WINDING UP

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 OUTLINE
•INTRODUCTION

•TYPES OF WINDING UP:

1) VOLUNTARY WINDING UP

2) COMPULSORY WINDING UP

• APPOINTMENT OF LIQUIDATOR

•UNDUE PREFERENCE

•STAY AND TERMINATION OF WINDING UP

•CORPORATE RESCUE MECHANISM UNDER

THE CA 2016
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INTRODUCTION
Winding up involves a process where a
liquidator will sell of the company’s
assets (realise) and distribute the
HOW proceeds among the company’s
WHY creditors and if there is any excess, will
be given to the members.

WHEN
The ultimate aim is to pay off any debts
before the company’s life span is
terminated/deregistered.
WHAT It is also known as “liquidation”.

It usually occurs when the company

want to end its life or upon the
application of the creditors.
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 TYPE OF WINDING UP
1) VOLUNTARY WINDING UP 2) COMPULSORY WINDING UP

 Takes place when the  The company is insolvent.

company is solvent and the
The liquidator is appointed
liquidator is appointed by
by the creditors.
the members.
2 types of VWU – Section 12 grounds to wind up.
432 (2);
• (a) Members voluntary
winding up (MVWU)
• (b) Creditors voluntary
winding up (CVWU)
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  Takes place where the company is
solvent and the liquidator is appointed
during the members’ meeting.

1) VOLUNTARY
Section 4 defines ‘members’ voluntary
winding up’ as a winding up under

WINDING UP Subdivision 4 of Division 1 of Part IV,

(VWU) – SECTION
where a declaration has been made and
lodged under Section 443.

443 CA 2016 Why? See section 439.

• Fixed duration;
• Occurrence of any event which lead
to the winding up;
• Members passed a special
resolution to wind up the company
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A voluntary winding up shall commence:
i. Where a provisional liquidator has been appointed before the resolution for voluntary
winding up was passed Section 441(1)(a), and
ii. In any other case, at the time of passing of the resolution for voluntary winding up –
section441(1)(b)
The resolution may be of two types:
a. Ordinary resolution – it is passed when the articles provide that the company is to be
wound up when a specified purpose has been achieved or a specified period has
elapsed.
b. Special resolution – it requires no ground for winding up and is used in any other case
such as a solvent liquidation.
 Two types of voluntary winding up:
a. Members voluntary winding up – where the company is solvent;
b. Creditors’ voluntary winding up – where the company is insolvent

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 DECLARATION OF
SOLVENCY- SEC 443
The directors will make a declaration that the they have made an inquiry into the affairs of the company; and

At the meeting of directors, they have formed an opinion that the company will be able to pay its debts in full
within period not exceeding 12 months after the commencement of the winding up.

This declaration is known as ‘DECLARATION OF SOLVENCY.

A statement of affairs of the company must be attached to the declaration containing the following particulars:
• The assets of the company and the total of amount expected to be realised;
• The liabilities of the company; and
• The estimated expenses of winding up
After the declaration above has been made, the company must then lodge with the ROC before the notice of
general meeting are sent to the members informing the intention (to wind up the company).

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 By passing the members’ resolution to initiate the
MVWU, it signifies the date of commencement of
winding up. – section 441 (1)(b).

Notices of the general meeting must be sent out

in order to pass the members’ resolution to wind

MEMBERS’ up the company. It can be either special

resolution or where the constitution provides for

VOLUNTARY an event where the company is to be dissolved,

WINDING UP
then a resolution will be passed at a general
meeting requiring the company to be wound up

(MVWU)
voluntarily.

This resolution must be passed within 5 weeks

after the making of the declaration of solvency.
(Sec 443 (3)(b).

At the members’ meeting, a liquidators will be

appointed. Please see section 446(2) for his
powers. 8
  The company is insolvent and the liquidator is
appointed by the creditors at the creditors’ meeting.
 CONVERSION FROM MVWU TO CVWU: It can also
happen when the liquidator who has been appointed
by the members discover that the company will not be
able to pay or provide for the payment of its debts in
full within the period not exceeding 12 months from

CREDITORS’ the date of commencement of the winding up.

 Then, liquidator shall call for the creditors’ meeting

VOLUNTARY and lay before the meeting the statement of assets and
liabilities of the company. (Sec 447(1).

WINDING UP Sec 440 :Instead of making Declaration of

Solvency, the directors will make a statutory
declaration that state:
• The company by reason of its liabilities
continues its business; and
• That meetings of the company and of its
creditors have been summoned for a date
within 30 days of the declaration.

