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DISSOLUTION OF COMPANY

(WINDING UP OR LIQUIDATION)

Salmiah Salleh 1/05/2020 LAW485 Windingup2020/21

UiTM KAMPUS ALOR GAJAH

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Introduction
• A company comes into existence when it is
issued with the notice of registration.
• A company is an entity which has the
characteristic of a perpetual succession.
• The life of the company does not end by any
death of any or all of its members or officers.
• S20(b) – a company’s existence will end only
when it is removed from the register.
• One of the way to remove a company from the
register is by winding up.
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Liquidation? Or Winding up?

• It is a process of putting an end to the life of a
co.
• In the process, the company’s assets are
collected and realised.
• Then applied in payment of its debts in due
order.
• Any surplus(if any) is distributed among its
members according to their entitlement
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Process of liquidation
Assets are collected

Realised

Pay debts to creditor according

to order

surplus- - distributed to members

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Modes of winding up – s 432(1) 1/05/2020 LAW485

Windingup2020/21

Winding up

Compulsory
winding up Voluntary
by order of winding up
the court

Members’ Creditors’
voluntary voluntary
winding winding
up(MVWU) up(CVWU)
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VOLUNTARY WINDING UP

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Circumstances? S 439
a. When period, if any, in the constitution, expires, or
▫ When event, if any, in the constitution, occurs, and
▫ Either one of the above, general meeting has passed
a resolution for the co to be wound up voluntarily, or
b. If the company so resolves by special resolution.
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Circumstances? S 439
• Either period expired or
event occurs, and
1 • GM has passed an
ordinary resolution

• By passing special
resolution to voluntarily
2 wind the co up
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Date of commencement? S 441

• Where an interim liquidator has been appointed
before the resolution for vol w/up is passed, at the
time when the declaration under s 440 is lodged
with the registrar; and
• Other case, at the time of the passing of the
resolution for vol w/up.
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Types of vol w/up

Member •When the co

voluntary
w/up is solvent

Creditor vol •When the co

w/up is insolvent
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MVWU? CVWU?
• Section 257 of the CA 1965 define members’
voluntary winding (MVWU) up as the liquidation of a
solvent company where the directors have formed an
opinion that the company will be able to pay its debts
in full within the period of 12 months after the
commencement of winding up
• Section 433 of the CA 2016 further defines (MVWU)
as A winding up in the case of which a directors’
declaration under section 443 has been made ; and a
winding up in the case of which such a declaration
has not been made is a “creditors voluntary winding
up”.
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Member’s vol.w/up (MVWU)

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• Initiated by resolution of the company.

• Can only proceed if the co is solvent.
• Before can proceed, the sole Director or majority of
Directors must make a written declaration of solvency to
the effect that: (s443)
▫ The have made inquiry into the affair of the co; and
▫ Are of the opinion that it will be able to pay debts in full
within 12 months after commencement of w/up.
• Then meeting of members to appoint a liquidator.
• Members have supervisory power of liquidator’s conduct.
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Creditor’s vol w/up(CVWU)

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• Only appropriate when the company is insolvent.

• The creditors have legitimate interest in the conduct of
liquidator
▫ They appoint, fix salary and supervise the liquidator’s
power.
• Cannot be initiated by creditor but MVWU is converted
into CVWU, if the co is insolvent. Occurs in 2 ways:
▫ No declaration of solvency
▫ After appointment of liquidator by members
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No declaration of solvency
• Members have taken steps to w/up voluntarily, but the directors
do not make and lodge a declaration of solvency, the liquidation
proceeds as a CVWU.
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After appointment of liquidator by members

• MVWU-> CVWU even after declaration of solvency.
• If the liquidator forms an opinion that the co is unable to pay
its debts in full within the period stated in declaration of
solvency (12 months).
• The liquidator then must convene a meeting of creditors- s
447(1).
• In the meeting, statement of asset and liabilities are laid down
and the creditor has the right under s 447(2) to appoint new
liquidator.
• S448 – once the meeting of creditors is held, the MVWU is
converted into a CVWU– the liquidator proceed as CVWU.
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Effects of vol w/up - s 442

• the co shall cease to carry on business except beneficial for w/up

• Any transfer of shares…any alteration of the status of members
made after the commencement of w/up shall be void.
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COMPULSORY WINDING UP

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Compulsory Winding Up? s464

• By an order of the court –initiated by petition by
a person entitled.
• Petition to High Court of M’sia.
Winding up by Court is also
known as a compulsory winding
Petitioner has up. It begins with the
presentation of a petition in
right to petition Court. The petitioners include
creditors, liquidator, the
2 conditions Registrar of companies or the
Official Receiver under section
217(1) of the CA 1965 or
Has grounds section 464 of the CA 2016.
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Who has the right to petition? – S 464(1)

