Winding Up 101

Learn about the different types of winding up in Malaysia and the general procedures involved in each type of winding up.

Winding up is a term used to describe the process of closing down or dissolving a company. The winding up activity includes selling all assets, paying off creditors, and distributing the remaining assets to partners or shareholders.

Generally, winding up of a company can be instigated either by the company director(s), better known as a voluntary winding-up, or by the creditor. The latter is known as a compulsory winding-up

VOLUNTARY WINDING-UP

Voluntary winding up can be divided into two categories, namely (i) Creditors voluntary winding-up, and (ii) Members voluntary winding-up.

 1)  Creditors Voluntary Winding-Up (CVW)

CVW is a voluntary process, but is inadvertently an admission on part of the company directors that the business is insolvent and no longer viable.

2)   Members Voluntary Winding-Up (MVW)

As opposed to a CVW, companies opting for an MVW 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 tax-efficient manner. In larger companies, this may mean a discontinuation of certain aspects of the operations to generate cash.

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.

GENERAL WINDING-UP PROCEDURES

Here is a general guide on the procedures for each type of winding-up mentioned above, just to shed more light on the subject matter.

Procedure for 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 to 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. Liquidator takes over all affairs of the company and proceed with winding-up.

Procedure for Creditors’ Voluntary Winding Up

  1. Members of the company to propose 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 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. Liquidator takes over all affairs of the company and proceed with winding-up.

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 notification will be given by the court on date of 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 proceed with winding-up.

Note: Winding-up is not to be confused with bankruptcy. While winding up is a process of ending a company, bankruptcy is a term used to describe the status of an individual who is unable to settle his outstanding debts.

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