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 • Is not an approved liquidator

WHO IS NOT
• Is indebted to the company
exceeding RM 25,000

ALLOWED TO BE
• Is an officer / partner / employer
/ employee of the company

APPOINTED AS
• Becomes bankrupt
• Assigns his assets for the

LIQUIDATOR?
benefit for his creditors or
makes arrangement with this
creditors
SECTION 433(A)- (H) • Is convicted of an offence
involving fraud or dishonesty
 To take possession of the company’s assets

To realise/liquidate the assets (selling the

assets to meet the demand of the creditors)

To work out what debts are payable by the

FUNCTIONS OF A
company and any valid claims that exist
against the company

LIQUIDATOR
To distribute the proceeds of the realised
asset among creditors

If got surplus, to distribute these liquidated

assets among members (ordinary vs
preference, if any)

Finally, to bring about the de-registration of

the company.
 Taking into his custody and control all
properties and assets of the company

Conduct investigation into the

DUTIES OF A
company’s affairs

Collecting and administering the

LIQUIDATOR company’s assets

Keeping proper books, entries and

minutes of proceedings at meetings.

Lodge various notice and report with

SSM
  Requires an order from the court. In VWU, it is
carried out without the need for the court order.
A company may be wound up either by court
(compulsory) or voluntarily.

2) COMPULSORY
The difference between a winding up by a court
and voluntary winding up lies in the manner in
which the winding up is initiated.

WINDING UP To initiate voluntary winding up, a resolution of

the members must be passed, even in the case

(CWU) – SECTION of creditors’ voluntary winding up.

A winding up by the court is initiated by the

432 (1)(A) CA 2016 presentation of a petition to the court by a party

who is entitled to do so, based upon one of the
grounds set out in the Act.

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  It is a winding up order of the court which is
initiated by the presentation of a petition by a
person who is entitled to do so.

 The petition can be presented in the High Court

of Malaysia. Two things must be shown before

DEFINITION OF
the court will make a winding up order on a
petition:

COMPULSORY
i. That the petitioner had the right to present the
petition and;

WINDING UP
ii. That one of the grounds set out in the Act as
justifying a winding up has been made out.

 The court may not make a winding up order

unless it is satisfied that the voluntary winding up
cannot be continued with due regard to the
interest of the creditors or contributories.

 See Section 464(1) –(i) for categories for persons

who may petition for CVWU
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 Section 465 – Circumstances in which
company may be wound up by the court
(1) The court may order winding up if:
(a) The company has by special resolution
resolved that it be wound up by the court;

GROUNDS FOR (b) The company has defaulted in lodging

the statutory report or in holding the

COMPULSORY
statutory meeting under section 190 (3);
(c) The company does not commence

WINDING UP business within a year from its

incorporation or suspends its business for
a whole year;
(d) The company has no member;
(e) The company is unable to pay its
debts;

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(f) The directors have acted in their own
interests rather than in the interest of the
members as a whole, or in any other
manner whatsoever which appears to be
unfair or unjust to other members;
(g) When the period fixed for the duration of the
company by the constitution expires; or of
the event if any, occurs on the occurrence of
which the constitution provide the company
to be dissolved
(h) The court is of the opinion that it is just
and equitable to wind up
(i) ….
(j) ……
(k) ……; or
(l) ……

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 • The company is indebted in a sum
exceeding the amount as may
be prescribed by the Minister
and a creditor by assignment or

WHEN DOES A otherwise has served a notice of

demand....and the company has

COMPANY IS
21 days after the demand to pay
the sum; (RM10,000- PU (B) 58)**

UNABLE TO PAY
• Execution or other process issued
on a judgment, decree or order of
any court in favour of a creditor of

ITS DEBTS? – the company is returned

unsatisfied in whole or part;

SECTION 466 • It is proved to the satisfaction of

the Court that the company is
unable to pay its debts and in
determining so, shall take into
account the contingent and
prospective liabilities of the
company.
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Usually, the vast majority of application for compulsory winding up are presented by
creditors on the grounds contained in Section 218(1)(e); i.e the company is unable to
pay its debts.
Section 464(1)(b) permits a creditor, a contingent or a prospective creditor to apply for a
company winding up. This section enables the creditors to apply for a winding up even
though their debts are not immediately due and payable at the date of the application.
In Re William Hockey Ltd [1962] 1 WLR 555, it was held that a person who is owed a
debt by the company, which is still unpaid at the date of the application for winding up, is
a creditor.
The essential element here is that there must be a valid debt otherwise the fundamental
requirement of a debtor-creditor relationship would not be fulfilled. Without a ‘valid debt’,
the petition will be accordingly dismissed: Jurupakat Sdn Bhd v Kumpulan Good
Earth Sdn Bhd [1988] 3 MLJ 49 and Re Merchanised Construction Pte Ltd [1989]
SLR 533

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A contingent creditor is a person to whom a debt is owed, payment of which is only
due on the occurrence of some future event.

