TUTORIAL – CSP4023 WINDING UP

INSOLVENCY & RECEIVERSHIP

Question
Mr. John Smith is a foreign investor who holds shares in many
companies in Malaysia. One of the companies could not fulfill its debt
obligation to a secured creditor with a charge. The company has gone
into receivership.
He seeks your advice on the following queries:
a) Differentiate between a receiver and receiver manager.
b) Who are the persons not qualified to be appointed as receiver?
c) Discuss the consequences that an appointment of receiver has
on the management and employees of the company, and
contracts entered into by the company.
Suggested Answer
a) A receiver is appointed by a secured creditor under the terms of a
debenture. He is only authorized to go in after his appointment to
realize the secured assets under the debenture. Therefore, his
principal duty is to realize the secured assets and repay the secured
creditor. As a result, he does not have any power to manage the
business of the company.

On the other hand, a receiver & manager as implied by the term

"manager" has a wider power than the receiver. Besides being
authorized to go in and realize the secured assets under the
debenture on the basis of a going concern and to dispose the assets
to settle the debt due to the secured creditor with the proceeds, he
will also have the power to manage the business of the company.

b) The persons who are disqualified to be appointed or to act as

receivers are listed in section 373 of the Companies Act 2016.

These include:
i. a corporation;
ii. an undischarged bankrupt;
iii. a mortgagee of any property of the company,

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iv. an auditor of the company or any officer of the company or of any

corporation which is a mortgagee of the property of the company

c) Despite the appointment of a receiver, a company's separate legal

personality goes on unaffected.

The board of directors remains as part of the company structure.

However, its ordinary management powers are superseded. See
UMBC Bhd v Official Receiver & Liquidator of Soon Hup Seng Sdn
Bhd.

The board of directors also retains the responsibility for lodging the
company's annual returns and accounts and for compliance with the
requirements of the Act.

The appointment of a receiver manager by the court operates to

discharge the company's employees: Reid v The Explosives Co Ltd
(1887) 19 QBD 264.

However, the appointment of a receiver pursuant to a term in the

debenture does not automatically terminate employment contracts.

Such an appointment may have the effect of automatic termination in

exceptional circumstances such as where the receiver manager
enters into new contracts of employment with particular employees or
where the business of the company is sold or where the continued
services of the employees is inconsistent with the role and functions
of a receiver: Yeoh Lam Beng v United Asian Bank Bhd [1988] 3 MLJ
489; see also Re Mack Trucks (Britain) Ltd [1967] 1 All ER 977.

As the company retains the legal personality despite the appointment

of a receiver, contracts entered into by it prior to the appointment are
not affected.

The primary liability on such contracts lies with the company and the
receiver manager is not liable on them unless he or she adopts them
as his or her own.

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TUTORIAL – CSP4023 WINDING UP

STRIKE OFF
Question
Max Ventures Sdn. Bhd. was incorporated on 15 January 2015. The
company tendered for a contract in the City Centre project. However,
the company did not secure the contract and since then has not been
operating. The company has no assets. The only creditors of the
company are its directors, Mr. Mok and Mr. Chandran. The directors
have decided to apply to the Companies Commission of Malaysia to
strike off the name of the company from the register under section
550 of the Companies Act 2016.
You are the secretary of the company. Advise Mr. Mok and Mr.
Chandran on the following matters:-
a) The basic conditions required for a company's name to be
struck off from the Register under section 550 of the Companies
Act 2016.
b) The procedures to strike off the name of the company from the
Registrar.
c) Whether the circumstances of Max Ventures Sdn. Bhd. satisfy
the conditions for striking off the name from the register under
section 550 of the Companies Act 2016.
Suggested Answer
a) The primary conditions required for a company's name to be struck
off from Register under section 550 of the Companies Act 2016.
 The company is not carrying on business or is not in operation;
 The directors must obtain the resolution of the shareholders for the
initiation of the application to strike off the name of the company;
 The company has no assets and liabilities at the time of application;
 The company has no outstanding charges in the Register of Charges;
The company has no outstanding penalties or offer of compounds
under the Companies Act 2016;
 The company has no outstanding tax or other liabilities with any
government department or agency;
 The information of the company with the Registrar is up to date;

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 The company is not involved in any legal proceeding within or without

Malaysia;
 The company has not made any return of capital to the shareholders;
 The company is not a holding company of another corporate body;
and
 The company is not a "Guarantor Corporation."

b) The procedures to strike off the name of the company from the
Register.
 An initiative of CCM or written application by the company -> file
declaration using sec.550 Form by one of the directors.
 Submit to CCM together with the resolution of shareholders
 Send sec.550 Form with the latest copy of the balance sheet when
making the application
 If application approved, Notice 551 (I) will be sent to the registered
address and
 If no objection & company not in operations, the Registrar may strike
the name of the company — s.551 (2)
 A Notice 551(4) will be sent to the registered address, all directors
and Percetakan Nasional Berhad for gazette
 Once Notice 551 (4) is published in the Gazette, the name of the
company will be struck off and considered dissolved.

c) Max Ventures Sdn. Bhd. has satisfied the conditions for striking off
the name as based on the following matters:-
 the company has not been in operation since it did not secure the
contract in the City Centre project; and
 the company has no assets and no liabilities except for its directors,
where the directors need to waive the amount outstanding due to the
company.

