The winding up or liquidation of a company is a process whereby the assets of a company are sold and the monies collected are used to pay off its debts. After all its creditors are paid off, any remaining monies can then be distributed to the shareholders of the company. When this process is completed, the company is dissolved and ceases to exist.
There are three ways a company can be wound up, through a compulsory order from the Court, voluntary winding up by shareholders or voluntary winding up by creditors.
1) Compulsory winding up by the Court
There are certain grounds for which a company can be wound up by the Court. The common reason is a company’s inability to pay its debts. A company is deemed unable to pay its debts if one of the following occurs.
- A creditor has a claim against the company of more than SGD$10,000, served a written demand and has yet to receive payment for the debt within 3 weeks
- The execution of a judgement obtained by a creditor against the company is not fulfilled whether in part or in full
- It is proven to the Court that the company is unable to pay off its debts
An Originating Summons for compulsory winding up can be obtained from the Court for these reasons.
The following parties can file an Originating Summons for compulsory winding up
- The company itself
- One of or all of the creditors of the company
- A shareholder of the company
- A liquidator
- A judicial manager
- A Minister on specific legal grounds
Procedure and documents required:
- Either Form 2 or Form 3 of the (Companies Winding Up) Rules
- An affidavit (Form 5)
- File the written consent of the nominated liquidator (If no liquidator is nominated, the Official Receiver is the default liquidator)
- A deposit of SGD$10,400 to the Official Receiver
- An advertisement of the Originating Summons in an English and Chinese local daily newspaper
- An advertisement in the Government Gazette
The hearing of the Originating Summons is usually fixed within 6 weeks from the date of filing of the Originating Summons. The hearings are conducted in open court in front of the High Court Judge.
If any person would like to attend the hearing, he or she must fill up Form 8 and give it to the applicant or his or her lawyer.
Any person who wishes to oppose the winding up of the company should file an affidavit to oppose the winding up at least 7 days before the hearing.
Once the Compulsory Winding Up Order is received, the directors and the secretary of the company must deliver a statement of the company’s affairs to the liquidator within 14 days. This statement will contain details of the company’s assets and liabilities.
2) Voluntary winding up by shareholders
This is done internally without the need to involve the Court. This should be done by convening a shareholders’ meeting and coming up with a members’ resolution to seek consensus that the company will be voluntarily wound up. The directors of the company are required to file a declaration of solvency to ensure that the company will be in the position to pay its debts in full within 12 months after the commencement of the winding up process. The company will appoint a liquidator.
3) Voluntary winding up by creditors
This method also does not require the involvement of the Court. In addition to the shareholders’ meeting and members’ resolution, a meeting should be convened with the company’s creditors to consider the proposal for the voluntary winding up. The company will appoint a liquidator subject to any preference the creditors may have.
If no declaration of solvency is filed by the directors or if the liquidator deems that the company is unable to pay its debts within 12 months after the commencement of winding up, the winding up will proceed as a voluntary winding up by creditors.
The difference between the 1st option and the 2nd and 3rd options are that the corporate powers of the company can continue in the 2nd and 3rd whereas in the 1st it will cease. In all 3 options the company must cease to carry on its business from the commencement of winding up.
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
The editorial team at Singapore Secretary Services
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