Singapore Company Liquidation
A company may be closed voluntarily by its owners or by an Order of the Court (under certain circumstances). Under Company Law, it is the duty of Directors to wind up an insolvent company. An insolvent company is a company that cannot pay its debts as they fall due. A creditor may go to court and apply for a judgement to be registered against the company in relation to the debt. If they are still unsuccessful in receiving payment, another option is that a creditor may apply to the Court to have a company wound up if that company is insolvent.
Typical reasons for closing a company include:
- Company has ceased business activities or is not profitable
- Company cannot pay its debts and is insolvent
- Irrevocable dispute among shareholders
- Corporate or financial restructuring of the group to which the company belongs
- Company is dormant and the owner does not want to incur ongoing compliance and maintenance costs
- Breach of statutory provisions, including offences committed
Companies can be liquidated either by “Striking Off” or “Winding Up“. Winding up and striking off both result in a company ceasing to exist. However, they are very different processes and should not be confused with each other.
A private company that is not trading and meets certain other conditions may apply to the Company Registrar to be struck off the register. In general, striking off is an easier, faster and less costly procedure, however it is only suitable for small or dormant companies that are able to meet the specific requirements. A company may not be struck off if it is the subject, or proposed subject, of insolvency proceedings or a compromise or arrangement with its members or creditors.
Winding up is a more formal company liquidation procedure that involves the orderly winding-up of the company affairs, the appointment of a liquidator to manage the process of realizing the company assets, ceasing or sale of its operations, payment of its debts (if any) and distribution of surplus assets (if any) among its members.
More details about Striking Off and Winding Up methods of closing a Singapore company are provided below. Given the issues and complexity involved, it is best to engage a professional services firm to handle the matter of closing down a Singapore company.
Striking off a Company
A company may apply to ACRA (Accounting and Corporate Regulatory Authority) to strike its name off the Register pursuant to Section 344 of the Companies Act. ACRA may approve the application if it has reasonable cause to believe that the company is not carrying on business and the company is able to satisfy the criteria for striking off.
- The company must have ceased trading
- The company must not be involved in any court proceedings whether inside or outside Singapore
- The company must have no assets and liabilities at the time of making the application
- The company must not have any outstanding penalties or offers of composition owing to the Registry
- The company must not have any outstanding tax liabilities with IRAS (Inland Revenue Authority of Singapore)
- The company must not be indebted to other government departments
- The officers (e.g. directors and company secretary) of the company must not have any outstanding ACRA summonses against any of them.
- The particulars of the directors must be the same as in the records of ACRA
- All the shareholders must consent to the striking off and the company must obtain a letter of consent from each individual shareholder
An applicant must be submitted to the Company Registrar. Depending on the complexity of the case and whether the documents submitted are sufficient, ACRA may take about 7 working days to process the application.
If ACRA is satisfied that the company fully meets the criteria for striking off, a “striking off notice” will be sent to the company at its registered office address, its officers (directors and company secretary) at their residential address, and lastly to Singapore tax authorities. After a period of four months, a final notification will be made stating that the company has been struck off the Register. The date that the company is struck off will also be stated in the final notification. Any person who wishes to object to the striking-off can do so during this period. The entire striking off process takes about 5-6 months.
Winding up a Company
There are two paths to winding up a company in Singapore – voluntary winding up and compulsory winding up.
Voluntary winding up
A Singapore company can be liquidated voluntarily by either its members or creditors.
Members’ Voluntary Winding Up
A company may decide to wind up its affairs, voluntarily, if the directors believe that the company will be able to pay its debts, in full, within 12 months after the commencement of the winding up.
A majority of directors of the company must make a written Declaration of Solvency at a meeting of the directors. Once this declaration has been filed with the Registrar, the directors must send to the members, a notice of an Extraordinary General Meeting (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). The EGM must be held within five weeks from the Directors’ Meeting executing the solvency declaration.
Concurrently with calling for the meeting, the directors or partners 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. 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 respectively.
At the EGM, the voluntary winding up of the company needs to be resolved by way of Special Resolution, that is by a majority of not less than 75% of the votes of the members entitled to vote. Furthermore, one or more natural persons who have given their prior written consent must be appointed as liquidator(s). In Singapore, accountants are normally preferred for this position. Subsequently, a second Special Resolution has to be passed, empowering the liquidator(s) to divide all or any of the properties and assets of the company among the members.
Within seven days after the passing of the special resolution, a printed copy of the special resolution must be filed with ACRA and within 10 days, notice of the resolution has to be given in one or more newspapers circulating generally throughout Singapore. Furthermore, 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 and hand over all company books and records to the liquidator.
