A company registered in Singapore can be voluntarily closed down by the owners or by order of the court (but only under certain conditions). Under Company Law, the due diligence lies with the directors to wind up an insolvent company. Basically, an insolvent company is a company that cannot pay its debts. If a creditor doesn’t receive his payments and does not even receive an explanation from the company, he/she can go to the court to have the company wound up, only if the company is insolvent.
There are two ways in which a Singapore company can be closed down, either by Company Strike off or Liquidation. The two processes follow a different approach and should not be confused with one another.
Liquidation of a Singapore Company
The procedure for Liquidation is more formal that involves the appointment of a Liquidator to manage the realization of assets, closing of its operations, the payments of debts first and then if there is any surplus, it is then distributed among its members.
There are two routes to winding up of a company in Singapore –
- Voluntary Winding up
- Compulsory Winding up
A few significant reasons for the closure of a company include:
- A Company is not profitable.
- A Company cannot pay its debts.
- Dispute among Shareholders.
- Corporate or Financial restructuring of the company.
- The statutory provisions have been breached, including the offenses committed.
Voluntary Winding up
A voluntary winding up of a Singapore Company can be done by its members or creditors.
Member’s Voluntary winding up
A company may decide to wind up its operations if they believe they can pay their debts within 12 months after the commencement of the winding up. At a meeting of directors, the majority of directors should make a written Declaration of Solvency. This Declaration of Solvency should be filed with the registrar, then the directors should send the members a notice of an Extraordinary General Meeting (EGM) for the passing of a special resolution to wind up the company and an ordinary resolution needs to be passed for the appointment of liquidators and mentioning their remuneration. Within five weeks of Director’s meeting on the Declaration of Solvency, the EGM should be held.
The appointment of the liquidators and the statutory declaration needs to be advertised in at least 4 local daily newspapers and even publish one each in English, Malay, Tamil, and Chinese languages.
During the EGM, the winding up of the company needs to be resolved by the passing of a special resolution i.e. by a majority of not less than 75% of the votes of the members are entitled to vote, then a liquidator should be appointed with a prior written consent, usually, an accountant is appointed.
A Second resolution needs to be passed empowering the liquidators to divide any or all of the property assets among the members. This resolution is then filed with ACRA within 7 days after the passing of the resolution and then within 10 days, a notice of that resolution needs to be published in one or more Singapore newspapers. Now, it is to be ensured that the documents issued by or on behalf of the company are amended to include the words, “In Liquidation” after the company name and submit all the records and books of accounts to the liquidator.
After the passing of the special resolutions, the Liquidation of the company has officially been commenced. The liquidator will now proceed to wind up the affairs of the company and file the necessary documents required under the Companies Act. The liquidator ensures the tax clearance, filing of the books of accounts and determining the amount to be returned to the shareholders following the payment of all the company’s debts and liabilities.
After the winding up of the company is settled, the liquidator must now draw up an account and show how the property of the company has been disposed of in a general meeting of the company. Within 7 days of the meeting, the liquidator must submit the assurance that the meeting has been held and attaching a copy of the account.
On the expiration of 3 months from the lodging of the form with the Registrar, the company is officially dissolved. The court has the discretion to declare the dissolution of a company void at any time within 2 years after the date of dissolution. The application to make the dissolution void can be made by the liquidator or any other interested person.
Creditors’ Voluntary Winding up
The creditors’ voluntary winding up happens when the directors believe that the company cannot continue the business, because of liabilities. The procedure of the liquidator is the same as outlined above.
Compulsory winding up
When a company is wound up by an Order of the court under certain circumstances, i.e. when a company is unable to pay its debts or when the court is of the opinion that is just and equitable. Such proceedings occur when it is initiated by either the company itself, its creditors, its shareholders, liquidator, the judicial manager, hence, then the court appoints a liquidator to attend the company. If no liquidator is appointed by the court, the official receiver of the company shall be the liquidator.
The liquidator will start to review the assets of the company, the claims of the creditors and review the conduct of the directors and other related personnel to realize the company’s assets in the best possible manner and keeping the best interests of creditors and the company in mind.
The concerned persons of the company who are involved in the day to day affairs of the company need to submit a Statement of Affairs on the Company’s assets and liabilities. After the realization of assets, the liquidator will adjudicate the claims lodged against the company and admit it or reject the claims. Any surplus remaining after paying the creditors of the company and costs of liquidation will be returned to the shareholders.
Striking Off Singapore Company
A company may apply to ACRA (Accounting and Corporate Regulatory Authority) to strike its name off the Registrar’s books under section 344 of the Companies Act. If ACRA has a reasonable cause to accept the application and the company is satisfying the criteria’s for striking off, then it is done.
A few significant reasons for Strike Off include:
- The company must have ceased trading.
- The must have no assets or liabilities at the time of making the application.
- The company must not be involved in any court proceedings in or outside Singapore.
- The company must not have any outstanding liabilities.
- The directors and company secretary of the company must not have any outstanding ACRA summons against any of them.
A Company should notify the following governing bodies when preparing to shut business:
- Accounting and Corporate Regulatory Authority (ACRA)
- Central Provident Fund (CPF) Board
- Inland Revenue Authority of Singapore (IRAS)
- Relevant Licensing Authorities