Module 13

Liquidation

1. Alternatives to Liquidation
a. Enforcing security by appointing a receiver and manager
i. Types of securities
1. Fixed Charge
 Legal mortgage over specified assets.
 Company retains possession and use of the secured property.
 Precludes the company from dealing with such property while
the mortgage subsists.
2. Floating Charge
 Equitable charge on some or all of the company's present and
future assets
 The company is permitted to use and deal with the secured
property in the ordinary course of business.
 The occurrence of "crystallizing event" will crystallize the
floating charge and will be a fixed charge over the secured assets.
 Crystallizing event is defined in the agreement i.e. insolvency,
when the value of assets falls below certain level, default
payment; company ceases to trade; or company is wound-up
ii. A receiver is appointed in the event of default in the case of a fixed charge or
when the floating charge crystallizes.
iii. The creditor needs only to give notice to the company. The application of
appointment of receiver to the court is not necessary.
iv. Effect of appointment of receiver:
1. The power of the director over the secured assets ceases.
2. If the secured assets comprise the whole of the company's assets, the
director's power cease altogether and Fiduciary duty is owed by the
directors to the secured creditor
v. Procedure of the receiver
1. run the business of the company, in order to sell it as a going concern;
2. if the company cannot be sold as a going concern, the receiver must cease
trading and sell the secured assets;
3. pay the receiver's own cost and expenses from the proceeds of the sale;
4. repay amount owed to the secured creditor; and
5. prepare accounts and account to the company for any remaining balance.
vi. Provisions in the companies legislation that seeks to balance the interest of
the secured creditor and the company:
1. Ensuring independence of receiver
2. Providing oversight and supervision
3. To ensure a receiver is effective in protecting the secured creditor, he has
the power to obtain information
vii. Appointment of receiver stemmed from the law of equity. However, the
appointment of receiver has now been codified in the Insolvency Act 1986. The
receiver is now known as administrative receiver.
 viii. In the offshore jurisdiction the Companies legislation is peripheral and a receiver
can be appointed out-of-court.

b. Compromise Arrangement with creditors

i. Rationale -to facilitate a rescue of the ailing company as a going concern rather
than to wind up the business and liquidate the assets.
ii. The directors of an insolvent company or approaching insolvency may approach
and reach a compromise agreement with the creditors.
iii. General plan of proposed compromise agreement
1. Creditor will give the company time to recover and will not enforce
payment of debt
2. Interest payments are suspended or reduced
3. Proportion of debt may be written off or converted into equity
iv. Compromise agreement needs to be agreed upon by all creditors of the company.
v. Dissenting creditor can seek recovery in court at once or apply for the company
to be wound up
vi. Companies legislation recognizing compromise between the creditors and the
company:
1. English companies act of 1929, 1948 and 1985 - laid down procedures
when the company can apply to court for it to convene a meeting with the
creditors and propose a compromise arrangement by way of rescue
package.
2. Must be agreed upon by majority of 75% in value of all creditors present
and voting in person or proxy.
3. The Compromise is biding once approved by the court.
4. The test for sanctioning a compromise agreement - whether an intelligent
and honest person acting in their own interest would approve
vii. Procedure of compromise agreement under Insolvency Act
1. The compromise agreement is approved by an independent, qualified,
and regulated insolvency practitioner
2. Oversight to ensure the compromise agreement is implemented correctly
is vested unto identified solvency practitioner
3. Dissenting creditors can apply to the court if they feel that the
compromise is not fair
viii. In the US, the procedure is Chapter 11 of the US Bankruptcy Code
1. Can be initiated by the Directors or the company's creditors
2. The directors initiates by filing an action with the federal bankruptcy
court for protection
3. Directors and trustee are then required to come up with a Chapter 11 Plan
to reorganize and manage the company for a fixed period (Breathing
period)
4. During the breathing period a moratorium exists that pending actions
against the company are stayed
5. Chapter 11 plan are proposed to the creditors, who are entitled to vote on
it - if approved - it becomes binding upon the company and creditors. If
rejected - the court can covert the procedure to compulsory liquidation or
remove the statutory protection and return the company to normal status
 6. If approved the company continues as a going concern subject to regular
reports to a supervising committee of creditors
ix. Offshore - copied the 1948 Act. Except BVI which is modeled upon the
insolvency act.

