Winding up a company in Singapore
Winding up a company can be complex and stressful, and it is crucial to understand the legal requirements and procedures involved.
In Singapore, the winding up of a company is governed by the Companies Act, and there are different methods for winding up a company depending on the circumstances.
This blog post will explore the various ways to wind up a company in Singapore.
What does winding up a company mean?
Winding up a company (also known as liquidation) is the process of bringing a company to an end, dissolving it, and distributing its assets among its shareholders or creditors. The first step is for the company to cease its business operations and sell off its assets to pay off any outstanding debts and liabilities. The remaining assets from the sale will be distributed among the shareholders according to their shareholdings. Once the assets have been distributed and the debts have been paid, the company is dissolved, and its legal existence ends.
The winding-up process can be initiated voluntarily by the shareholders or directors of the company, or the court can order it through a compulsory winding up. The purpose of winding up a company is to end its legal existence, as it can no longer pay its debts or it is no longer viable to continue its business operations.
What a the methods for Winding Up a Company in Singapore?
In Singapore, a company can be wound up while it is solvent or after it has become insolvent. Solvent companies can voluntarily apply to be wound up through a “members’ voluntary winding up.”
Insolvent companies, on the other hand, can be wound up using the following options:
- Voluntarily applying to be wound via a “creditors’ voluntary winding up“; or a “members’ voluntary winding up“;
- Involuntary winding up is where the creditor makes an application for winding up. Involuntary winding up can also be made by order of the court (“compulsory winding up“).
How do you know if a company is solvent or insolvent?
When determining how to wind up a company, it is crucial first to establish if it is solvent.
One way to determine solvency is through the cash flow test, which evaluates whether the company has enough current assets to cover its current liabilities, ensuring it can meet all debts as they come due.
Voluntary winding up a company
As mentioned above, it is possible to wind up a company voluntarily if it is solvent. This can be done via a member’s or a creditor’s voluntary winding up.
Members’ voluntary winding up of a company
A members’ voluntary winding up in Singapore is where the company’s shareholders vote to dissolve the company because it is solvent. This process is initiated by a resolution passed by the company’s shareholders. The resolution must be passed by a special resolution, which means it must be passed by at least 75% of the shareholders.
Once the resolution is passed, the company is required to appoint a liquidator. The liquidator will oversee the winding up process and distribute the company’s assets among the shareholders.
The liquidator will also be responsible for preparing a statement of affairs, a report showing the company’s assets, liabilities, and the names of its creditors. A declaration of solvency, which states that the company will be able to pay its debts in full within 12 months from the date of the declaration of solvency, will also need to be filed.
Once the winding up process is complete, the company will be dissolved, and its legal existence will end.
A member’s voluntary winding-up process in Singapore is only available for solvent companies.
Creditors voluntary winding up
A Creditors’ Voluntary Winding Up (CVL) in Singapore is where the company decides to cease operations as it cannot pay its debts as on or when they fall due. This process is initiated by a resolution passed by the company’s shareholders, which must be passed by a special resolution, meaning it must be passed by at least 75% of the shareholders.
Like a member’s voluntary winding up, the company must appoint a liquidator once the resolution has passed.
The liquidator oversees the winding up process and distributes the company’s assets among the creditors. The liquidator will also be responsible for preparing a statement of affairs, a report showing the company’s assets, liabilities, and the names of its creditors.
It’s important to note that a Creditor’s voluntary winding-up process in Singapore is only available for insolvent companies.
Furthermore, as part of a CVL, the company is deemed insolvent. As a result of this insolvency, the liquidator will have a duty to investigate the affairs of the company, including any antecedent transactions that may be potentially prejudicial to the interests of the creditors, and report to the Registrar of Companies (ROC) if necessary.
Involuntary winding up of a company
An involuntary winding up of a company in Singapore, also known as compulsory winding up, is a process where the court orders the dissolution of a company. The court will usually take this course of action because the company cannot pay its debts or has been found guilty of misconduct.
In Singapore, the court may order the winding up of a company on the application of:
- a creditor,
- a contributory (i.e., shareholder or member),
- the company itself,
- or the Registrar of Companies.
The most common grounds for an involuntary winding up are the company’s inability to pay its debts or that the company has acted against the public interest or the interests of its shareholders or creditors.
As part of the involuntary winding up, a court-appointed liquidator will oversee the winding-up process, including distributing the company’s assets among the creditors and preparing a statement of affairs.
The liquidator will also have a duty to investigate the company’s affairs, including any transactions that may be potentially prejudicial to the interests of the creditors, and report to the Registrar of Companies if necessary.
It’s important to note that in an involuntary winding up, the company may lose control of its assets and operations, and the liquidator may sell or dispose of its assets to pay off its debts.
What happens after the winding-up process is complete?
Upon completion of the winding up process, the liquidator will submit an account showing how the winding up of the company was conducted and how the company’s property has been disposed of.
In the company’s assets distribution, the liquidator is also required to have regard to any directions given by the resolution of the creditors.
Once the account has been finalised, the liquidator will call 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). The purpose of this meeting will be to explain how the liquidator arrived at the particular account.
To call a meeting, the liquidator must 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 seven days after the publication of the advertisement.
After the meeting has ended, the liquidator must file a return of the holding and date of meeting with ACRA and the Official Receiver. This return must be filed within seven days.
After three months (from the date the return of the meeting was filed), the company will be dissolved.
It is possible for the company’s liquidator, or any other interested person, to apply to the court to have the company’s dissolution declared void. This can be done at any time within two years after the date of dissolution.
Striking off a company
On the other hand, striking off a company is a process by which a company is removed from the ACRA’s Companies Register. When a company is no longer in business, has no assets or liabilities, and is dormant, companies typically initiate this process. A company can be struck off without having its assets liquidated or distributed to shareholders, and after it is struck off, it ceases to exist.
As a general rule, winding up is the process of liquidating assets and paying off liabilities, while striking off is removing the company from the Companies Register.
How can Belaws help?
If you have a question about winding up a company in Singapore, please reach out to one of our experts directly.
You can also view our Singapore incorporation services here.
Please note that this article is for information purposes only and does not constitute legal advice.
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