LECTURE 11: WINDING UP

Company Law
LW 4024
WHAT IS WINDING UP?
A winding up involves an insolvency practitioner (called a liquidator) selling off the company’s assets and
distributes proceeds among the creditors and if there are any funds left amongst the members.

The company’s existence comes to an end when it is de-registered. A winding up is also known as liquidation.
WHAT IS A MEMBERS’ VOLUNTARY WINDING-UP?

 Section 432(2)(a) CA 2016 states that it is a “members’ voluntary winding up where the
company is solvent and the liquidator is appointed by the members at the members’ meeting”.
 Section 444 CA 2016 says that a members’ voluntary winding up is:

“A winding up in the case of which a directors’ declaration under section 443 has been made…”
 Section 443(1) CA 2016 states:
“(1) Where it is proposed to wind up a company voluntarily, the director or in the case of a company having
more than one director, the majority of the directors may—
(a) make a written declaration to the effect that the directors have made an inquiry into the affairs of the
company; and
(b) at a meeting of directors, have formed the opinion that the company will be able to pay its debts in full
within a period not exceeding twelve months after the commencement of the winding up.”
 WHAT IS A MEMBERS’ VOLUNTARY WINDING-UP?
 By Section 439 CA 2016:“ (1) A company may be wound up voluntarily—
(a) when the period, if any, fixed for the duration of the company by the constitution expires, or the event, if any,
occurs, on the occurrence of which the constitution provide that the company is to be dissolved and the company in
general meeting has passed a resolution requiring the company to be wound up voluntarily; or
(b) if the company so resolve by special resolution.
 It is the liquidation of a solvent company. It reflects a policy of allowing shareholders to manage their own
affairs and to voluntarily wind up a company without going to court.

 What happens after the resolution/ special resolution is passed?

Section 439(2) CA 2016 provides: “A company shall—
(a) lodge a printed copy of the resolution with the Registrar within seven days from the passing of a resolution
for voluntary winding up; and
(b) give notice of the resolution in one widely circulated newspaper in Malaysia in the national language and one
widely circulated newspaper in Malaysia in the English language within ten days after the passing of the
resolution.”
 WHAT IS A MEMBERS’ VOLUNTARY WINDING-UP?

 How do they proceed from here?

Section 445(1) CA 2016 states:
“….the company shall appoint one or more liquidators for the purpose of winding up the
company’s affairs and distributing its assets in general meeting.”
 Section 445 (2) CA 2016 states that :
“On the appointment of a liquidator, all the powers of the directors cease, except so far as the
company in general meeting with consent of the liquidator, or the liquidator sanctions the
continuance of all the powers of the directors.
 Any transfer of shares, not being a transfer made to or with the sanction of the liquidator,
……….shall be void” ….. Section 442(3) CA 2016.
 WHAT IS A MEMBERS’ VOLUNTARY WINDING-UP?

 Section 442 (1) CA 2016 states that:

“The company shall cease to carry on its business from the commencement of the winding up except so far
as is required in the opinion of the liquidator for the beneficial winding up.”

 Section 447(1) CA 2016:

“If the liquidator is of the opinion that the company will not be able to pay or provide for the payment of
its debts in full within the period stated in the declaration made under section 443, the liquidator shall
forthwith summon a meeting of the creditors and lay before the meeting a statement of the assets and
liabilities of the company and the notice summoning the meeting shall draw the attention of the creditors to
the right conferred upon the creditors by subsection (2).

Section 447 (3) Companies Act 2016 – “Once a meeting of creditors is held under subsection (1), the
winding up shall thereafter proceed as if the winding up were a creditors’ voluntary winding up.”
 WHAT IS A CREDITORS’ VOLUNTARY WINDING-UP?

 It is a winding up initiated as a members’ voluntary winding-up converted into a creditors’ winding-up if

the company is insolvent
 What happens at the meeting of creditors mentioned above?

Section 447 (2) CA 2016 provides:

“The creditors may, at the meeting summoned under subsection (1), appoint—
(a) the liquidator appointed by the company; or
(b) any other person to be the liquidator, for the purpose of winding up the affairs and distributing the assets of the company….”
 What are the consequences of a creditors’ voluntary winding-up?

