Winding up

1. Winding up A process by wh the company is dissolved and the assets are collected, debts paid and surplus if any distributed among its members. Most obvious and common reason for winding up is insolvent. Other reasons include members oppression or members may voluntarily agree to wind up because they want to realise their investment.

2. S 211 – 2 modes of winding up 1- voluntary winding up 2-winding up by the order of the court (Compulsory winding up)

3. i- voluntary winding up S 254(1) a) If the MOA/AOA fixed a period for the life of the company, or provides when certain event occurs the company comes to an end, when the period expires or the event occurs, and members in a general meeting passed a resolution to wind up the company – its life ends; or b) A special resolution passed by the company to wind up the company.

4. 1 voluntary winding up I- members voluntary winding up II- creditors voluntary winding up Members voluntary winding up can be done only in case of a solvent company. Creditors voluntary winding up – in case the Directors did not declare that it is solvent or when it is believed to be insolvent by liquidator

5. I- Members’ voluntary winding up Process: (1)-Directors must make a written declaration of the company solvency - that they have made an inquiry into the affairs of the company, and that at a meeting of directors they are of the opinion that the company will be ableto pay its debts in full within a period of 12 months after the commencement of the winding up.[s 257]

6. To be an effective declaration it must be made [s 257(3)]: (a) at the meeting of directors; (b) w/in 5 weeks before the passing of the resolution for voluntary winding up; and (c) lodged with the Registrar before the date on which the notices of the meeting at which the resolution for the winding up of the company is to be proposed are sent out. The declaration must be sent together with a statement of affairs [ Companies Regulation 1966 - Form 66].

7. (2)- Call a general meeting of the members, pass a special resolution. (3)-S 254(2) A company must • within 7 days after the passing of the resolution lodge a printed copy of the resolution with the Registrar; and • within 10 days after the passing of the resolution - give notice of the resolution in a newspaper circulating generally throughout Malaysia.

8. (4) – Appointment of liquidator – in the meeting where the members passed a resolution to wind up the company. Winding up commence at the time the resolution to wind up the company was passed. Members’ voluntary winding up may be converted into a creditors’ winding up if the liquidator is of the opinion that debts of the company will not be paid in full w/in the period stated in the Directors’ declaration.

9. II- Creditors’ voluntary winding up Despite its name, it cannot be initiated by creditors. Take place in 2 circumstances: i- members propose a resolution to wind up the company but the directors did not make a declaration of solvency; or ii- declaration was made and a special resolution to wind up the company was passed by members, and liquidator was appointed but the liquidator formed an opinion th the company is unable to pay its debt w/in the period stated in the directors’ declaration – convene creditors meeting.

10. Process: • Meeting of the company to propose a voluntary wind up : - no declaration made by BOD ; or , • Declaration made, meeting held, and appointed a liquidator - he opined that company cannot pay the debt

11. (2) Directors/liquidator call for a meeting of creditors. S 260 • 7 days before the date of the meeting must advertise the notice of meeting in a newspaper circulating generally throughout M’sia. [s 260(3)] • Meeting must be held on the same day as the meeting in no (1) or the next day. [Companies Regulation 1966 Form 67]

12. The company shall convene the meeting at a time and place convenient to the majority in value of the creditors. [s 260(2)] • Notice at least 7 days by post before the meeting; [s 260(2)] • Send notice to all creditors – state the names of all creditors and amounts of claims. [s 260(2)] - Notice of meeting (1) and (2) must be sent by post simultaneously. [s 260(1)]

13. (3) The creditors meeting shall be attended by any director appointed as a representative of the BOD with the company secretary. [s260(5)] • Directors must ensure that statement of the company's affairs showing the method and manner in which the valuation of the assets was arrived at, and a list of the creditors and the estimated amount of their claims is shown to creditors in the meeting. [s 260(4)]

14. The representative Director and the company secretary must attend and show to the meeting the company's affairs and the circumstances leading up to the proposed winding up. [s 260(5)]

15. (4)the meeting shall appoint a liquidator. [s 261(1)] Creditors are given priority right to appoint liquidator. If they did not appoint the company can appoint a liquidator. But if both parties appointed a liquidator, the one appointed by the creditors will take the job.

16. If different persons are nominated, any member, creditor or director may, within 7 days after the date of the nomination was made by the creditors, apply to the Court for an order directing that the person nominated as liquidator by the company shall be liquidator instead of or jointly with the person nominated by the creditors.

