WINDING-UP PROCEEDINGS - GENERAL. 1. There are essentially two types of winding-up procedures which may be instituted:-

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Bennett Bond
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1 A brief look at winding up by the court. INTRODUCTION: WINDING-UP PROCEEDINGS - GENERAL 1. There are essentially two types of winding-up procedures which may be instituted:- i) voluntary winding-up; and winding-up by the court. The difference between the two is in the manner in which the winding-up is initiated. 2. Voluntary winding-up is available to companies which are solvent and are not in a situation where they cannot carry on their business by reason of their liabilities. The directors of a company that intend to proceed with voluntary winding-up must be able to make a Declaration of Solvency in order to proceed with a member s voluntary winding-up. The shareholders of the company must also, by way of a resolution passed at the EGM of the company, resolve to wind up the company. 3. Winding-up by the court or a compulsory winding-up is initiated via the presentation of a petition by a person who is entitled to do so on one of the grounds set out in the Companies Act. Such a petition is usually presented by an unpaid creditor of the company concerned. 4. For the purposes of this paper, we shall be concentrating on the procedure on a winding-up by the court rather than a voluntary winding-up. WINDING-UP BY THE COURT: 5. As stated above, the process by which a company is wound up by the court begins with an application for a winding-up order, which is usually presented by an unpaid creditor. However, the company may be wound up on a petition of the company itself. 6. There are several grounds on which a petition for a compulsory winding-up may be presented. Some of the more common ones are that the company has by special resolution resolved that it be wound up by the court or that the company is unable to pay its debts, i.e. that the company is insolvent. 7. A company is deemed unable to pay its debts if a creditor to whom the company is indebted for more than S$10, has served on the company a demand requiring the company to pay the sum so due and the company has, for three weeks after the service of the said demand, failed to pay the sum or to secure of compound for it to the reasonable satisfaction of the creditor. 8. However, certain formalities must be carefully observed failing which the creditors petition for winding-up may be dismissed by the court:- i) service of the demand must be effected at the registered office of the Company; i a petition cannot be presented until the three week prescribed period has elapsed; the name of the company must be correctly stated;

2 the debt must be presently payable at the time of the notice and must not be a prospective liability; v) the demand must be signed by the creditor or his authorised agent; vi) v the sum due must be accurately stated, as an arithmetical error can be fatal; and there cannot be a genuine dispute in relation to the debt claimed whether as to quantum or otherwise as the winding-up process cannot be exploited to bring improper pressure on a company. 9. If the above is strictly complied with, the court will in all likelihood grant the petition and order that the company be wound up. The commencement of the winding-up triggers off several events:- i) it terminates the directors positions and transfers their powers to the liquidator; i it checks the disposition of the company s property except by the liquidator; it terminates the employment of staff; it acts as a restraint on the initiation of civil process and the execution of judgments v) it voids share transfers unless they have the approval of the court or liquidator; and vi) it restricts the rights of the members to inspect the company s book and registers. THE LIQUIDATOR: 10. Upon making an order to wind up the company, the court will then appoint a liquidator, who may be either the Official Receiver or an approved company auditor. It is usual for the creditor presenting the petition to ask that a specific liquidator be appointed with the consent of such a liquidator. 11. Where the creditor is of the view that there is a chance of recovery or that there needs to be some investigation into the affairs of the company, it would generally be willing to incur the costs of appointing a specific liquidator, usually an accountant in an accounting firm. Otherwise the creditor will request that the Official Receiver be appointed. The Official Receiver s government appointee s charges are only derived from the assets of the company. As such, the creditor will not be subject to paying the Official Receiver s charges. Usually, if the Official Receiver is appointed, the process of winding-up the company may take some time, and in the absence of obvious malpractice, will not involve overly active investigations or enquiries into the debtors of the company 12. A liquidator of the company cannot be an officer, partner, employer or employee of an officer of the Company. 13. The general functions of a liquidator are:- i) to take over the company s assets and to protect them; to prepare a list of contributories;

3 i to adjudicate matters in dispute such as the validity of the company s debts; to realise the assets; and v) to apply the proceeds of that realisation amongst the creditors and the contributories. PROCEDURE AFTER COMMENCEMENT OF WINDING-UP: 14. Within 14 days of the winding-up order, the officers of the company, more often the directors, will have to submit a Statement of Affairs to the liquidator encompassing a statement of the affairs of the company as at the date of the winding-up order showing:- i) the particulars of its assets, debts and liabilities; i the names and addresses of its creditors the securities held by them respectively; the dates when the securities were respectively given; and v) such further information as is prescribed or as the Official Receiver or liquidator require. 15. If the officers of the company default in submitting the said Statement of Affairs, they shall be guilty of an offence and shall be liable on conviction to a fine not exceeding S$5, or to imprisonment for a term not exceeding 12 months or to both and also to a default penalty. Usually, upon the winding-up order, the liquidator will write to the directors to inform them and request that they submit the Statement of Affairs. The liquidator may also request meetings with the directors to clarify issues with respect to the affairs of the company 16. After receipt of the Statement of Affairs, the liquidator (if not the Official Receiver) shall submit a preliminary report to the Official Receiver as to, inter alia, the causes of the company s failure, i.e. whether the officers of the company had not complied with their duties etc. 17. Pursuant to Section 149 of the Companies Act (Cap 50) the court may disqualify directors of the company from being directors of other companies. However, for that to happen, the following conditions must be satisfied:- i) he must have been a director of a company which went into insolvent liquidation either while he was a director or within three years of his ceasing to be such; i an application to the court must have been made by the Official Receiver that he be disqualified; 14 days notice of the application must be given to the person whom it is sought to disqualify; and the court must be satisfied that his conduct as a director of the company, either taken alone or together with his conduct as a director with another company, makes him unfit to be a director of a company or to participate in the management of a company either directly or indirectly. 18. After the liquidator has made his preliminary report to the Official Receiver, the liquidator will then be in a position to realise the assets of the company. In order to do so, the liquidator has the power to, inter alia, bring or defend any action or other

4 legal proceedings in the name of the company, to sell the moveable and immovable property of the company by public auction etc. 19. Once the assets of the company is converted into cash, and calls have been made on any uncalled capital, the liquidator will pay off the company s creditors in order of priority, i.e. secured creditors will be paid before preferential and unsecured creditors. 20. Any surplus left after payment to the creditors has been made will be distributed to the company s members. However, this very rarely occurs as most companies who are wound up are insolvent to start with!. 21. As soon as the above is carried out, the liquidator will apply to the court to be released and for the company be dissolved. When the court makes such an order, the company will cease to be a legal entity and its name will be removed from the company register

5 TIME FRAME OF A WINDING-UP BY THE COURT Petition to wind up the Company is presented to the Court Approximately 6 weeks later Court orders that Company be wound up On the same day Assets of the Company will vest in the Liquidator 14 days later Officers of the Company to provide the Liquidator with Statement of Affairs As soon as practicable Liquidator makes Preliminary Report to the Official Receiver Liquidator calls in all assets and debts and distributes assets of Company to Creditors Liquidator applies to Court to dissolve the Company and be released

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ACCOUNTING SOLUTIONS SCO: 209, First Floor, Sector-36/D. Chandigarh (M): 0172-4670390-5017149, 9876149390 Liquidation of Companies Meaning: Liquidation is the legal procedure by which a company comes to an end. The term Liquidation mean The process of law where by a company is wound up to terminate its corporate