Liquidation in Malaysia
Rising Global Consultants
Deregistration/removal of company name registration
A company can cease operations through either “striking off” or “winding up/liquidation.” Both methods end the company, but the processes are entirely different.
Striking off is a more straightforward process, while liquidation can be divided into three types: voluntary liquidation by shareholders, voluntary liquidation by creditors, and court-ordered liquidation. When a company enters liquidation, a liquidator will take control of the company.
The company must cease business operations unless the liquidator deems it beneficial or necessary for the liquidation process.
Reasons for company liquidation
- Company has ceased all business activities
- Management deadlock
- Oppression – shareholders dispute Section 181 of the Companies Act, 1965
- Corporate or financial restructuring of the group to which the company belongs;
- Minimise tax liabilities or maximise tax advantages for the group to which the company belongs
- Breach of statutory provisions, including offences committed
- Company acting outside its scope of activities
Striking Off – Solvent Company
For deregistration of a company, directors must each make a declaration stating that the company has not conducted any business or has ceased operations since its establishment, has no assets or liabilities, and does not owe any payments to authorities. The board then proposes the deregistration, which must be approved by the shareholders. The entire process, from filing documents with the Companies Commission of Malaysia (SSM) to obtaining approval, takes about 6 to 12 months.
A company can resume operations within 15 years of deregistration. To reinstate, the company must obtain a court order to reverse the deregistration.
Members’ Voluntary Liquidation – Solvent Company
The company’s contributories (also known as members or shareholders) may pass a resolution that the company be wound up and that a liquidator be appointed.
- Once the resolution to appoint a liquidator is approved, the liquidation process begins
- This method is used if the company can repay all its debts in full within 12 months of the start of the liquidation process
Members’ Voluntary Liquidation (MVL) –It is a liquidation process initiated by the shareholders. Directors need to execute a Declaration of Solvency at a board meeting and submit it to the Companies Commission of Malaysia (SSM). Afterward, the shareholders will appoint a liquidator to wind up the company’s affairs and, according to the Companies Act, submit the necessary notifications to the Companies Commission of Malaysia and the Insolvency Department
The liquidator must also publish an announcement in a widely circulated newspaper in Malaysia, including details about the liquidator and the final meeting. The liquidator will allocate/dispose of all assets, settle all debts, and obtain clearance from the Inland Revenue Board (IRB), Employees Provident Fund (EPF), Social Security Organization (SOCSO), Customs, etc. If the Members’ Voluntary Liquidation (MVL) extends beyond 1 year, an annual general meeting must be convened. The entire MVL process may take about 2 years to complete, largely depending on when formal clearance is received from the relevant authorities.
Anyone capable of performing the duties of a liquidator, such as a director, can be appointed as the liquidator. After the company is dissolved, if the liquidator or any other person applies to the court within 2 years of dissolution, the court may issue an order declaring the dissolution invalid, which may be pursued if the company was not properly dissolved.
Creditors’ Voluntary Liquidation – Insolvent Company
If the company is not able to meet its liabilities, the company can convene a meeting with its creditors to consider its proposal for a voluntary winding up of the company.
If a resolution is passed in favour of the winding up, the company will appoint a liquidator, subject to any preference the creditors may have as to the choice of liquidator.
Compulsory liquidation – Insolvent company
Under Section 217 of the Companies Act 1965, the company itself, creditors, shareholders, liquidators, or the Minister may apply to the High Court for liquidation.
Section 218(1) of the Companies Act 1965 lists all the reasons for which the court may order a company to be liquidated. Common reasons for court-ordered liquidation include insolvency and being just and equitable
Bankruptcy liquidation is a process of collective enforcement for the benefit of all creditors. It is not considered an execution process as it is not conducted for the benefit of specific creditors. However, it is similar to an execution process in that it aims to enforce the payment of debts recognized or proved by the company on an equal basis.
Therefore, when a company enters liquidation, it initiates a process that is akin to a creditor-initiated execution process for all creditors.
Notification of Government body
A company must notify the following authorities once winding-up commences:
- Companies Commision of Malaysia / Suruhanjaya Syarikat Malaysia (CCM/SSM)
- Official Receiver
- Employees Provident Fund (EPF)
- Inland Revenue Board (IRB)
- Social Security Organization (SOCSO)
- Royal Malaysian Customs Department (Customs)
- Relevant Licensing Authorities
The role of the liquidator in compulsory liquidation
The roles of the liquidator include:
- Investigating the company’s affairs and assets, the conduct of its personnel, and the claims of creditors and third parties
- Recovering and realizing the company’s assets in the most advantageous manner
- Adjudicating the claims of creditors and ensuring the fair distribution of the company’s assets according to the provisions of the Companies Act
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