Liquidation & Winding Up
A Singapore company may be closed voluntarily by its owners or by Order of the Court. Under Company Law, Directors must wind up a company that is unable to pay its debts, also known as an insolvent company. A creditor may apply for a judgment to be registered against the company in court concerning the debt under these circumstances. If they are still unsuccessful in receiving payment, a creditor may apply to the Court to wind up the company if it is insolvent.
Some reasons for closing a company include:
- Ceasing business activities or not being profitable
- Not being able to pay its debts and being insolvent
- An irreversible dispute among shareholders
- Corporate or financial restructuring
- When a dormant company does not want to incur ongoing compliance and maintenance costs
- Breach of statutory provisions including committing an offense (s)
Companies can be liquidated either by “Striking Off” or “Winding Up“.
Striking off a Company
A company may apply to ACRA (Accounting and Corporate Regulatory Authority) to strike its name off the Register according to Section 344 of the Companies Act. ACRA may approve the application if it has reasonable cause to believe that the company is not carrying on business and if the criteria for striking off has been met.
Winding up a Company
There are two ways to wind up a company in Singapore – voluntary and compulsory winding up.
Voluntary winding up
A company can be liquidated voluntarily by either its members or creditors.
Members’ Voluntary Winding Up
A company may decide to wind up its affairs voluntarily if the directors believe that the company will be able to pay all its debts in full within 12 months after commencing winding up.
The quorum must be met, and the directors of the company must make a written Declaration of Solvency at directors’ meeting.
Creditors’ Voluntary Winding Up
Creditors’ voluntary winding up applies if a company’s directors believe that it cannot continue its business anymore because of liabilities. A liquidator (or provisional liquidator) will be appointed to wind up the company’s affairs and file the necessary notifications required under the Companies Act.
Compulsory Winding Up
A compulsory winding up happens under an Order of the Court under certain circumstances e.g. the company is unable to pay its debts, or when the court is of the opinion that it is just and equitable that the company is wound up. The company i.e. its creditors, shareholders, liquidator or judicial manager may initiate liquidation proceedings with the High Court under section 253 of the Companies Act. The Court may appoint a liquidator of its choosing or the Official Receiver to be the liquidator of the company.
A company must notify the following bodies as part of the closing down process:
- Accounting and Corporate Regulatory Authority (ACRA)
- Central Provident Fund (CPF) Board
- Inland Revenue Authority of Singapore (IRAS)
- All other relevant Licensing Authorities
Closing a company can be a complicated and time-consuming procedure. Moreover, companies must make sure that they comply with all the necessary legal and statutory requirements. If a company has decided to close down, it is highly recommended that a professional services firm be engaged to assess the company’s situation best, and support the best course of action to provide the best solution for the client.