• The company itself,
• The creditor of the company, including a contingent or prospective
creditor,
• The contributory or his personal representative (deceased
contributory) or trustee in bankruptcy or the Director General of
Insolvency of the estate of a bankrupt contributory,
• The liquidator, (appointed in voluntary w/up but cannot be continued
with due regard to the interest of the creditors or members or both
• The minister, on the ground specified in s 465(1(d) or (l),
• Bank Negara Malaysia (for financial institution, insurance comp or a
company which is an operator of a designated payment system
under Financial Services Act or Financial Islamic Services Act 2013
or Insurance Corp Act 2011),
• The registrar (s465(1)(k))
• The Malaysian Deposit Insurance Corporation(for financial
institution).
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The
company
Malaysian
Deposit The
Insurance creditor
Corporation

Who has
the right to The
Registrar contributor
petition? – y
S 464

The
BNM liquidator
The
minister
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Grounds? – S465(1)
a) The company has by special resolution resolved
that it be wound up by the court;
b) Default is made in holding statutory declaration
under subsection 190(3);
c) The company does not start business within 1
year from its incorporation or suspend business
for a whole year;
d) The company has no member;
e) The company unable to pay debts;
f) The directors have acted in their own interest or
unfair or unjust to members;
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Grounds? – S465(1) (cont…)

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a) Period fixed expires or event agreed occurs.

b) The court is of the opinion that it is “just and equitable”
c) License under Financial Services Act 2013 or Islamic
Financial Services Act 2013 is revoked or surrendered;
d) The licensed business is without license or in
contravention of the Act;
e) Co used for unlawful purpose or any purpose
prejudicial to or incompatible with peace, welfare,
security, public interest, public order, good order or
morality in Malaysia;
f) The minister has made a declaration under s 590.
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Unable to pay debt? s466

a) Written demand has been delivered but within
21 days the co has neither paid nor given
security for its payment,
▫ A petition to wind up must be filed in the court
within 6 months from the expiry date of the
notice of demand.
b) Judgment has been obtained but the execution
is not satisfied in whole or in part,
c) The court satisfied that the company is unable
to pay. The company’s liability more than its
assets.
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Unable to pay debt: Autoblast Sdn. Bhd. V Angkasa Teknik (M) Sdn. Bhd.
[1999] 1 AMR 19.
In this case the petitioner presented a petition to wind up the respondent on the ground that
the respondent was unable to pay its debt together with interest, pursuant to a notice issued
to the respondent under s218 of the Companies Act 1965.
Before the petition was heard, the respondent applied to the court for an injunction to
restrain the petitioner from proceeding further. The submissions of the respondent were:
• There had been non-compliance with s218 from the inception of the petition as the notice
of demand failed to particularise the total amount owed by the respondent.
• The service of the notice of demand was bad in law. Paragraph 6 of the petition, averred
that the notice was served at the registered address of the respondent by leaving a copy
at the address. This contradicted the statutory declaration of an employee of the
solicitors for the petitioner who swore that service of the notice of demand had been
affected on the respondent by registered post, and such service was fatal.
• The amount claimed by the petitioner was not based on any judgment and it was only
payable ‘subject to final measurement” of the works undertaken, which had yet to be
completed.

The issue was whether the injunction sought by the respondent should be granted.

Held – All submissions advanced on behalf of the respondent’s application were well
supported by authority and therefore the injunction sought for ought to be granted
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Just and Equitable?

• The principle object/s cannot ever or can no longer be
achieved.
▫ Re German date Coffee Company
▫ Re Tivoli Freeholds Ltd
• A state of deadlock exist.
▫ Re Yenidjee Tobacco Co
▫ Re Semantan Estate
• The mutual trust and confidence is broken.
▫ Ebrahimi v Westbourne Gallaries
▫ Tay Bok Choon v Tahanson
• Carry business in fraudulent manner.
▫ Re Thomas Edward Brinsmead
• No general meeting, balance sheet, profit and loss
account not submitted.
▫ Lock v john Blackwood
• S346
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Re German Date Coffee Company (1882) 20 1/05/2020

Ch D 169
The memorandum of the company stated that its object was the working of a German
patent to manufacture coffee from dates. The company failed to acquire the German
patent but acquire a Swedish one and established works in Hamburg where it manufacture
coffee from dates without a patent.

Some shareholder withdrew from the company when they discovered that a German
patent would not be obtained. The large majority wished the company to continue but two
shareholders petitioned the court for a winding up order on the basis that as the main
object for which the company had been formed was impossible to carry out, it was just and
equitable to wind the company up .

Held that the whole substratum of the company was gone, the business was to make
coffee from dates using German patent in Germany and not to enter into business
generally. The shareholders were entitled to say that they did not enter into the company
on those terms, and so the company ought to be wound up.
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Re Tivoli Freeholds Ltd [1972] VR 445

(Supreme Court of Victoria)
The company’s main business was that of running two theatres, the Tivoli and the
Lyeaeum. The Tivoli Theatres was leased from the company by a wholly-owned subsidiary,
Tivoli Circuit. The Tivoli theatre was severely damaged in a fire and as a result Tivoli Circuit
terminated the lease and ceased to carry on its business. The theatres and the land on
which they stood were subsequently disposed of. The surplus funds were lent to Industrial
Equity Ltd., which controlled the company. These funds were used to purchase shares in
other companies. Some members objected to this use of the company’s funds and
petitioned for the winding up of the company.

