Legal Business. Memorandum On Members Voluntary Winding-Up Of A Company In Singapore

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1 Memoranda on legal and business issues and concerns for multiple industry and business communities Memorandum On Members Voluntary Winding-Up Of A Company In Singapore 1 Rajah & Tann 4 Battery Road #26-01 Bank of China Building Singapore Tel: Fax: eoasis@sg.rajahandtann.com Website:

2 Memorandum On Members Voluntary Winding-Up Of A Company In Singapore Overview Requirement Of Solvency Where the members of a company (also known as shareholders ) no longer wish to have the company carry on business and wish to take out their capital investment in the company, they may wish to seek a voluntary winding up. A company can be wound up by its members by their passing a special resolution to that effect at an Extraordinary General Meeting ( EGM ). A company can only be wound up voluntarily by its members if the company is solvent. In other words, the company must able to pay its debts in full within a period not exceeding 12 months of the commencement of the winding up. Appointment Of Liquidator In any winding up, a liquidator must be appointed by the shareholders to manage and administer the winding up of any company registered under the Act. In a member's voluntary winding up, any person may be appointed to be the company s liquidator unless: he is indebted to the company or a related corporation for an amount exceeding S$10,000.00; he is an undischarged bankrupt; (iii) has assigned his estate for the benefit of his creditors or made an arrangement with his creditors pursuant to the Bankruptcy Act, Chapter 20; or (iv) he has been convicted of an offence involving fraud or dishonesty punishable by at least 3 months' imprisonment. (c) The liquidator must be a natural person and in Singapore, an accountant is normally appointed as liquidator. (d) A person cannot be appointed as liquidator unless he has first agreed to act as one. After he is appointed, the liquidator must, within 14 days, lodge with the Registrar of Companies (the Registrar ) and with the Official Receiver a notice of his appointment and of his office address. This notice must be in the form prescribed by the Companies Act (Form 71). (e) Should he change his office address, the liquidator must, within 14 days after the change, notify the Registrar and the Official Receiver of the change. He does this by lodging the appropriate form with the Registrar and with the Official Receiver. Page 1

3 Registration And Notice Of Voluntary Liquidation A member s voluntary liquidation of a company is deemed to commence at the time of the passing of the special resolution at the EGM. The Companies Act requires that notice of the voluntary winding up must be given to various persons: Notice of the winding up must be given to the Registrar. This is done by lodging a printed copy of the resolution for voluntary winding up with the Registrar. The lodgment must be made within 7 days after the resolution was passed at the EGM. The public must be given notice of the winding up. Accordingly, within 10 days after the passing of the resolution for voluntary winding up, a notice of the resolution must be published in a newspaper circulating generally throughout Singapore. (c) If the company fails to comply with these requirements, the company and every officer of the company who is in default shall be guilty of an offence under the Companies Act. The Steps Involved In Commencing A Voluntary Liquidation Declaration Of Solvency The first step in commencing a voluntary liquidation is for a majority of directors of the company must make a written declaration of solvency. This written declaration of solvency (the Declaration of Solvency ) essentially states that: the directors have made an inquiry into the affairs of the company, and at a meeting of the directors they have formed the opinion that the company will be able to pay its debts in full within a period not exceeding 12 months after the commencement of the winding up. Such a written declaration must be made in the form prescribed by the Companies Act (Form 66). It must also have attached to it a statement showing: the assets of the company; the total amount expected to be realised from the liquidation of the company s assets; (iii) the liabilities of the company; and (iv) the estimated expenses of winding up; made up to the latest practicable date before the making of the declaration. (c) In order for the Declaration of Solvency to be effective, it must be made at a meeting of directors. Page 2

