It is often the case that business owners tend to leave their companies dormant (i.e not in operation/conducting business) without eventually dissolving the companies as they decide to move on or venture into other business areas. As such, this article intends to give a general overview on what methods are available to close down a company.
Pursuant to Section 549 of the Companies Act 2016 (“CA”), the Registrar of the Companies Commission Malaysia (“CCM”) has the power to strike off or deregister a company.
In this regard, a company may apply to the Registrar for them to be struck off or deregistered under Section 550 CA. However, in order for the Registrar to exercise their discretion, the said company must show the Registrar, amongst other, that the company:-
- is not carrying out business or not in operation;
- has passed a resolution to initiate a striking off application;
- currently has no assets and liabilities;
- has no bank account;
- has no outstanding tax or other liabilities with any Government Department or Agency (i.e IRB, EPF and SOCSO);
- has no outstanding penalties or offer of compounds under the CA 2016;
- has updated the latest information on SSM;
- is not involved in any legal proceeding within or outside Malaysia;
- does not have any outstanding charges in the Register of Charges;
- has not made any return of capital to the shareholders;
- is not a holding company; and
- is not a Guarantor Corporation.
(*As per the Guidelines on Application by Directors or Members to Strike off the Name of a Company under Section 550 of the Companies Act dated 9 June 2017 (Revised 19 April 2019))
An application to strike off a company can be made by submitting the Declaration-Application to Strike Off Company form together with the supporting documents such as the shareholders resolution (to show that the required resolution has been passed), management account (to show that the company has no assets and liabilities) and the application fee of RM100.00.
Winding-up is a process that brings an end to the company. In such event, a liquidator would be appointed to handle the affairs of the company (as opposed to the directors) and take charge of the winding-up proceedings. This would include disposing the company’s assets in order to pay the company’s creditors and meet other liabilities and to redistribute any excess of the same back to the shareholders. It is important to note that once a company has been wound-up, it cannot be revived.
A company can be voluntarily wound up (instead of being forced to be wound up via a court order). This can be done where the directors and shareholders pass a special resolution to wind up the company (Section 439(1)(b) CA 2016). In this regard, such resolution must be lodged to the Registrar within seven days from the passing of such resolution (Section 429 (2)(a) CA 2016).
There are two types of voluntary winding up which are:-
- Members Voluntary Winding-up (MVW); and
- Creditors Voluntary Winding-up (CVW).
Members Voluntary Winding-up (MVW)
MVW can only be done by a company that is solvent and is able to pay-off all its debts and liabilities. In this regard, the company must lodge a declaration that the it is able to pay its debt in full within 12 months from the commencement of winding up (Section 443(1)(b) CA 2016). In respect of MVW proceedings, directors and shareholders of the company is at liberty to appoint their preferred liquidators to carry out the winding up process.
Creditors Voluntary Winding-up (CVW)
In the event that a company is insolvent or is found to be insolvent by the liquidators during a MVW process as the case may be, then a company may only be voluntarily wound up by way of CVW. In this regard, a CVW requires a company to give notice to its creditors to hold a creditors’ meeting and also advertise such notice in two widely circulated newspaper (Section 449(1) CA 2016). Here, it is the creditors who would appoint the liquidator to take charge of the winding up proceedings instead of the directors or shareholders.
Generally, if a company is intending to be closed down, then applying for the company to be struck-off would be the cheaper and faster option. However, it must be highlighted that this option is only available to solvent companies. For insolvent companies however, the only option is by way of CVW where the company would be at a slight disadvantage given that it would not be able to appoint its preferred liquidators in conducting the winding-up process. (as opposed to MVW).