Winding up of a company is a process where a company is been dissolved and its assets are seized and realized. The purpose of the procedure is to pay off creditors. Any remaining assets distributed among the shareholders of the company. The process itself involves some additional costs that are also covered from the company assets.
The wind up of a company may be voluntary or compulsatory.
Voluntary Wind Up
A voluntary winding up of a company is also known as liquidation. In a voluntary winding up, a Singapore company can be liquidated voluntarily by either its members or creditors. A company may commence liquidation if the majority of its directors believe that the company is unable to meet its liabilities to continue to operate its business. The company must send a notice to its creditors to consider a voluntary winding up. If a favorable resolution is passed, you as a creditor, have the right to wind up the company, to appoint a liquidator, and to have control over the process of winding up.
Compulsory Wind Up
A company may be wound up under an Order of the Court under certain circumstances e.g. the company is unable to pay its debts or when the court is of the opinion that it is otherwise just and equitable that the company is being liquidated. Such procedure may be commenced by a director or a creditor of the company. Section 254(1) of the Companies Act contains an exhaustive list of grounds on which an application for winding up may be presented. Some of the grounds on which a winding up application may be presented include:
- The company has by special resolution resolved that it be wound up by the Court;
- A default is made by the company in lodging the statutory report or in holding the statutory meeting;
- The company does not commence business within a year from its incorporation or suspends its business for a whole year;
- The company being unable to pay its debts; or
- The directors have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatever which appears to be unfair or unjust to other members.
If the company is unable to repay its debts it is considered insolvent. Singapore law provide3s for two reasons under which a company can be considered insolvent::
- The company is unable to pay its debts if there has been a failure to meet the statutory demand for payment for 3 weeks with respect to an amount exceeding $10,000; or
- The execution or other process issued on a judgment, decree or order of Court in favor of a creditor of a company is returned unsatisfied in whole or in part.
Whether or not a company is insolvent is up to the court to decide. Ultimately the court issues a wind-up order.
Winding up effects
Upon the commencement of winding up, the company’s directors have no power to carry on the business of the company. A liquidator takes over control of the company. Within 14 days of the winding up order, the directors and the secretary of the company must deliver a statement of the company’s affairs to the liquidator, who must then make a report to the Court. The statement of affairs contains details of the company’s assets and liabilities, and enables the liquidator to carry out investigations into the affairs of the company.
After the Originating Summons for winding up is presented, the company, its creditors or its shareholders may apply to restrain any pending proceedings against the company. Once the winding up order is made, no action against the company may be commenced or continued without the leave of the court. Any disposition of the company’s property and any transfer of its shares after the commencement of winding up shall be void unless the Court orders otherwise.