With the passing of the special resolution at the EGM, the member’s voluntary liquidation of the company is deemed to have commenced. The liquidator, or provisional liquidator will proceed to wind up the affairs of the company and file the necessary notifications required under the Companies Act.
The liquidator proceeds to prepare and file the relevant notice and advertisement including the settlement of creditors’ claims. He attends to the company’s income tax clearance, filing of the company’s accounts and as well as determining how much is to be returned to the company’s shareholders following payment of all the company’s liabilities and debts.
As soon as the affairs of the company are fully wound up, the liquidator must draw up an account showing how the winding up has been conducted and how the property of the company has been 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 liquidator must, within 7 days after the meeting, lodge with the ACRA and the Official Receiver, a return stating that the meeting has been held and attaching a copy of the account.
On the expiration of 3 months after the lodging of the form with the Registrar, the company will be dissolved. However, the court has the power to declare the dissolution of a company to be void at any time within two years after the date of dissolution. The application may be made by the liquidator or any other interested person.
Creditors’ Voluntary Winding Up
A company may decide to opt for a creditors’ voluntary winding up if its directors believe that it cannot, by reason of its liabilities, continue its business. The company will appoint a liquidator, or provisional liquidator, to wind up its affairs and file the necessary notifications required under the Companies Act. The procedure is the same as outlined above.
Effects of Voluntary Winding Up
- With effect from the date of passing of the special resolution, the company must cease to carry on its business except insofar as it is required for the beneficial winding up in the opinion of the liquidator.
- The directors’ powers will cease, except where the shareholders, with the consent of the liquidator, have resolved that the directors should continue to have such powers.
- Any transfer of shares is void unless made to, or sanctioned by, the liquidator, and the status of the members cannot be altered.
Compulsory Winding 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. The company itself, its creditors, shareholders, the liquidator or judicial manager may initiate liquidation proceedings with the High Court. The Court may appoint a liquidator to wind up the affairs of the company. Where no liquidator is appointed by the Court, the Official Receiver shall be the liquidator of the company.
Your company would normally cease upon liquidation. The liquidator will start to review the assets of the company and the claims of creditors, and look into the conduct of its directors and other related persons to realise your company’s assets in a manner that is in the best interest of the company and its creditors. The liquidator may also carry on the business if he considers it the most beneficial option. The officers of the company are generally deprived of their power to run the company. However, they and any other persons who may have been concerned with the affairs of the company have the duty to assist and co-operate with the liquidator. This includes the submission of a Statement of Affairs on the company’s assets and liabilities.
After all assets of the company have been assessed and realised, the liquidator will adjudicate all the claims lodged against the company and admit or reject them accordingly. Any surplus after paying the creditors and costs of liquidation will be returned to the shareholders.
Effects of Compulsory Winding Up
- An application may be made to the court to stay or restrain pending proceedings against the company after the presentation of a winding up petition and before a winding up order has been made. After a winding up order has been made or a provisional liquidator has been appointed, a leave of court is needed to commence or proceed with an action against the company.
- Any disposition of the property of the company, and any transfer of shares or alteration in the status of members of the company made after the commencement of the winding up by the court is void without the court’s sanction.
- No creditor is allowed to take out or continue attachment or execution proceedings against the company after a winding up petition has been presented.
- The rights of the secured creditor to deal or realise his security over company assets are not affected by the winding up order. However he is not entitled to interest on his debt if his security is not realised within six months of winding up or such further period as allowed by the Official Receiver.
- If prior to the winding up, any business of the company had been carried out with the intent of defeating or defrauding the creditors of the company or for any fraudulent purpose, the liquidator, creditor or contributory of the company may apply to court to make the person who was responsible for or was party to such activities to be personally liable for the debts of the company.
- Where there are mutual credits, debts or dealings between the company and a creditor, these dealings may be set off against each other and the creditor or the company can only claim the balance sum due against the other.
- There can be no claim for set off if at the time of extending credit, the creditor had known that a winding up petition was pending against the company. The rule as to set off operates automatically and is mandatory, in that parties cannot contract out of it.
A company must notify the following bodies as part of closing down its business:
- Accounting and Corporate Regulatory Authority (ACRA)
- Central Provident Fund (CPF) Board
- Inland Revenue Authority of Singapore (IRAS)
- Relevant Licensing Authorities
Closing a company can be a fairly complex and time consuming procedure. Moreover, you must make sure that you comply with all the necessary legal and statutory requirements. If you have decided to close your Singapore company, it’s highly recommended that you seek the help of a professional services firm that can assess your unique situation, recommend the best course of action, and assist you with getting it done.