up should also be validated.
A creditor should file his proof of debt in accordance with Form CWU-1, and should include the following:
- The creditor’s name and address;
- The total amount of the creditor’s claim as at the date of commencement of winding up;
- Whether the amount claimed includes interest being imposed on the principal debt;
- Particulars of how and when the debt was incurred by the company;
- Documents substantiating the claim found in the proof of debt.
The order of payment, subject to the amount of funds available for distribution, is as follows:
- Secured creditors
- Preferred creditors under the Insolvency, Restructuring and Dissolution Act in the following order:
- The cost and expenses incurred by the Official Receiver in winding up the company;
- The remuneration of the liquidator;
- The applicant’s costs for applying for the winding up order;
- The wages and salaries of employees, including any allowances or reimbursements under any contract of employment, capped at either $13,000 or 5 months’ salary (whichever is lesser);
- Retrenchment benefits or ex gratia payment due to employees, capped at either $13,000 or 5 months’ worth of benefits (whichever is lesser);
- All amounts due in respect of work injury compensation regardless of whether it became payable before or after the commencement of the winding up;
- CPF contributions due to employees (up to 12 months’ worth of contributions per employee);
- Remuneration payable to employees in respect of any unconsumed vacation leave, capped at either $13,000 or up to 5 months’ salary (whichever is lesser);
- The company’s total assessed taxes, including GST;
- Creditors who have a floating charge over the company’s assets;
- Unsecured creditors; and
- Members of the company.
What Happens After a Company has been Wound Up?
Once the company has been wound up, the liquidator is required to draw up an account of showing how the winding up of the company has been conducted, and how the property of the company has been disposed of. The liquidator is also additionally required, in the distribution of assets of the company, to have regard to any directions given by resolution of the creditors.
Once the account is prepared, the liquidator must call for either a general meeting of the company (in the case of a members’ voluntary winding up), or a meeting amongst the members and creditors of the company (in the case of a creditors’ voluntary winding up or a court-ordered winding up), for laying out and explaining how the liquidator arrived at the particular account.
To call a meeting, the liquidator is required to publish an advertisement. This advertisement:
- Must be published in the Gazette and at least one English local daily newspaper;
- Must specify the time, place and purpose of the meeting;
- Must be published at least 30 days before the meeting; and
- A copy of the advertisement must be sent to the Official Receiver within 7 days after the publication of the advertisement.
Once the meeting has taken place, the liquidator must, within 7 days, lodge with ACRA and Official Receiver a return of the holding and date of meeting.
However, where a quorum either at the meeting of the company (in the case of a members’ voluntary winding up), or the meeting of the company and creditors (in the case of a creditors’ voluntary winding up or a court-ordered winding up), is not present, the liquidator will need to notify the ACRA and Official Receiver that he did hold a meeting but there was no quorum present. A quorum will be constituted where there are:
- At least 2 members of the company in the case of a members’ voluntary winding up; or
- At least 2 members and 2 creditors in the case of a creditors’ voluntary winding up or a court ordered winding up.
Once 3 months has passed after the lodging of the return, the company will be dissolved. However, the company’s liquidator, or any other interested person, may apply to court to have the company’s dissolution declared as void at any time within 2 years after the date of dissolution.
As seen from the abovementioned steps, winding up can be an inherently complicated process which involves many documents and procedural steps to be done properly.
Should you require assistance in winding up your Singapore company, feel free to engage our corporate services offered at competitive rates.
If you’re looking for legal advice on the legal issues that your company may face while winding up, please consult one of our experienced winding up lawyers.
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