A Brief Guide On Winding Up

What is winding up?

Generally speaking, it is a term/ phrase to describe the process of closing down or dissolving a company. This is not to be confused with bankruptcy (i.e. a process instituted against an individual who is unable to pay his debts).

What does it involve?

It involves the selling of assets (generally all of them). The money obtained from such exercise will then be used to pay off creditors. Once that is done, whatever remains will be distributed to the partners or shareholders.

Is there more than one type of winding up?

Yes. Generally speaking, there are two types of winding up, namely voluntary winding-up (instituted by the company directors itself) or compulsory winding-up (instituted by the company creditors). 

A brief introduction on voluntary winding up

There are two kinds of voluntary winding up, namely:

1) Creditors voluntary winding-Up (CVW)

It occurs when the company directors themselves admit that it is no longer financially viable to keep the company running. 

2) Members voluntary winding-Up (MVW)

Essentially, the company is still solvent and is still capable of paying its debts, but realizes it is redundant to continue operating and the cash generated from the winding-up can be better utilized elsewhere (such as its sister or parent company). 

A brief introduction to compulsory winding up

As mentioned above, compulsory winding-up is usually instituted by the company creditors. It is instituted in court when the company is unable to pay its debts.

If this were to happen, nothing can be disposed of, including company properties, without the consent/ order of the court. 

The procedure to wound up a company:

A) Members’ Voluntary Winding Up

1. Members of the company to pass a resolution for the winding-up of the company and the appointment of a liquidator.
2. Written Declaration of Solvency to be prepared and executed at a Board of Directors meeting.
3. Members of the company appoint a liquidator.
4. Declaration of Solvency to be lodged with the Companies Commission of Malaysia.
5. The company ceases all operations save and except for functions necessary for the winding-up process.
6. The liquidator takes over all affairs of the company and proceeds with winding up.

B) Procedure for Creditors’ Voluntary Winding Up

1. Members of the company to propose a resolution for voluntary winding up.
2. Give written notice by post to all creditors for a Creditors Meeting. Notice to be given at least seven (7) clear days before the date of commencement of the meeting.
3. Winding-up notice to be advertised in a widely circulated newspaper in Malaysia in both the national language and in English.
4. Creditors Meeting to convene at a time and place agreed upon by majority attendees. 
5. Creditors Meeting to decide on:
   1. Appointment of a liquidator; and
   2. Appointment of a committee of inspection, if necessary;
6. A copy of the resolution for winding-up is to be lodged with the Companies Commission of Malaysia within seven (7) days from the date the resolution was passed.
7. A copy of the resolution for winding-up is to be posted in a widely circulated newspaper in Malaysia in both the national language and in English ten (10) days from the date the resolution was passed.
8. The liquidator takes over all affairs of the company and proceeds with winding up.

C) Procedure for Compulsory Winding Up

1. A notice of demand by virtue of section 465 of the Companies Act 2016 is to be served on the company, demanding the company to settle its outstanding debt.
2. Necessary legal documents are to be filed in court. This includes the winding-up petition if the company fails to settle the debt as per the notice of demand above.
3. Due notice will be given by the court on the date of the hearing. 
4. The court is to decide on whether or not to grant a winding-up order.
5. If a winding-up order is granted by the court, the court will either appoint a Director-General of Insolvency (DGI) or a liquidator to wind up the company in question.
6. The appointed DGI or liquidator takes over all affairs of the company and proceeds with winding up.