Therefore, Max Ventures Sdn. Bhd. can submit an application to

strike off the name of the company from the register with an
assumption that other basic conditions were fulfilled.

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TUTORIAL – CSP4023 WINDING UP

MEMBER'S VOLUNTARY WINDING UP

Question
Golden Fish Sendirian Berhad (GFSB) is a private company with a
paid up capital of RM200,000 is running a mini market business. The
company also owns the shop as its assets. Lately, their business has
been affected by the mushrooming of other convenient stores by
international firms. The owner, Mr. Lam is already 75 years old and no
successor to the business. Mr. Lam has the intention to close the
company and retire. GFSB is solvent, but the business still has many
unpaid creditors.
a) Advice Mr. Lam whether SFSB's current position qualifies to be
struck off under section 550 of the Companies Act 2016.
b) Advice GFSB on the procedure to go for a member's voluntary
winding up.
c) Explain how the employees would be affected by this
dissolution exercise.
Suggested Answer
a) GFSB cannot apply for strike off under section 550 due to the
following reasons:
 The company is still active
 The company still have outstanding liabilities
 The company still own assets — the shop
 The paid-up capital is huge — RM200,000
b)
1. Sec. 443, CA 2016 — can only take palace when the company
is solvent.
2. Directors are in the opinion that the company can pay its debts
within 12 months from the date of commencement (the date of
resolution for voluntary winding up)
3. Directors make Declaration of Solvency (Sec .443 Form),
signed by all directors or majority of directors ifmore than 2
directors. Sec.443 Form be made before passing the resolution
for voluntary winding up

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4. Lodge with CCM before the notice of general meeting for

passing winding up resolution
5. Include a statement of affairs — assets at expected realisable
value, liabilities of the company & expenses of the winding up.
6. Pass resolution for winding up & appointment of a liquidator.
7. Lodge Sec.439(2)(a) Form (Notice of Resolution) within 7 days
from the date of passing such resolution.
8. The Liquidator lodge sec.513(I) Form (Notice of appointment
and address of Liquidator) within 14 days after this
appointment.
9. The liquidator will then notify his appointment to the company's
auditor, solicitor, insurer, bankers, employees, suppliers and
customers.
10. The liquidator takes over the property, banking accounts,
investments by transferring to his name as liquidator and he
shall be authorised signatory.
c)
The rule in Re Chapman 's case does not apply to the employees of a
company which goes to voluntary liquidation.
Some with the view that the resolution for winding up automatically puts an
end to employee's service (Fowler v Commercial Timber Co)
Unpaid wages, unpaid superannuation contributions, and other employee
entitlements rank after the winding expenses and before the unsecured
creditors for distribution of excess of assets.

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TUTORIAL – CSP4023 WINDING UP

CREDITOR'S COLUNTARY WINDING UP

Question
Layang-layang Resort Sdn Bhd. has been badly hit by the global
economic slowdown in 2019 and is having great difficulties paying its
debts. The board of directors is of the opinion that it is advisable to
put the company into creditors' voluntary winding-up. However, they
are concerned for their employees' position and whether the business
of the company can be continued so that the business can be sold as
a going concern at a higher price.
You are to write a memorandum to the board on the following:
a) The position of the employees and the continuation of the
business in a creditors' voluntary winding-up; and
b) The procedure for the creditors' voluntary winding-up.
Suggested Answer
Layang-layang Resort Sdn Bhd
(Incorporated in Malaysia)
INTERNAL MEMO
Date: Day-Month-Year
To: The Board of Directors
From: Miss YYY, Secretaw
Subject: Creditors' Voluntmy Winding-up
a) The position of the employees and the continuation of the business in
a creditors' voluntary winding-up

In a creditors' voluntary winding-up all powers of the directors shall

cease after the appointment of a liquidator.

Employees of the company will be dismissed and their employment

will be discontinued unless the company is solvent. The business of
the company cannot continue/closed down due to liabilities.

