DPA30083 COMPANY LAW

TOPIC 7: WINDING UP
MS AMIRAH ZAWANI WAKHI ANUAR

1
COURSE LEARNING OUTCOMES (CLO)
Describe principles of law affecting the financial records and the life-cycle of a
corporation in compliance with provisions stated in Companies Act 2016 (A3, PLO8)

At the end of this chapter, student should be able to:

1. Explain compulsory and voluntary winding up
2. Discuss the acceptance of authority and the primary functions of a liquidator and
evidence and priorities of debts

2
WHAT WILL YOU LEARN IN THIS CHAPTER?

Explain the compulsory and voluntary winding up

 Compare compulsory and voluntary winding up
 Identify persons who has locus stand in compulsory winding up
 Explain the ground for compulsory winding up under Section 398 CA 2016
 Explain members’ voluntary winding up and creditors’ voluntary winding up
 Rank the order of funds to be distributed in winding up
 List legal provisions under the Company Act 2016 relating to powers of a liquidator and their
duties
3
INTRODUCTION
 S20(b) states that a company’s existence will end up when it is removed
from the register. On of the ways to remove a company from the register
is by winding up the company.
 There are 2 ways to wind up a company, and these are voluntary winding
up and compulsory winding up [S432(1)]
 Voluntary winding up – the members have passed a resolution to wind
up the company
 Compulsory winding up – the court has ordered the company to be
wound up 4
VOLUNTARY WINDING UP

Voluntary
Members’ Creditors’
Winding
voluntary voluntary
up

5
 Members’ Voluntary

VOLUNTARY WINDING UP

 In a members’ voluntary winding up, the sole director or majority of

directors have passed a declaration that the company is solvent.[S443]
 The liquidator is appointed by the members at the members’ meeting.
[S432(2)(a)]
 According to S443, the distinction between members’ and creditors
winding up is whether there is a directors’ declaration of solvency.
 If there is a directors’ declaration = it is a members’ voluntary winding
up 6
 Members’ Voluntary

VOLUNTARY WINDING UP

1. Declaration of solvency to winding up (S443)

 Declaration must be made before the notice calling for the members’
meeting to decide on the winding up of the company is given to its
members
 The declaration is made by the sole director or the majority of directors
 The written declaration shall contain – the affairs of the company, an
opinion that the company will be able to pay its debt within 12 after
commencement of winding up, a statement on assets, liabilities &
estimated expenses of winding up 7
 Members’ Voluntary

VOLUNTARY WINDING UP

1. Declaration of solvency to winding up

 A company is considered legally solvent when it is able to meet its
financial obligations and the value of assets exceeds the total sum of all
its debts and liabilities.
 The declaration must be lodge with the ROC
 The declaration is made within 5 weeks before the resolution for
voluntary winding up

8
 Members’ Voluntary

VOLUNTARY WINDING UP

2. Members’ resolution
 S439(1) – the members can pass an ordinary resolution to wind up the
company
1. The company’s constitution has fixed the duration of the company and
the period has expired
2. The company’s constitution has provided that the company is to be
dissolved upon the occurred
 The members’ voluntary winding up commences when the members
9
resolution is passed
 Members’ Voluntary

VOLUNTARY WINDING UP

3. Publication of the commencement of winding up

 A notice for the commencement of winding up of a company must be
given to the public
 S439(2) – the company is require to do the following within 7 days
1. Lodge the resolution with ROC
2. Give notice of the resolution in a national language newspaper and
English language newspaper within 7 days
10
 Members’ Voluntary

VOLUNTARY WINDING UP

4. Appointment of liquidator
 S445 - The company in its general meeting may appoints one or more
persons as liquidators to liquidate the company’s assets in order to settle all
its liabilities before distributing the excess to the members
 The liquidator might form the opinion that contrary to the directors’
declaration of solvency, the company would not be able to pay off its debts
within 12 months of commencement of winding up
 S446 requires the liquidator to summon a meeting with the creditors in case
of any vacancy of one liquidator due to death, resignations or removal. 11
 Creditors’ Voluntary

VOLUNTARY WINDING UP

 If the sole director or majority of directors are of the opinion that the
company cannot by reason of its liabilities continue with its business,
then they should rightfully take steps to wind up the company.
 Otherwise, they might contravene S539 and S540 and be liable for
wrongful trading and fraudulent trading.

