VOLUNTARY WINDING UP By Lavinia Kumaraendran Partner at

VOLUNTARY WINDING UP By Lavinia Kumaraendran Partner at Thomas Philip

01 Creditor’s Voluntary Winding - Up A Creditor’s Voluntary Winding-Up is a voluntary process, but is inadvertently an admission on part of the company directors that the business is insolvent and no longer viable. 02 Member’s Voluntary Winding-Up As opposed to a CVW, companies opting for an Member’s Voluntary Winding-Up must be solvent and able to meet its liabilities. This type of winding-up is usually opted when members of the company have decided to close the company in a taxefficient manner. In larger companies, this may mean a discontinuation of certain aspects of the operations to generate cash. Types of Voluntary Winding-Up

COMPULSORY WINDING-UP In a compulsory winding-up, the court can wind up a company on several grounds under the Companies Act 2016. The most common ground is when a company is unable to pay its debts, and creditor(s) of the company have initiated legal action in pursuit of the money owed. Any disposition of property after the commencement of a winding-up suit is void, unless ordered otherwise by the court

PROCEDURE MEMBER’S VOLUNTARY WINDING-UP Members of Written Declaration of Solvency to be prepared and executed at a Board of Directors meeting. Declaration of Solvency to be lodged with the company to resolution for the winding-up company and the appointment pass a of of the a liquidator. Companies Commission of Malaysia Members of the company to appoint a liquidator. The company ceases all operations save and except for functions necessary for the winding-up process. Liquidator takes over all affairs of the company and proceed with winding-up.

A Declaration of Solvency What is it? It is defined in Section 443 of the Act. It is essentially a declaration by the directors of the company that after having made an inquiry into the affairs of the company, the directors have formed the opinion that the company will be able to pay its debts in full within 12 months from the commencement of the winding-up. Due to the strict wording of the Act (s. 443(1) and 443(4)), It is mandatory to hold a meeting of directors in order to make this declaration of solvency. The same applies even in the case of a single director. The Declaration of Solvency must be attached with the company’s Statement of Affairs. The Statement of Affairs should contain the assets of the company (including how much is to be realized from the same), the liabilities of the company and the estimated expenses of winding-up. After the Declaration of Solvency is made, it must be lodged with the Registrar of Companies before notices are sent out to the members.

CRIMINAL SANCTIONS Criminal sanctions are imposed to ensure that the company is indeed solvent when its directors embark on the members’ voluntary Upon Conviction, the director may be winding-up. liable to imprisonment for a term not exceeding 5 years exceeding RM or a fine not 3 million or both. If the offence continues, a further fine of RM 500 a day.

PROCEDURE CREDITOR’S VOLUNTARY WINDING-UP Members of the company to propose Give written notice by post to all creditors resolution for voluntary winding up. for a Creditors Meeting. Notice to be given at least seven (7) clear days before date of commencement of the meeting Winding-up notice to be advertised in a widely circulated newspaper in Malaysia in both the national language and in English. Creditors Meeting to convene at a time and place agreed upon by majority attendees and to decide on: a) Appointment of Liquidator; and b) Appointment of Committee of Inspection (if necessary) Liquidator takes over all affairs of the company and proceed with winding-up.

PROCEDURE CREDITOR’S VOLUNTARY WINDING-UP A copy of the resolution for winding-up is to be lodged with the Companies Commission of Malaysia within seven (7) A copy of the resolution for winding-up days from the date the resolution was is to be posted in a widely circulated passed. newspaper in Malaysia in both the national language and in English ten (10) days from the date the resolution was passed Liquidator takes over all affairs of the company and proceed with winding-up.

Liquidator & COI The liquidator may, or if requested by any The COI represents the interests of the creditor or contributory shall, summon Creditors during the on-going winding-up separate meetings of the creditors and can act as a check and balance to the contributors powers of the liquidator and to protect the for the purpose of determining whether or not the creditors rights of the creditors. or contributories require the appointment of a committee of inspection. Liquidator Upon the appointment of the Liquidator all powers of the directors shall cease. shall be remunerated as prescribed in the rules and a member, creditor or the liquidator can apply to Court to review the remuneration.

IMPACT ON LEGAL PROCEEDINGS Similar to a compulsory winding-up, the commencement of a creditor’s voluntary winding-up would stay legal proceedings against the Company. As such, no action or proceeding shall be proceeded with or commenced against the company except by leave of the court and subject to the terms as the court imposes.

01 QB Khidmat Teguh Sdn Bhd v Pembinaan Legenda Unggul Sdn Bhd & Anor [2017] 8 MLJ 376 In this case, Justice Nazlan held that in the event a director is incapable of signing a Declaration of Solvency pursuant to S. 433 of the Act then the company ought to proceed with a creditors winding up instead of a members one. 02 Ganda Setia Cemerlang Sdn Bhd & Anor v Maika Holdings Bhd [2017] MLJU 1596 Here the Court of Appeal and Justice Mary Lim held in her Ladyship’s decision that leave of Court is required by a party who is seeking for the commencement of a fresh action or to proceed with any pending action. There are no distinctions applicable in this aspect between a voluntary winding-up and a compulsory winding-up. CASE STUDY

Thank You! Lavinia Kumaraendran Partner Corporate & Commercial Litigation Team lkk@thomasphilip. com. my www. thomasphilip. com. my