Deciding to close down a business can be as significant as starting one. Closing down a company in Malaysia involves navigating a complex legal landscape, a task that is more challenging than starting a company. Whether due to a strategic pivot, financial considerations, or the natural conclusion of a successful venture, understanding the available choices and implications of closing a business is crucial for company directors and shareholders.
This article provides an overview of key options for shuttering a company, including members’ voluntary winding up, creditors’ winding up, and striking off a company. While each option carries distinct legal considerations, this article offers a starting point for understanding these processes. However, given the complexities involved, engaging professional legal advice is crucial to ensure compliance and strategic decision-making. As you consider the future of your company, we are here to provide the expertise and support needed for this significant transition.
Dissolution of a Company
A company may be dissolved by either the Registrar of the Companies Commission of Malaysia (“CCM”) or by its stakeholders, including its directors, shareholders, creditors or liquidators. Common reasons for dissolving or closing down a company include:
- No business operations or the business has come to a halt, and the company remains dormant;
- The company has no assets or liabilities;
- The company is no longer profitable; or
- The company owes outstanding debts to creditors.
In Malaysia, the Companies Act 2016 provides two general ways to dissolve a company: (i) by striking the company off from the CCM’s register; or (ii) by winding up the company.
Striking Off from the CCM’s register
Striking off a company is a fast, straightforward, and cost-effective method for dissolving a company. The guidelines for striking off a company have been succinctly addressed in our earlier article titled “Striking off of a company under section 549(a) and 550 of the Companies Act 2016” which can be found here.
The next method to dissolve a company is through winding up. In Malaysia, the winding up process of a company is governed by the Companies Act 2016 and the Companies (Winding-Up) Rules 1972, which involves the collection of a company’s assets to pay off its debts. After winding up, the company will be dissolved and cease to exist.
Under the Companies Act 2016, there are two methods by which a company may be wound up. The first method is by way of compulsory winding up, and the second method is by way of voluntary winding up. The main differentiating factor between the two winding up processes lies in whether the Court’s involvement is necessary.
The two winding up methods will be addressed below:
1. Compulsory Winding Up
A compulsory winding up occurs when the Court issues an order to wind up the company following the presentation of a petition in Court. According to Section 464 of the Companies Act 2016, the petitioner filing such an application can be the company, its creditors, the contributories, liquidator or the official receiver, or the Registrar of Companies.
Upon the petitioner obtaining a Court Order to wind up the company, the Court may appoint a liquidator to oversee the winding up of the company. If no liquidator is appointed, the Official Receiver will serve as the liquidator. The liquidator or official receiver will then assume control of the company’s operations and general affairs before the company can be dissolved.
2. Voluntary Winding Up
In voluntary winding up, the decision to wind up the company is made internally by its members or creditors, and a Court order is not required. Under the Companies Act 2016, there are two types of voluntary winding up, i.e. the members’ voluntary winding up and the creditors’ voluntary winding up. Both types of voluntary winding up involve the appointment of a liquidator to oversee the winding up process, but do not require the same level involvement as in a compulsory winding up.
Members’ Voluntary Winding Up
To opt for a members’ voluntary winding up, the company must be solvent. The commencement date of this process is the date the members pass a resolution to initiate the winding up of the company. To confirm the solvency of the company, the directors may issue a written declaration stating that they have made an inquiry into the company’s affairs and have formed the opinion that it will be capable of settling its debts for the next twelve months following the start of the winding up. Any director making a declaration without reasonable grounds for the opinion that the company can meet its debts commits an offence.
The company will then nominate one or more liquidators for the purpose of winding up the company’s affairs and the distribution of its assets. If the appointed liquidator is of the view that the company will not be able to settle its debts in full within the period specified in the directors’ written declaration, the liquidator will call a meeting of creditors. During this meeting, the creditors may appoint the liquidator or another person to take on the role. If the liquidator initiates and convenes a creditors’ meeting, the winding up process will proceed as if it were a creditors’ voluntary winding up.
Creditors’ Voluntary Winding Up
If a creditors’ voluntary winding up is initiated, the company must arrange for a meeting of its creditors to be convened on the same day or the following day on which the resolution for voluntary winding up is proposed. The notices of the meeting of creditors should be sent by post to the creditors concurrently with the notices of the meeting of the company proposing the voluntary winding up.
The meeting of creditors should be scheduled at a time and place convenient to the majority in value of the creditors. During the meeting, the creditors can appoint either one of their own or a director in attendance to preside over the meeting as a chairperson. The chairperson will determine whether the meeting has been held at a time and place convenient to the majority in value of the creditors. If the meeting is not considered convenient to the majority creditors, it will lapse, and the company must promptly convene another meeting. If the meeting is deemed fit to proceed, the company’s representative director, along with the company’s secretary, will then provide the creditors with information about the company’s current affairs.
At the creditors’ meeting, the company should nominate a person to be a liquidator, and the creditors may also nominate a person for the role. If the nominations from the company and creditors differ, the person nominated by the creditors will be appointed as the liquidator. In cases where the creditors do not nominate anyone, the person nominated by the company will be the liquidator. The appointed liquidator will then proceed with the winding up of the company’s affairs and the distribution of its assets.
Final Meeting Post Voluntary Winding Up
Once the company’s affairs are fully wound up, the liquidator is required to prepare an account detailing how the winding up process has been conducted and the disposition of the company’s property. Following this, the liquidator may convene a final meeting of the company’s members, or in the case of a creditors’ voluntary winding up, a final meeting of both members and creditors. The account prepared by the liquidator shall serve the purpose of providing explanations during the final meeting.
Following the final meeting’s conclusion, the liquidator is required to submit to the Registrar of Companies and the Official Receiver a return of the holding of the meeting, along with a copy of the liquidator’s account attached to the return. After a period of three months from the date of lodging the returns with the Registrar of Companies and Official Receiver, the company will be officially dissolved.
Closing down a company in Malaysia requires careful consideration of legal, financial, and strategic factors. This article highlights the options: members’ voluntary winding up, creditors’ winding up, and striking off, each suited to different business scenarios. Striking off is suitable for dormant companies, while winding up addresses more complex situations with creditors and assets.
Governed by the Companies Act 2016, the dissolution process demands strict adherence to legal requirements. For business owners and directors, it is crucial to approach this process with thoroughness to safeguard personal and professional interests. Considering the complexities, professional legal advice is essential. Our legal team is prepared to assist you through this critical phase, ensuring a compliant and efficient winding up process.
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.