c. Corporate Administration
i. Insolvency Act 1986 - Same objective as compromise
ii. Application may be made by:
1. Director; or
2. One or more of the creditors.
iii. When may application be made
1. The company is or likely to become unable to pay its debts
2. Appointment of administrator will achieve the objective or better
percentage of collection.
iv. Who may be appointed as an administrator - a regulated and qualified insolvency
practitioner.
v. Duty of the administrator
1. Investigate the affairs of the company and prepare a plan of
administration for approval of the creditors at a creditor's meeting
 If creditors approve, the plan becomes binding and the
companies registrar need to be informed of such fact
 If creditors disapprove, the court could order a compulsory
winding-up or dismiss the administration.
2. Implement the plan of administration and put it into effect as agent
of the company

2. Compulsory winding up - Template is English Companies Act of 1948

a. Grounds
i. The company is unable to pay its debts
1. When the creditor serves the prescribed written demand on the company
requiring the payment of a debt that is legally due and payable and which
the company fails to secure within 21 days.
ii. When the court deems that it is just and equitable to wind-up the company; such
as when:
1. Objects of the company failed or becomes illegal
2. Company cannot continue business
3. Company is carrying on a business in an illegal manner
4. Regulator suspects that the company has been involved in criminal
proceedings
b. Procedure
i. Application to the court
1. Made by
 Director
 Shareholder
 Creditor as part of its action to recover the money
ii. Hearing the court will issue an order to wind-up the company and appoint a
liquidator
 iii. Winding-up order - must be sent to the Registrar of Companies and
advertised in accordance with local requirements.
iv. First duty - call creditors' meeting to choose a liquidator in place of official
receiver. If there is no nomination, Official receiver becomes the liquidator once
winding-order has been made.
c. Consequences of winding-up
i. Liquidator assumes control of the books and records and assets of the company
ii. Further transfers of the property belonging to the company for the benefit of
creditors are void unless approved by the court
iii. Any lawsuits against the company are stayed
iv. Powers of the directors cease
v. Floating charges crystallize
vi. Statement of company's affairs must be prepared and filed by the directors setting
out the details of assets and liabilities of the company.
d. Liquidator's duties
i. Close down the company and to collect and sell the assets in the best interest of
the company.
1. Close down - terminate employees and disclaim contracts
2. Take possession of the assets and collect debts due to the company
3. Sell assets in the best interest of the company, with care
4. Determining the identity and value of creditors and whether they can
prove that money is owed to them
5. Paying proper debts due to creditors of the company
6. Prepare and submit final accounts to the court
ii. Assumes control of the books and records of the company.
iii. Investigate the financial affairs of the company to determine why it failed. He
may apply to the court for public examination of the officers.
iv. if the liquidator finds mismanagement, fraud or wrongful trading, he may file a
lawsuit against the directors.
v. If found that fraudulent preference in conferred upon one creditor he may file a
lawsuit to recover the preference.

3. Voluntary winding-up
a. Applied by
i. Members because they no longer wish the company to continue
ii. Creditors of the company decide that the company should be wound up because
of liquidity problems, but do not wish to involve the court in the process.
b. Grounds
i. When the Constitution provides that the company should be wound up within a
certain period or upon happening of a particular event. If it occurs members
would need to pass an ordinary resolution to wind-up the company.
ii. When, for reasons not connected to the solvency of the company, members
decide that the company is no longer required. Members pass a special resolution.
c. Members' voluntary winding-up
i. Procedure
1. Declaration of solvency Directors confirm that finances were reviewed
and the company has sufficient assets to pay the liabilities and debts.
 2. Special resolution members pass a special resolution to terminate the
company and appoint a liquidator and resolution must be submitted to the
registrar
3. Liquidator appointed by resolution of the shareholders at the time the
special resolution to terminate is passed
4. Members' meetings may be required to call meetings of the shareholders
in order to update them of the liquidation progress
5. Delivery of Accounts - upon collection of all the assets and payment of
all creditors, final accounts must be prepared by the liquidator and it must
be presented to the shareholders at a final meeting. The accounts must be
submitted to the registrar together with a request to dissolve the
company.
6. Registrar will remove the name of the company from the registrar and
will issue a certificate confirming that the company has been dissolved
ii. Summary of winding-up procedure
1. Directors to convene EGM and directors must present declaration of
solvency
2. Shareholders pass the special resolution
3. Directors, officers, and shareholders to prepare a letter to the registrar
confirming that they wish the company to be dissolved
4. Payment of the taxes owed
5. Copies of the letters from the directors, officers, and members are sent to
the Registrar to request for the company to be dissolved
6. Notice must be published to the local press recording
7. If no objection, the Registrar will remove the company from the register
after 3 months

d. Creditors' voluntary winding-up

i. If the company is insolvent the company can apply to the court for a compulsory
winding-up order.
ii. Directors to convene EGM to wind up the company
iii. Directors to convene creditor's meting to appoint liquidator
iv. Liquidator winds up the company upon collection of all the assets and payment of
all creditors, final accounts must be prepared by the liquidator and it must be
presented to the shareholders at a final meeting. The accounts must be submitted
to the registrar together with a request to dissolve the company.