Menhennitt J held that after considering the objects clauses that the paramount object of
the company was to carry on the entertainment business in one form or another. He felt
that the company’s moneys had been committed to activities that had no relationship to the
entertainment business. This, held the judge, was a complete and far-reaching departure
from what was originally commonly intended and understood by members of the company.
Accordingly the company was ordered to be wound up on the ground that it was just and
equitable to do so.
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Re Yenidje Tobacco Co [1916] 2 Ch 426

The company was set up by Rothman and Weinberg to carry
on the business of tobacco manufacturers. Rothman and
Weinberg were the only shareholders and directors of the
company. They fell out with each other and could not get
along. Eventually, they ceased to communicate with one
another except through the company secretary.

Held that under those circumstances it could not be

expected that the two would work together. They are not in
speaking term. No substantial business was being
transacted. Even though the company was still making large
profits, it was ordered to be wound up on ground of just and
equitable circumstances
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Re Semantan Estate (1952) Ltd [1965} 1 MLJ

238, PC.
In this case the two permanent directors were also not in speaking terms.
The court stated that a court would not permit a person who rendered it
impossible for others to work in harmony with him to obtain a dissolution
of the company on the ground of the impossibility created by himself. As
the company could still carry on with advantage and profit to all its
shareholders, the petition was dismissed.
The Court of Appeal affirmed this decision, inter alia, on the ground that
there was no suggestion that the business of the company could not be
carried on efficiently although the permanent directors were not in
speaking terms, and that there was a reasonable hope of reconciliation
and co-operation between the directors. The Privy Council upheld this
decision on appeal.
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Ebrahimi v Westbourne Gallaries [1973] AC 360

The company was set up to take over a partnership business. The partners were
Nazar and Ebrahimi. Both were shareholders and directors of the new company. No
dividend were paid, but the directors received remuneration for their services.

Nazar’s son joined the company as a shareholder and director later. The two Nazars
controlled the company. They removed Ebrahimi from his post as director. He
thereby lost his source of remuneration. Ebrahimi petitioned for the winding up of the
company.

Lord Wilberforce held that it was an indisputable inference that when Ebrahimi and
Nazar set up the company, they did so on the basis that the nature of the
relationship between them ( ie equal partners in the business) would remain the
same. What the Nazars had done was a repudiation of that relationship. Even
though what the Nazars did was perfectly legal, it was just and equitable that the
company be wound up.
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Tay Bok Choon v Tahanson Sdn. Bhd.[1987] 1 MLJ 433 , Privy

Council on appeal from Malaysia.
The company’s issued capital was equally divided between the four director. In 1980, one of the
directors transferred his shares to the petitioner. In the course of negotiations for the transfer of
shares, it was agreed between the directors and the petitioner that he would be appointed a
director and chairman of the board. The petitioner’s son was also appointed to be a fifth
director. The petitioner obtained financing for the company and lent money to two directors to
enable them to subscribe for more shares in the company. In 1981, the board of directors voted
to vest all executive powers on one Mak, who was a director. This was despite the petitioner’s
opposition. Later, both the petitioner and his son were removed as directors. He then petitioned
for the winding up of the company.

Held that the petitioner had been led to believe that he would be entitled to a seat on
the board so long as he held one quarter of the issued share capital of the company.
Although there was no express assurance or specific undertaking to this effect, the
Privy Council was satisfied that such an obligation was to be inferred from the
conduct of the parties. It was never contemplated that the petitioner would be
reduced to ‘the supine position of a minority shareholder whose only right was to
attend the company in general meeting’. This being so, the petitioner had made out
his case to have the company wound up.
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Re Thomas Edward Brinsmead & Sons Ltd [1897] 1 Ch 45

John Brinsmead & Sons were noted piano makers. Three employees of
the firm (all named Brinsmead as well) set up the company to
manufacture pianos. These were passed off as the products of the firm.
John Brinsmead & Son obtained an injunction against the company
restraining it from using the name ‘Brinsmead’.

Held that the company was formed for the purpose of defrauding John
Brinsmead & Son. The shareholders, who had been misled into believing
that the company had the right to use the name and goodwill of
Brinsmead, were entitled to refuse to continue in a business which was a
fraud. In view of the frauds that had been committed, and to protect the
interest of the innocent shareholders, the company was wound up.
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Loch v John Blackwood Ltd. [1924] AC 783

Where the directors failed to hold general meeting. Balance

sheets, profit and loss account and reports were not
submitted and the requirement regarding audit were not
complied with. The objective was to keep the shareholder in
dark in order to acquire their shares cheaply. There was
justifiable lack of confident in the management and the court
ordered the company to be wound up.
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Effects of w/up 1/05/2020

• On creditor
▫ Any disposition of co’s property other than by liquidator is
void unless the court orders o/wise.
▫ Creditors cannot enforce any judgment or order
▫ Legal proceeding cannot be brough vs the co.
• On the co
▫ The co is prevented from carrying on its business.
▫ Co cannot deals with its property
• On the employees
▫ Normally in case of vol w/up, employees will not be
dismissed unless the company is insolvent
▫ However, in case of compulsory w/up, publication of the
w/up order serves as a notice of dismissal to the co
employees
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