4 (d) In addition, it must have been made within 5 weeks immediately preceding the passing of the special resolution for voluntary winding up. In other words, once a Declaration of Solvency is made and executed, an EGM for commencing the voluntary winding-up of the company must be held within 5 weeks and no later. (e) The Declaration of Solvency must also lodged with the Registrar before the date on which the notices of the EGM are sent out in order for it to be effective. (f) A director who makes a Declaration of Solvency without reasonable grounds for believing that the company will be able to pay its debts in full within the prescribed period shall be guilty of an offence under the Act 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. Notice Of The Members EGM Once the Declaration of Solvency has been filed with the Registrar, the directors must send to the members a notice of an EGM to be convened for the purpose of passing: a special resolution to wind up the company, and an ordinary resolution appointing the liquidators (and approving their remuneration). Under the Act, a special resolution is one which has been passed by a majority of not less than three-quarter of the votes of the members present entitled to vote and present at the meeting (either in person or, where allowed, by proxy). In addition, for special resolutions, at least 21 clear days notice of the meeting must have been given to the members (such notice may, however, be shortened by agreement of a majority of the members holding not less than 95% of the nominal value of the shares of the company). Appointment Of Provisional Liquidator Concurrently with calling for the meeting, the directors are required to appoint an approved liquidator to be the provisional liquidator between the issuing of the Declaration of Solvency and the holding of the EGM. An approved liquidator refers to an approved company auditor who has been approved by the Minister for Law as a liquidator and whose approval has not been revoked. The notice of the appointment of the provisional liquidator and a copy of the statutory declaration must be advertised within 14 days of the appointment of the provisional liquidator in at least 4 local daily newspapers, one each published in the English, Malay, Chinese and Tamil languages. EGM At the EGM, the following matters need to be resolved: the company is to be voluntarily wound up; Page 3

5 a certain person or persons is appointed as the liquidator(s); and (iii) the liquidator(s) is empowered to divide all or any of the properties and assets of the company among the members in specie. Items and 2.3.1(c) must be resolved by way of special resolution. (c) After the passing of the special resolution for winding up, the company must: ensure that all documents issued by or on behalf of the company containing the company s name are amended to include the words (in liquidation) after its name; hand over all company books and records to the liquidator; (iii) within 7 days, file a printed copy of the special resolution with the Registrar (Form 11, and where the company is a wholly-owned subsidiary, Form 52); and (iv) within 10 days, give notice of the resolution in one or more newspapers circulating in Singapore. Commencement Of The Winding Up Effects Of Commencement Of Voluntary Winding Up Once the resolution to voluntarily wind up the company is passed, the winding up is deemed to have commenced. The commencement of the voluntary winding up has several important consequences: The company must cease to carry on its business except so far as in the opinion of the liquidator the carrying on of business is required for the beneficial winding up of the company. The directors powers will cease, except where the shareholders, with the consent of the liquidator, has resolved that the directors should continue to have such powers. (c) Any transfer of shares is void unless transferred to, or sanctioned by, the liquidator. (d) The status of the members cannot be altered. Winding Up By Liquidator The liquidator takes charge of the winding up of the company s affairs. He prepares and files the relevant notice and advertisement including the settlement of creditors' claims, attends to the company's income tax clearance and the filing of the company's accounts as well as determines how much (either in cash or in the form of the company's property, or both) is to be returned to the company's shareholders following payment of all the company's liabilities and debts. Accounting By The Liquidator As soon as the affairs of the company are fully wound up, the liquidator must make up an account showing how the winding up has been conducted and how the property of the company has been Page 4

6 disposed of. He must then call a general meeting of the company for the purpose of presenting and explaining the account to the meeting. The meeting must be called by advertisement published in at least 4 local daily newspapers, one each in English, Malay, Chinese and Tamil. The exception to this rule is that when a declaration is made by the liquidator and filed with the Official Receiver that neither at the date of commencement of the winding up, nor since that date has the company had trade creditors. In that case, the advertisement need only be published in a newspaper circulating generally throughout Singapore. The advertisement must specify the time, place and object of the meeting and must be published at least one month before the meeting. The quorum at the meeting shall be 2 members, and if a quorum is not present at the meeting, the liquidator should, when lodging the Form 69 (with account attached), state that the meeting was duly summoned but that no quorum was present at this meeting. The liquidator must, within 7 days after the meeting, lodge with the Registrar and the Official Receiver, a return (Form 69) stating that the meeting has been held and attaching a copy of the account. Dissolution Of Company On the expiration of 3 months after the lodging of the Form 69 with the Registrar, the company will be dissolved. However, it should be noted that the court has the power to declare the dissolution of a company to be void at any time within 2 years after the date of dissolution. The application may be made by the liquidator or any other interested person. Possible Problems In The Winding Up Process Insolvency Of Company If the liquidator is, at any time during the course of the members voluntary winding up proceedings, of the opinion that the company will not be able to pay or provide for the payment of its debts in full within a period not exceeding 12 months after the commencement of the winding up as stated in the Declaration of Solvency, he is required to summon a meeting of the creditors and lay before the meeting, a statement of the assets and liabilities of the company. The notice summoning the meeting must inform the creditors that they have the right to appoint some other person to be the liquidator for the purposes of winding up the affairs and distributing the assets of the company, instead of the liquidator appointed by the company. If the creditors do appoint some other person, the winding up will proceed thereafter as if it were a creditors' voluntary winding up. Possible Delay In Obtaining Tax Clearance The most significant delay in achieving winding up is generally caused by the requirement that the liquidator obtain the Comptroller of Income Tax's tax clearance prior to the completion of the liquidation and final meeting of the shareholders. The Comptroller of Income Tax must be notified of the appointment of the liquidator, given notice of the relevant forms and provided a set of accounts concerning the financial year at the date of liquidation, for purposes of tax clearance. It could take between 4 months and 12 months to obtain the Comptroller of Income Tax's clearance. Clearance may be delayed if tax queries in relation to Page 5