17. Grounds for winding up by the court i- s. 218(1)(a) special resolution was passed by the company– the solvency of the company is not relevant ii- s. 218(1)(b) default in filing statutory report & holding statutory meeting – petition by contributory/minister – after 14 days from the last date for the meeting May wind up or order the meeting to be held

18. iiis. 218(1)(c) failure to commence business After one year of its incorporation – fail to do business / suspend business for one whole year • Fail to do business – winding up order can be made if it has no intention to do business • -must give satisfactory reason to the court – to avoid winding up • Suspend business – show whether there is any intention to continue with the business or inability to carry on the main object, many objects looks at the main object

19. ivs. 218(1)(d) – members – reduced below 2. Pls s. s 4 and s. 36 Lim Sooi See @ Lim Soh se & Anor v Koay Thye Hong Sawmill Sdn Bhd - number below 2 and the only one left acted in a dictatorial and fraudulent manner – proper to order winding up

20. vs. 218(1)(e) – inability to pay debt s. 218(2)(a)(b)(c) - Presumption of inability to pay debts: • Debt >RM500, creditor served at the company’s registered office demand for the company to pay the debt, company fail to pay 3 weeks after receiving the demand; Notice of demand –signed, sent to the registered office, (proof of physical delivery required)

21. the amount of debt must be ascertained/ capable of being ascertained Undisputed amount exceed the statutory minimum - unable to pay debt (b)execution or other process issued on court’s judgment, decree or order in favour of the creditor is returned unsatisfied in whole or in part

22. (c)Prove to court’s satisfaction that the company is unable to pay its debt – take into account the contingent and prospective liabilities vi s. 218(1)(f) directors acted in their own interests / acted in the manner appear to be unjust or unfair to the members of the company [even if the directors preferred their own interests to the interest of one, more or perhaps a significance number of the members but coincided with the majority’s interest]

23. viis. 218(1)(g) – inspection under part IX Inspector reported (read s. 205) • Company cannot pay its debt and should be wound up; or • It is in the interest of the public or shareholders or creditors that the company be wound up viiis. 218(1)(h)- dissolution under the MOA or AOA) – based on the period fixed by these documents, or the occurrence of the event specified by them

24. ixs. 218(1)(i) just and equitable Some cases where it is just and equitable to wind up the company • Failure of corporate substratum – the whole business for wh. the com. was set up to carry become impossible – final and conclusive abandonment of the com’s business. (look at the main purpose – not at other purposes)

25. Re German Date Coffee Co The purpose the com was set up – to purchase and work henley’s German patent at Frankfort – to manufacture coffee substitute from date fruit. German empire refused to grant patent. So the company cannot acquire the patent. Failure of substratum- on appeal the court was wound up

26. (b) Business is carried in a fraudulent manner Re Thomas Edward Brinsmead & Sons John Brinsmead & sons– noted piano makers. Employees set up a com Thomas Edward Brinsmead & sons – they produced piano to be passed of as the products of John Brinsmead. John obtained an injuction to refrain the company fr using the name on Brinsmead.

27. When a petition was made to wind up the company – court order the winding on the ground that the com was set up to defraud John Brinsmead (c) where members can no longer work in association Deadlock situation – relationship between members has broken down irretrievably

28. Re Yenidje Tobacco Co Ltd Two members Rothman and Weinberg. They were the directors. Equal voting rights. They fell out, could not longer get along. Ceased to communicate except through the secretary. R sued W in action on ground of fraud. The court ordered winding up since in the circumstances it said that the members could not be expected to work together

29. (d) members lost confidence in the management – lack of probity(integrity, honesty, decency,virtue, honour etc) in the conduct of the company’s affairs. What is important is that the petitioner must not be the one who caused the breakdown in confidence bet him and the other parties

30. (e) Breakdown of quasi partnership This type of company is in effect, small partnership of a limited number of individuals which, although operating as a limited company, is in practical terms run as if it was a partnership between those individuals at the helm. Commonly, the business was originally run as a partnership and later incorporated as a limited Company

31. x s. 218(1)(j) revocation or surrendering of of banking licence Licence under BAFIA or Islamic Banking Act 1983 xi s. 218(1)(k) contravention of certain licence Acting in contravention of BAFIA or Islamic Banking Licence 1983

32. xii s. 218(1)(l) revocation of insurance licence s. 58(1) of the Insurance Act - the available assets of a licensed insurer are just adequate or less than adequate to meet its margin of solvency s. 58(4) (Bank Negara) may petition for the winding up of a licensed insurer if it— (a) fails to submit a plan to restore its margin of solvency; or (b) submits a plan which is unacceptable to the (Bank Negara)

33. xiiis. 218(1)(m)- company being used for unlawful purpose, purpose prejudicial or incompatible with peace, welfare, security, public order, good order or morality in Malaysia – ROC may apply for the winding up of the company xiv s. 218(1)(n) – company being used for purpos prejudicial to national security, public interes – ROC may apply for winding up order

34. xv –s.100A(1) of the Security Industry Act Security commission, stock exchange, recognised clearing house may petition for the winding up of a company: • If it held a licence under the SIA – it had been revoked /surrendered; or • contravened any rules or listing requirements of the stock exchange or rules of the clearing house, the provision of the securities law. (charged or not, proven or not immaterial)