VOLUNTARY WINDING UP By Lavinia Kumaraendran - PowerPoint Presentation

1. VOLUNTARY WINDING UPBy Lavinia KumaraendranPartner at Thomas Philip

2. Creditor’s Voluntary Winding - Up 01Member’s Voluntary Winding-Up02A 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.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 tax-efficient manner. In larger companies, this may mean a discontinuation of certain aspects of the operations to generate cash.Types of Voluntary Winding-Up

3. 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

4. PROCEDUREMEMBER’S VOLUNTARY WINDING-UPWritten Declaration of Solvency to be prepared and executed at a Board of Directors meeting. Declaration of Solvency to be lodged with the Companies Commission of MalaysiaMembers of the company to pass a resolution for the winding-up of the company and the appointment of 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.Members of the company to appoint a liquidator.

5. A Declaration of SolvencyDue 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. 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. What is it?

6. CRIMINAL SANCTIONSUpon Conviction, the director may be liable to imprisonment for a term not exceeding 5 years or a fine not exceeding RM 3 million or both.If the offence continues, a further fine of RM500 a day. Criminal sanctions are imposed to ensure that the company is indeed solvent when its directors embark on the members’ voluntary winding-up.

7. PROCEDURECREDITOR’S VOLUNTARY WINDING-UPGive 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 meetingMembers of the company to propose resolution for voluntary winding up. Creditors Meeting to convene at a time and place agreed upon by majority attendees and to decide on: Appointment of Liquidator; andAppointment of Committee of Inspection (if necessary)Liquidator takes over all affairs of the company and proceed with winding-up.Winding-up notice to be advertised in a widely circulated newspaper in Malaysia in both the national language and in English.

8. PROCEDURECREDITOR’S VOLUNTARY WINDING-UPA 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 passedA 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. Liquidator takes over all affairs of the company and proceed with winding-up.

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

10. Similar to a compulsory winding-up, the commencement of a creditor’s voluntary winding-up would stay legal proceedings against the Company. IMPACT ON LEGAL PROCEEDINGSAs 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.

11. 01In 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. QB Khidmat Teguh Sdn Bhd v Pembinaan Legenda Unggul Sdn Bhd & Anor [2017] 8 MLJ 37602Here 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. Ganda Setia Cemerlang Sdn Bhd & Anor v Maika Holdings Bhd [2017] MLJU 1596CASE STUDY

12. Lavinia KumaraendranPartner Corporate & Commercial Litigation Team lkk@thomasphilip.com.mywww.thomasphilip.com.myThank You!