12
 Creditors’ Voluntary

VOLUNTARY WINDING UP

1. Directors statutory
 The directors may then summon a meeting with its members and
creditors.
 After that, the directors may make a statutory declaration to the effect that
the company cannot by reason of its liabilities continue its business and
confirm that they have summoned a meeting with its members and
creditors.
 Upon the lodgement of the statutory declaration with the ROC, the
directors shall appoint an interim liquidator. 13
 Creditors’ Voluntary

VOLUNTARY WINDING UP

2. Commencement of creditors’ voluntary winding up

 S449(1) – The company should have a meeting with the creditors in
proposing voluntary’s winding up.

 S449(2) – Notice of meeting on both creditor’s meeting and company’s

meeting to pass the resolution for voluntary winding-up to be sent
simultaneously to creditors by post.
14
 Creditors’ Voluntary

VOLUNTARY WINDING UP

2. Commencement of creditors’ voluntary winding up

 S449(3) – the company should choose a convenient time and place to
convene the meeting
(a) notice should be posted to creditors at least seven days prior to the
meeting.
(b) notice of the meeting should include the names of all creditors
and amounts of the claims.
15
 Creditors’ Voluntary

VOLUNTARY WINDING UP

2. Commencement of creditors’ voluntary winding up

 S449(4) – The meeting of noticed should be advertised in widely
circulated local newspaper using the national language and English
language.
 S449(5) – The directors of the company should:
(a) issue a full statement of the company’s affairs which includes a
list of the creditors and the estimated amounts of their claims prior to the
meeting.
16
 Creditors’ Voluntary

VOLUNTARY WINDING UP

2. Commencement of creditors’ voluntary winding up

 S441(1)(a) – when the creditors’ voluntary winding up commences
depends on whether an interim liquidator is appointed.
 If liquidator is appointed, then the winding up commences when the
company lodges the directors’ statutory declaration of insolvency with the
ROC
 If not, it commences when the members pass a resolution for voluntary
winding up 17
 Creditors’ Voluntary

VOLUNTARY WINDING UP
3. Interim liquidator
 The appointment of an interim liquidator is for only 30 days or for such further period as the
Official Receiver may allow
 The interim liquidator shall have all the powers of a liquidator of a voluntary winding up.
 The duties of the liquidator is to liquidate the company’s assets in order to settle all its liabilities
before distributing the excess to the members.
 The appointment of an interim liquidator also requires the company to notify the ROC and the
public.
 S440(4) requires the company to do the following within 14 days:

1. Lodge the notice of appointment of the interim liquidator and directors’ declaration with the
ROC 18

2. Advertise the notice of appointment of the interim liquidator and the directors’ declaration in a
national language newspaper and English language newspaper.
 Creditors’ Voluntary

VOLUNTARY WINDING UP

4. Appointment of liquidator
 S432(2)(b) – in creditors’ voluntary winding up, the liquidator shall be
appointed by the creditor. But S450 allow the company to appoint the
liquidator.
 S450 provides that the company’s member and creditors may nominate a
liquidator in their meeting. If they nominate different persons, then the
person nominated by the creditors shall be the liquidator
 The company may apply to the court for an order that the person
nominated by the company shall be the liquidator or co-liquidator 19

together with the person nominated by the creditors.

 Creditors’ Voluntary

VOLUNTARY WINDING UP

5. Consequences of commencement of creditors’ voluntary winding up

 Despite the commencement of the winding up, its corporate status and
corporate powers continue until the company is dissolved.
 As the company’s assets will be liquidated, the company should not
continue its business unless the liquidator in his/her opinion that it is “for
the beneficial winding up”
 All legal actions against the company are put on hold, no person
including creditors can take action against the company. Any existing
legal proceedings will be stayed.
20
DIFFERENCES CATEGORIES OF VOLUNTARY WINDING-UP
(SECTION 432(2)

Member’s Voluntary Winding-Up Creditor’s Voluntary Winding-Up

• S432(2)(a) – it is when a • S432(2(b) – it is when a company
company is solvent and a is insolvent and a liquidator is
liquidator is appointed by the appointed by the creditors during
members during member’s the creditor’s meeting.
meeting
• S443 – a declaration of solvency • There is no declaration of
is made by the sole director or solvency.
majority of directors

21
COMPULSORY WINDING UP

In a compulsory winding up, the courts orders the company to

be wound up upon the petition of any of the persons listed in
S464(1).
They include the company itself, a creditor and a member.
The petitioner must show one of the grounds provided in S465.
22
COMPULSORY WINDING UP

1. Commencement of winding up
 S467(2) – the compulsory winding up commences on the day of the
winding up order
 If the company passes a resolution to voluntarily wind up the company
before the presentation of the winding up petition, then the winding up
commences at the passing of the members’ resolution. [S467(1)]
23
COMPULSORY WINDING UP
2. Petitioner
 S464(1) – lists the person who may petition to wind up the company. The list is exclusive and
persons who are not listed in this provision have no standing to petition to the court to wind
up the company.