For example, in the Community Development Pty Ltd v Enqwirda Construction

Co, the High Court of Australia held that a builder whose debt only became payable
on the outcome of arbitration proceedings is a contingent creditor and is therefore
capable of filing a winding up application. This is so even though it was uncertain
whether the builder would be successful in the arbitration. A prospective creditor is a
creditor to whom a debt is due but not immediately payable. For example, a person
who sells goods on the basis of payment within 30 days after delivery is a prospective
creditor of the buyer for the debt due during the 30 days period.

The question of a person’s standing as a creditor usually arises when the company
disputes the existence of the debt. The question of disputed debts also arises in the
context of determining whether a company is deemed to be unable to pay its debt or
whether it has failed to meet a statutory demand made pursuant to section 218 (2)(a).

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 APPLICATION BY THE CONTRIBUTORIES AS A
GROUND FOR LIQUIDATION – SECTION 464(1)(C)
Section 4(1) defines contributory to include:

i. A person liable as a member or past member to contribute to the assets of the company in the event of winding up; and

ii. A holder of a fully paid shares of the company.

This definition of a contributory, in the case of a company limited by shares, includes a persons who at the commencement of the
winding up, held either fully paid or partly paid shares, even though strictly speaking, only a holder of partly paid shares is
liable to contribute an amount on the winding up. Not only the contributories must hold the shares, their name must also
appear in the register of membership.

Section 435 (2)Past members may also be liable to contribute to the assets of a company if they were members within one year
of the commencement of winding up and the present members are unable to satisfy the full extent of their liabilities. Exceptions to
this rule are set out in Section 435(2). E.g past member ceased to be a member for one or more years before the
commencement of the winding up [(a) till (e)]

A deceased contributory’s personal representative is by virtue of Section 437 also liable to contribute to the assets of the
company on a winding up. Accordingly, the personal representative is also included within the definition of contributory even
though not registered as a member.
 Where the main object of the company has failed – Re
German Date Coffee

Where the business is carried on in a fraudulent

manner – Re Thomas Edward Brinsmead & Sons Ltd

Where there is deadlock in the management – Re

Yenidje Tobacco Co Ltd

“JUST AND EQUITABLE” Where members have justifiable lost confidence in the
management – Loch & Anor v John Blackwood Ltd
GROUNDS/CIRCUMSTANCE Where there is no bona fide intention on the part of the
S FOR A COMPANY TO BE controllers to mange the company in proper manner –

WOUND UP Re London Country & Coal Co.

Where the mutual trust and confidence which is the

basis of the company is gone – Ebrahimi v
Westbourne Galleries

Exclusion of management – Tay Book Choon v

Tahansan Sdn Bhd
 EFFECT OF AN ORDER FOR
COMPULSORY WINDING UP
If an order is made , it is retrospective in effect to the date on which the petition was
presented to the court which becomes the date of commencement of liquidation –

Among the legal consequences of an order by the court for compulsory winding up are:

i. The effective dismissal of all directors, officers and employees of the company;

ii. A stay of any execution of a judgment against the company and of any legal
proceeding in which it is either plaintiff or defendant;

iii. A standstill on any disposition of assets or transfer of shares (unless approved by

court) from the date of commencement of liquidation
 UNDUE PREFERENCE (SEC 528)
Is a transaction between a company and an unsecured creditor that result in the creditor receiving more from
the company that the creditor would have received if the creditor had to prove the debt.

The transaction must have taken place 6 months prior to the commencement of winding up proceeding.

4 elements of undue preference:

a) the transaction is any transfer, mortgage, delivery of goods, payment, execution of other act
relating to property made or done by or against the company;

b) where the company is unable to pay its debts, as the debts become due, from its own money,
(insolvent) at the time of the transaction

c) where the transaction is made in favour of any creditor or any person in trust for any creditors;

d) the transaction took place within 6 months from the date of the presentation of the winding up
petition and a winding up order is made.
STAY AND TERMINATION OF WINDING
UP
STAY OF
TERMINATION
PROCEEDING
SECTION SECTION
492 493

Once the court has granted the The court can

winding up order, the court may, terminate the winding
make an order for a stay for up order
specified time

WHY? WHY?
.
 SCHEME OF ARRANGEMENT (SOA)
•A statutory mechanism to carry out a formal
compromise to bind all dissenting participants

CORPORATE (creditors).

RESCSUE
•This process require 75% approval in value of the
creditor or classes of creditors.

MECHANISM
•The directors still retain control in the company.

CORPORATE VOLUNTARY ARRANGEMENT (CVA)

•Provides protection for a company against directors while the
director manage the company.

•Faster than judicial management.

•Qualified insolvency practitioner will supervise the restructuring

plan.

JUDICIAL MANAGEMENT (JM)

•Option which is open to a financially stricken company.

•Protection is given against any legal proceedings or steps taken to

enforce any security over the company’s assets and will begin as
early as when the application for Judicial Management is made
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