Winding Up of Companies

Winding Up

Voluntary Winding UpCompulsory Winding Up

Meaning of Winding Up

A process where a company is dissolvedWhere the business is closed down, all assets are sold off to pay the creditors, balance goes to the members

- company ceases to existAlso known as liquidation

Types of Winding Up

Voluntary Winding Up

Compulsory Winding Up

Voluntary Winding Up

Members’ VWU

Creditors’ VWU

Members’ Voluntary WU(Liquidation of a solvent company)

Sec 254(1)(b)-Company’s members in general meeting pass a special resolutionSec 257 – Declaration of SolvencySec 258 – members appoint a liquidator

Creditors’ Voluntary WU(Liquidation of an insolvent company)

Sec 259 – The liquidator shall summon a creditors meeting when he is in the opinion that company is insolvent instead of solvent as been declared by the directors under sec 257. Sec 260(1) – To summon meeting of the company’s creditors the same day or the following day-issuance of notice.Sec 261 - The creditors may nominate the liquidator

Other matters

Effect of voluntary Winding up:Sec 256 (1)– From the commencement of the winding up the company cease business but the corporate state and corporate power continues until it is dissolved.

Compulsory Winding Up

Application can be made to the court by those persons listed in Sec 217 .

The court may order winding up if the circumstances of the company is within those listed in Sec 218(1) (a) – (n)

Common grounds for CWU

Sec 218(1)(f) – directors acted in their own interests or in a manner which is unfair to members.

Re National Discounts LtdH: If directors act in the interests of another

company which they control, they can be said to be acting in their own interests

Sec 218(1)(i)- Court is of opinion it is just and equitable

i) DeadlockRe Yenidje Tobacco Co LtdF: R & W – shareholders and directors of a

company. Could not get along, communicate through the company secretary.

H: Order winding up, though company made profit

Re Semantan Estate Ltd

F: Two permanent directors were not on speaking term. One of them petitioned for winding up.

COA: Refused to order winding up. The company could still be carried on and there was a reasonable hope of reconciliation.

ii) Fraud or misconduct

Loch v John Blackwood Ltd

F: Directors failed to provide the minority members with financial reports as required by the law. The members petitioned for winding up.

H: Allowed the petitioned.

iii) Object of the company cannot be achieved

Re German Date Coffee CoF: The company was formed to manufacture a coffee

substitute out of dates. Failed to acquire the patent for that purpose.

H: The company was wound up because it was set up for a specific purpose and that purpose failed to be achieved.

Re Tivoli Freeholds LtdF: The object of the company was to carry on

entertainment business. One of the theatres was damaged by fire. The theatre and the land were sold and the money was used to purchase shares of other companies. Members objected.

H: Company was wound up on the ground of just and equitable.

iv) Petitioner has been excluded from the management in contravention of an understanding.

Ebrahimi v Westbourne Galleries Ltd

F: N & E – both directors & shareholders. N’s son joined the company. Father & son controlled the company. Removed E from directorship. E petitioned for winding up.

H: Company was wound up.

Sec 218(2)(a) – a company is presumed to be insolvent if it fails to comply with a statutory demand

( debt worth at least RM500 payable within three weeks after issuance of the statutory demand)

Appointment of liquidator

For Compulsory WU-Sec 227Provisional Liquidator-sec 231

Commencement of winding up

A compulsory winding up: sec 219(2)- is deemed to commence at the time of presentation of the petition for winding up.

A voluntary winding up commenced :255(6)(a) – upon appointment of provisional liquidator [refer to sec 255(1)]255(6) (b)- at the time of passing of the resolution .

Effect of winding up

CreditorsAfter commencement, any disposition of company’s property other than made the liquidator is void, unless the court order otherwise-sec 223Cannot enforce judgment or orders they obtained after commencement of wu- sec224

CompanyFor voluntary WU- Legal entity continue to exists after commencement of wu but it is prevented from carrying on business except for the purpose of wu.- sec 256(1)For Voluntary WU-Transfer of shares are void-sec 256(2)

In both voluntary and compulsory wu, the directors lose their power to manage the company’s affairs- Re Farrow Bank Ltd [1921] 2 Ch 164

- Members lose their right to transfer shares with the commencement of wu-sec 223(1)

EmployeesFor compulsory wu, the publication of the wu order serve as a notice of dismissal to the company’s employees-Re General Rolling Stock Co. (1872) 7 Ch App 646For voluntary wu, the order does not necessarily operate to dismiss the company’s employee – Re Matthew Bros.Ltd [1962] VR 262

Other matters

All documents issued by the company while the company in a wu process must have the words “in liquidation” set after its name-sec 283.

Winding up

sec 217-313Compulsory VoluntarySec 217-253 sec 254-276Sec277-313 sec 277-313

grounds-sec 218(1) members’ creditors’ sec 258-259 sec 260-263

groundsgrounds sec254(1))(a) sec 254(1)(b) sec 254(1)(b) sec 255