The company itself A contributory Bank Negara Malaysia

Or personal representative or the For financial institution,
trustee of a bankrupt contributory or insurance company or a
the Director General of Insolvency company which is an
A creditor of the estate operator of a designated
payment system

The liquidator
Was appointed in voluntary winding The Minister
up but cannot be continued due to Who is in charged with the The ROC The Malaysia Deposit
the interest of the creditors or responsibility for Insurance Corporation
24

members companies For financial institutions

COMPULSORY WINDING UP

3. Circumstances
 The court has the discretion to order to the winding up of the company if the petitioner can
prove any of the circumstances mentioned in S465(1)
Special resolution Directors unfair or unjust to other members

Default in lodgement of statutory declaration of Expiry of term/event stated in the constitution

compliance
Revocation of license or not licensed
Failure to commence business or suspends
business Prejudicial to Malaysia

No member Investigation 25

Unable to pay its debts Just and equitable to wind up the company
COMPULSORY WINDING UP

3. Circumstances
 The court has the discretion to order to the winding up of the company if the petitioner can
prove any of the circumstances mentioned in S465(1)

Just and equitable to wind up the company

• A member is oppressed or treated unfairly
• Breakdown of mutual trust
• Main object of the company cannot be achieved or has been departed from
• Company’s business has been carried on in a fraudulent manner
• Deadlock in management

26
COMPULSORY WINDING UP

4. Consequences of presentation of petition to wind up company

 S472 provides that any disposition of the company’s property, transfer of shares or alteration
in the status of its members after the presentation of the petition to wind up the company
shall, unless the court orders otherwise, be void:
i. Any disposition of assets
ii. Restricts the transfer of shares in the company
iii. Change in the status of members
27
COMPULSORY WINDING UP

5. Consequences upon order of winding up

 According to S471, any action for the winding up of a company shall
operate in favour of all the creditors and contributories of the company
i. Any action against the company cannot continue or commence without
the leave of the court.
ii. When the company is ordered to be wound up, a liquidator will be
appointed. If no liquidator is appointed, the Official Receiver will act as
an interim liquidator. 28
UPON WINDING UP

 When a company is wound up, the liquidator will liquidate the company’s assets to settle the
debts of the company, before distributing the excess among its members.
 Certain transaction might also be avoided if they are seen to be giving priority to selected
persons.

Undue preference
 In the winding up, all creditors of the same class should be treated equally. No creditor should
be given any undue preference over the others.
 The Act also avoids a transfer or assignment by a company of all its property to the trustees
for the benefit of all its creditors. 29
UPON WINDING UP

Floating charge
 Floating charge created by a company within 6 months of the presentation of the winding up
is generally void.
 S529 saves the floating charge if it is proven that the company was solvent immediately after
the creation of the charge.
Related party transactions
 Where the company has entered into a transaction with its director or person connected with
its director within 2 years of the petition to wind up the company (compulsory winding up) or
of the resolution to wind up the company (voluntary winding up), the contract may be
scrutinized when the company is wound up. 30
UPON WINDING UP

Creditors
 The liquidator is to do all things as are necessary to wind up the affairs of the company and
distribute it assets. Thus, he is to liquidate the company’s assets and apply the proceeds to pay
the creditors.
 Some of the creditors are secured and some are unsecured. The liquidator is to pay the
creditor in the following order of priority:
1. Secured creditors
2. Preferential creditors (S527)
3. General creditors
4. Members 31
LIQUIDATOR (PENYELESAI)

Define Liquidator
-A liquidator is an independent and qualified person to
investigate the affairs of the company during the process of
winding up.
-A person appointed to wind up the affairs of a company or
firm. 32
DEFINITION LIQUIDATOR

Section 433 (3) states that “any person who is member of

a recognized professional body may apply to the Minister
charged with the responsibility for finance to be
approved as a liquidator”

33
 LIQUIDATOR

Qualification [S433 CA 2016]

A person is qualified to be a liquidator if –

a) Any person who is a member of a recognized professional body
b) The Minister of Finance approve such person as a liquidator
c) He has consented in writing prior to the appointment to act as liquidator
34
 LIQUIDATOR

Qualification [S433(1) CA 2016]