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b) the procedure for the creditors' voluntary winding-up are:

i. Convene a BOD meeting to:
To decide on the date of the statutory declaration
Make/prepare a statutory declaration in Sec.440 Form
Appoint an approved liquidator

ii. Convene a meeting of members at a date not more than one

month from the date of the statutory declaration by sending out
the necessary notice of meeting of members to members
iii. Convene the creditors meeting on the same day of the meeting
of members
iv. The directors shall appoint one of their numbers to attend and
he must be appointed by the creditors to preside at the
meeting.
v. The company must lodge the Sec.440 Form with the ROC and
the Official Receiver
vi. At the meeting of members pass a special resolution to wind up
the company voluntarily because it cannot continue its business
by reason of its liabilities and to nominate the liquidator.
vii. At the creditors meeting nominate a liquidator and if the
creditors nominated different person than person nominated in
the meeting of members, the person nominated by creditors
shall be the liquidator.
viii. A copy of the resolution in Sec.439(2)(a) Form shall be filed
with CCM within 7 days after the passing of the resolution and
within 10 days give notice of the resolution in a newspaper.
ix. The liquidator must within 14 days of his appointment lodge a
notice of his appointment and situation of his office on
Sec.513(1) Form with CCM and Official receiver.
x. The company shall cause the words "in liquidation" to be added
after its name on every official documents and letters
xi. The liquidator will then notify the auditor, bankers, insurers,
suppliers, customers and employees of the company.

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TUTORIAL – CSP4023 WINDING UP

COURT COMPULSORY WINDING UP

Question
A company, whether or not it is being wound up voluntarily, may be
wound up under an Order of the Court petitioned under section 464 of
the Companies Act 2016. The Court is therefore conferred with wide
discretionary powers to make an order to wind up a company under
Section 465 of the Companies Act 2016.
a) State any FIVE (5) grounds for the court compulsory winding up
of a company under the provision of Companies Act 2016.
b) Explain when a winding up is deemed to have commenced in:
i. the case of a winding-up by the court; and
ii. The case of a voluntary winding up.
c) Illustrate the powers of a liquidator exercisable with authority in
a winding up by the court under section 486 of the Companies
Act 2016.
Suggested Answer
a) The grounds and circumstances in which a company may be wound
up by the court are provided in section 465 of the Companies Act
2016.
 When the company has by a special resolution resolved that it
be wound up by the court: section 465(l) (a).
 When there is a default by the company in lodging the statutory
declaration under subsection 190(3):
 Failure by a company to commence business within a year from
its incorporation or suspension of its business for a whole year
is another ground for winding up: section
 The company has no member: section 465(1) (d).
 The court is also conferred with discretion if it can be shown
that the company is unable to pay its debts: section 465(1) (e)
 Another ground is when the court is of the opinion that it is just
an equitable than the company be wound up: section 465(1)
(h).

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b) In the case of a winding up by the court, the winding up is at the time

the order for winding up is made. This is provided in section 467(2) of
the Companies Act 2016.

However, section 467(2) only applies where no resolution has been

passed by the company for voluntary winding up. In the event that a
resolution has been passed by the company for voluntary winding up
before the presentation of the petition for the winding up, section
467(1) provides that the winding up shall be deemed to have
commenced at the time of the passing of the resolution.

In the case of a voluntary winding up, one of the following two dates
shall be applicable. Where a interim (provisional) liquidator has been
appointed before the resolution for winding was passed, the date of
commencement of winding up shall be at the time when the
declaration referred to in section 440 was lodged with the Registrar:
section 441 (l In any other case, the date of commencement of
winding up is at the time of the passing of the resolution for voluntary
winding up: section 441 (l) (b).

c) Section 486 - 12th Sch of CA 2016. The powers of a liquidator in

winding up by the court:
 carry on the business of the company so far as is necessary for
the beneficial winding up of the company, but the authority shall
not be necessary to so carry on the business during the one
hundred and eighty days after the date of the winding up order;
 subject to the priorities under section 527, pay any class of
creditors in full;
 make any compromise or arrangement with creditors or
persons claiming to be creditors or having or alleging
themselves to have any claim, present or future, certain or
contingent, ascertained or sounding only in damages against
the company, or where the company may be rendered liable;
 compromise any calls and liabilities to calls, debts and liabilities
capable of resulting in debts and any claims, present or future,
certain or contingent, ascertained or sounding only in damages
subsisting or supposed to subsist between the company and a
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contributory or other debtor or person apprehending liability to

the company, and all questions in any way relating to or
affecting the assets or the winding up of the company, on such
terms as are agreed, and take any security for the discharge of
any such call, debt, liability or claim, and give a complete
discharge in respect of the call, debt, liability or claim; and
 Compromise any debt due to the company other than calls and
liabilities for calls and a debt where the amount claimed by the
company to be due to the company exceeds ten thousand
Ringgit.

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