Section 451 CA 2016 provides:

(1) Any attachment, sequestration, distress or execution put in force against the estate or effects of the company after the
commencement of a creditors’ voluntary winding up shall be void.
(2) After the commencement of the winding up, no action or proceeding shall be proceeded with or commenced against the company
except by leave of the Court and subject to such terms as the Court may impose.”
 COMPULSORY WINDING-UP

Section 464(1) CA 2016 lists down those who may petition the Court for an
order to wind up the company:
“(a) the company;
(b) any creditor, including a contingent or prospective creditor, of the company;
(c) a contributory or any person who is the personal representative of a deceased contributory or the
trustee in bankruptcy or the Director General of Insolvency of the estate of a bankrupt contributory;
(d) the liquidator;
(e) the Minister on the ground specified in paragraph 465(1)(d) or (l);
(f) in the case of a company which is a licensed institution under the Financial Services Act 2013 or the
Islamic Financial Services Act 2013 and which is not a member institution under the Malaysia Deposit
Insurance Corporation Act 2011 [Act 720], the Central Bank of Malaysia;
 COMPULSORY WINDING-UP

Section 464(1) CA 2016 lists down those who may petition the Court for an order to wind up the
company cont…….:
(g) in the case of a company which is an operator of a designated payment system under the Financial
Services Act 2013 or the Islamic Financial Services Act 2013, the Central Bank of Malaysia;
(h) the Registrar on the ground specified in paragraph 465(1)(k); or
(i) in the case of a member institution under the Malaysia Deposit Insurance Corporation Act 2011, the
Malaysia Deposit Insurance Corporation mentioned in section 99 of that Act.
By virtue of Section 464(2)(d) CA 2016
“the Court shall not, where a company is being wound up voluntarily, make a winding up order unless
the Court is satisfied that the voluntary winding up cannot be continued with due regard to the interests
of the creditors or contributories.”
 WHEN IS A COMPULSORY WINDING-UP IN INSOLVENCY ORDERED?

Section 465 CA 2016 (1)“The Court may order the winding up if—
(a) the company has by special resolution resolved that the company is to be wound up by the Court;
(b) the company defaults in lodging the statutory declaration under subsection 190(3);
(c) the company does not commence business within a year from its incorporation or suspends its
business for a whole year;
(d) the company has no member;
(e) the company is unable to pay its debts;
(f) the directors have acted in the affairs of the company in the directors’ own interests rather than in
the interests of the members as a whole or acted in any other manner which appears to be unfair or
unjust to members;
 WHEN IS A COMPULSORY WINDING-UP IN INSOLVENCY ORDERED?

Section 465 CA 2016 (1)“The Court may order the winding up if— Cont……
(g) when the period, if any, fixed for the duration of the company by the constitution expires or the event, if any,
occurs on the occurrence of which the constitution provide that the company is to be dissolved;
(h) the Court is of the opinion that it is just and equitable that the company be wound up;
(i) the company has held a licence under the Financial Services Act 2013 or the Islamic Financial Services Act
2013, and that the licence has been revoked or surrendered;
(j) the company has carried on a licensed business without being duly licensed or the company has accepted,
received or taken deposits in Malaysia, in contravention of the Financial Services Act 2013 or the Islamic
Financial Services Act 2013, as the case may be;
(k) the company is being used for unlawful purposes or any purpose prejudicial to or incompatible with peace,
welfare, security, public interest, public order, good order or morality in Malaysia; or
(l) the Minister has made a declaration under section 590.”
 WHAT DOES INABILITY TO PAY DEBTS MEAN?
Section 466(1) CA 2016
“(a) the company is indebted in a sum exceeding the amount as may be prescribed by the
Minister and a creditor by assignment or otherwise has served a notice of demand, by himself
or his agent, requiring the company to pay the sum due by leaving the notice at the registered
office of the company, and the company has for twenty-one days after the service of the
demand neglected to pay the sum or to secure or compound for it to the satisfaction of the
creditor;
(b) execution or other process issued on a judgment, decree or order of any court in favour of a
creditor of the company is returned unsatisfied in whole or in part; or
(c) it is proved to the satisfaction of the Court that the company is unable to pay its debts and
in determining whether a company is unable to pay its debts the Court shall take into account
the contingent and prospective liabilities of the company.”
 “WHAT HAPPENS BETWEEN THE PRESENTATION OF A WINDING
UP PETITION AND BEFORE THE MAKING OF A WINDING UP
ORDER?