A person is not qualified to be a liquidator if –

a) He is not an approved liquidator
b) He is indebted to the company or to a corporation that is deemed to be related to the company
c) He is an officer of the company
d) He is a partner, employer or employee of an officer of the company
e) He is a partner or employee of an employee of an officer of the company
f) He assigns his estate for the benefit of his creditors
g) If he becomes bankrupt
h) If he is convicted of an offence involving fraud or dishonesty 35
APPOINTMENT OF LIQUIDATOR

 The application to be approved as a liquidator shall be made to the MoF

through the Accountants General Department of Malaysia in which
certain requirements need to be fulfilled as follows:
a) Must be a natural person
b) Must be citizen or permanent resident of Malaysia
c) He/ she is not an undischarged bankrupt

36
APPOINTMENT OF LIQUIDATOR

 He/she has not been convicted of an offence relating to the promotion,

formation, management or winding up of a corporation
 He/she has not been convicted of an offence involving bribery, fraud or
dishonesty punishable on conviction by imprisonment for three months or
more
 He/she does not have any pending legal action against him/her under any
provision of the companies act 2016
37
 POWER OF LIQUIDATOR

Power of Liquidator (S456, Eleventh Schedule CA 2016)

Voluntary Winding Up
1. Exercise any powers given to a liquidator under the 12 th Schedule in a winding up by the court
2. Exercise any other powers by CA 2016 given to the liquidator in a winding up by the Court
3. The liquidator may pay the debts of the company and adjust the rights of the contributors
among themselves
4. The liquidator may exercise the power of the Court under the CA 2016 of settling a list of
contributories
5. The liquidator may exercise the power of the Court of making calls or summon general
meetings of the company for the purpose of obtaining sanction of the company by special
resolution in respect of matter as the liquidator thinks fit. 38
 LIQUIDATOR

Power of Liquidator (S472, Twelfth Schedule CA 2016)

Compulsory Winding Up

Powers exercisable Powers exercisable

WITHOUT WITH
authority authority

39
 Powers exercisable
WITHOUT
authority

LIQUIDATOR

Power of Liquidator (S472, Twelfth Schedule CA 2016)

Compulsory Winding Up
1. Bring or defend any action or other legal proceedings in the name and on behalf of the
company
2. Appoint an advocate to assist him in his duties
3. Sell the immovable and moveable property to any person or company
4. Appoint an agent to do any business which the liquidator is unable to do
5. Make any payment as necessary in carrying on the affairs of the company in its ordinary course
of business including payment of utility bills, statutory fees and all other such payments
40
 Powers exercisable
WITH
authority

LIQUIDATOR

Power of Liquidator (S472, Twelfth Schedule CA 2016)

Compulsory Winding Up
1. Carry on the business of the company so far as is necessary for the beneficial winding up of the
company
2. Subject to the priorities under S527, pay any class of creditors in full
3. Compromise any debt due to the company other than calls and liabilities for calls and a debt
where the amount claimed by the company to de due to the company exceeds RM100,000

41
RANK OF FUNDS TO BE DISTRIBUTED

The liquidator is to pay the creditors in the following order of

priority
1. Secured creditors
2. Preferential creditors (S527)
3. General creditors
4. Members
42
RANK OF FUNDS TO BE DISTRIBUTED

Secured creditors
 S524 prescribes the rights and duties of a secured creditor.
 It gives the secured creditor 3 options with regard to the property charged by the
company to him as a security:
1. If the secured creditor is entitled to realized property, he may do so and claim any
shortfall
2. He may value the charged property and claim for the balance as an unsecured creditor
3. He may surrender the charge to the liquidator for the general benefit of creditors and
claim as unsecured creditor for the whole debt 43
RANK OF FUNDS TO BE DISTRIBUTED

Preferential creditors
 S527(1) lists the preferential creditors of the company in the following priority:
1. The costs and expenses incurred in the winding up, the remuneration of the
liquidator and fees of the auditor appointed after the winding up
2. An employee’s unpaid salaries limited to 4 months before commencement of
winding up subject to a max of RM15,000
3. An employee’s compensation for injury before the commencement of winding up
4. Contributions which were not paid to the EPF & SOCSO for 12 months before
commencement 44

5. Federal taxes
RANK OF FUNDS TO BE DISTRIBUTED

Members
 A liquidator may call upon the members to pay if the proceeds from the company’s
assets are insufficient to pay the company’s liabilities
 Unlimited company – member is liable for all the debts of the company
 Limited by guarantee – member is liable for the debts of the company up to the
amount he undertakes to contribute in the event the company is wound up
 Limited by shares – member is liable for the debts of the company depends on the
amount of unpaid on his shares 45
Q &A
THANK YOU…

46