7 past years have not then been resolved, or the tax position of the company is relatively complex. Conclusion This memorandum provides a quick overview of how a voluntary winding up is effected. Attached to the memorandum is a Checklist providing in an tabular fashion the key features steps involved, and time scale take at each step. Rajah & Tann is one of the largest law firms in Singapore. It is a full service firm and given its alliances, including US premier firm Weil, Gotshal & Manges, is able to tap into a number of countries. Rajah & Tann is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealings with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The information contained in this newsletter is correct to the best of our knowledge and belief at the time of writing. Specific professional advice should be sought before any action is taken. In this regard, you may call the lawyer you normally deal with in Rajah & Tann or the Knowledge Management team at eoasis@sg.rajahandtann.com Rajah & Tann Knowledge Management. All rights reserved. Page 6

8 Appendix Checklist For Members Voluntary Winding Up Estimated Waiting Period In Days Steps Minimum Maximum Events (1) - - Consent to be appointed as liquidator. 1 2 Hold Board of Directors' Meeting to form an opinion that the company will be able to pay its debts in full within a period not exceeding 12 months after the commencement of the winding up and to resolve to call an EGM to wind up the company. (Declaration of Solvency must be made at the Board of Directors' Meeting but before notice to members to convene EGM, and within 5 weeks before the passing of the resolution for the winding up). (2) 2 19 File Declaration of Solvency with the Registrar before notice to members to convene EGM is despatched. (3) 3 20 Notice to members to convene an EGM to: propose special resolution to wind up the company, appoint liquidator, and empower liquidator to divide properties and assets of the company among members in specie Consent to short notice can be made if the shareholders of 95% of the shares in the company agree to such short notice. (4) Hold the EGM. At least 75% of those entitled to vote must pass the resolution. Upon the appointment of the liquidator, all the powers of the directors shall cease unless approved by the company with the consent of the liquidator (5) File with the Registrar a printed copy of the special resolution passed for the voluntary winding up of the company and a Notice of Resolution (Form 11) within 7 days of such passing. Page 7

9 Estimated Waiting Period In Days Steps Minimum Maximum Events (6) Advertise notice of the passing of the special resolution in a newspaper circulating generally in Singapore within 10 days of such passing. (7) File with the Registar and the Official Receiver Notice of Appointment and Situation of Office of Liquidator (Form 71) within 14 days after the liquidator's appointment. (8) Payment of debts must be made within 12 months from the commencement of winding up Open a liquidator's bank account Prepare the balance sheet and accounts of the company up to the date of winding up Obtain tax clearance Distribution of the remaining assets or proceeds of the company to the shareholders after satisfaction of all liabilities. Pay any unclaimed money to the credit of the company's liquidation account The liquidator shall prepare an account as soon as the affairs of the company are wound up and present the account at the final meeting. (9) Advertise notice of final meeting in at least 4 local daily newspapers, one each in English, Malay, Chinese and Tamil at least one month before the meeting. (10) Hold final meeting. The quorum at the meeting shall be two. (11) File with the Registrar and Official Receiver Form 69 within 7 days after the final meeting. If a quorum is not present at the meeting, the liquidator shall lodge Form 69 (with account attached) stating that the meeting was duly summoned but that no quorum was present. Page 8

10 Estimated Waiting Period In Days Steps Minimum Maximum Events (12) The company is deemed to be dissolved 3 months after the final meeting and the lodgement of Form 69. (13) The liquidator must retain the books and papers of the company for a period of 5 years from the date of dissolution of the company and may destroy them after that period. Note: If steps (4) to (13) extend beyond a period of one year, the liquidator must summon a general meeting of the company at the end of the first year or not more than 3 months thereafter. Such a meeting must be called for every subsequent year that the process of liquidation continues, at the end of each subsequent year or not more than 3 months thereafter. The liquidator must lay before the meeting an account of his acts and dealings and the conduct of the winding up. Page 9