4. Payment of debts
a. Must be paid in proper order
b. Only when the company's debts have been paid may the liquidator distribute any surplus
to the shareholders
c. Order of payment for creditors
i.
5. Reinstatement of Liquidated Companies
6. Defunct companies
a. Striking off
 i. Section 353 Companies Act 1948 - the registrar will take steps to strike off the
company from the companies register if he believes that the company ceased to
carry on business.
1. Process
 Registrar sends a letter to the company asking whether it is still
carrying on a business.
 If the company responds, Registrar will not proceed.
 If no reply is received, the Registrar services notice, stating that
if a response is not received within a certain period of time, the
Company will be struck off.
 Upon being struck off, any assets belonging to the Company are
forfeited to the state.
2. Downside
 Liability of the officers of the company for their acts and default
and liability of the members for unpaid calls continue and do not
abate
 The time when the registrar will proceed to strike-off is
uncertain.

ii. Section 344 of the Singapore Companies Act - Registrar acts to strike off the
company:
1. Grounds: Reasonable cause to believe that
 Company is not carrying on business
 Company is not in operation
2. Process
 Registrar will send a letter to the directors, company secretary,
and members stating that if they do not respond within 30 days
after the date of the latter, a notice will be published in the
Gazette with a view to strike the name of the company off of the
register.
 If he receives a response that the company is carrying on a
business or in operation, he will take no action.
 If no response or no objection is received, he will publish in the
Gazette and send notice to the company that at the expiration of
60 days after the date of notice that the name of the company will
be struck off the register and the company will be dissolved.
3. Downside
 3 strike-off rule, if a director is a director of 3 companies struck
off by the registrar within a period of 5 years said director will be
disqualified to act as such unless the DQ has been lifted.

iii. Section 344A of the Singapore Companies Act - Striking off of application by
Company - The company may apply to the Registrar to strike the company's
name off the registrar if it has not commenced business or ceased to carry on
business.
1. Criteria
 No current/ possible assets and liabilities.
  Stopped business operations, or has not started business
operations since incorporation.
 No outstanding liabilities with IRAS, CPF, or any debt owed to
Government Agencies.
 No outstanding charges in your company’s charge register.
 No involvement in any court proceedings (within or outside
Singapore).
 Written consent of the majority of the shareholders.
2. Process
 Submit the online application to ACRA.
 ACRA will process the application within 5 working days. Once
the application is approved, ACRA will send a striking-off letter
to the company's registered office address and its officers
residential address.
 First Gazette Notification - After a 1-month period, if no
objection is received, ACRA will publish the name of the
company in the Government Gazette.
 Final Gazette Notification - After a 3-month period from the First
Gazette Notification, if there is no objection, ACRA will publish
the name of the company in the Government Gazette and the
name of the company will be struck off the register.

b. Reinstatement of companies that have been removed from the register

i. Who may apply
1. Application may be made to the court by a director or member for an
order permitting the reinstatement
2. By creditor when the company owes him money at the time it has been
struck off
ii. When to apply
1. Usually 10 years from the date the company was struck off
2. Panama 20 Years from the date it was removed from the Registrar.
iii. Section 344B of the Singapore Companies Act - Withdrawal of Application
1. the Applicant may within by sending a written notice to the Registrar at
any time before the name has been struck-off
2. When the registrar receives a notice of withdrawal, the Registrar will
send a notice to the Company that the application has been withdrawn
3. The notice of withdrawal will also be posted into ACRA's website.
iv. Section 344D Application for administrative restoration
1. Applied by a former director or member of the Company
2. Applied within 6 years after the date on which the company was
dissolved.
3. If the registrar restores the company
 The restoration takes effect from the date the notice is sent; and
 The registrar shall enter in the register a note of the date on
which the restoration take effect and shall publish the restoration
in the Gazette and ACRA's website.
v. Section 344F Registrar may restore the Company Deregistered by mistake -
at the initiative of the Registrar, he may restore the name of the Company if he is
satisfied that it has been struck off by mistake not attributable to a wrong or
misleading information conveyed to the registrar.