Section 476 CA 2016 states:

(1) The Court may appoint the Official Receiver or an approved liquidator as an
interim liquidator at any time after the presentation of a winding up petition
and before the making of a winding up order.

(2) The interim liquidator shall have and may exercise all the functions and
powers of a liquidator subject to such limitations and restrictions as may be
prescribed in the rules or as the Court may specify in the order appointing him.”
 WHAT IS A WINDING UP ON JUST AND EQUITABLE GROUNDS?

 This remedy is often relied upon by disgruntled minority shareholders

 There is no limit on the power of the court to order a winding up on this ground.
 However, the court is likely to consider that it is just and equitable to wind-up the company
in the following fact situations set out in Section 465(1)(h) CA 2016 where:
(i) the main object of the company has failed. Re German Date Coffee Co. (1882)
(ii)there is no bona fide intention on the part of the directors to carry on business in a proper
manner. Re London & County Coal Co. (1866)
(iii) the company was formed to perpetrate a fraud. Re Thomas Edward Brinsmead and Sons Ltd.
(1897)
(iv) mutual trust and confidence which was the basis on which the company was carried on, was
gone. Ebrahimi v Westbourne Galleries Ltd (1972) ; Tay Bok Choon v Tahansan Sdn Bhd (1987)
 CONSEQUENCES OF THE PRESENTATION OF A WINDING-UP PETITION TO
THE COURT
 Section 472 CA 2016 provides:

(1) Any disposition of the property of the company, other than an exempt disposition,
including any transfer of shares or alteration in the status of the members of the company
made after the presentation of the winding up petition shall, unless the Court otherwise
orders, be void.

(2) In subsection (1), “exempt disposition” means a disposition made by a liquidator, or by an

interim liquidator of the company in exercise of the power conferred on him under Part I of
Twelfth Schedule or the rules that appointed him or an order of the Court.

(3) Any attachment, sequestration, distress or execution put in force against the estate or
effects of the company after the presentation of the winding up petition shall be void.
 LIQUIDATOR

Qualifications of the liquidator

Section 433(3) CA 2016 states:
“ any person who is a member of a recognized professional body may apply to
the Minister charged with the responsibility for finance to be approved as a
liquidator for the purposes of this Act.”
(4) The Minister charged with the responsibility for finance may approve such
person as a liquidator if he is satisfied with experience and capacity of the
person and upon payment of the prescribed fee by such person.
 LIQUIDATOR
 Who may not be a liquidator? Section 433 CA 2016 (1) provides:
Subject to this section, a person other than the Official Receiver who is appointed interim liquidator or
liquidator in a winding up by the Court shall not, except with the leave of the Court, be qualified for an
appointment as an interim liquidator or liquidator of a company if—
(a) he is not an approved liquidator;
(b) he is indebted to the company or to a corporation that is deemed to be related to the company by
virtue of section 7 in an amount exceeding twenty-five thousand ringgit;
(c) he is an officer of the company;
(d) he is a partner, employer or employee of an officer of the company;
(e) he is a partner or employee of an employee of an officer of the company;
(f) he assigns his estate for the benefit of his creditors or has made an arrangement with his
creditors under any law relating to bankruptcy;
(g) if he becomes bankrupt; or
(h) if he is convicted of an offence involving fraud or dishonesty punishable on conviction by
imprisonment for three months or more.
 LIQUIDATOR

 However, it is important to note …..

Section 433 (2) CA 2016 states:

In a members’ voluntary winding up:
• the liquidator does not need to be an approved liquidator
• a director or other officer of the company may also be an appointed liquidator and
In a creditors’ voluntary winding up:
• the liquidator does not need to be an approved liquidator
• a director or other officer of the company may also be an appointed liquidator …… if, by a
resolution carried by a majority of the creditors it is agreed to be so.
 LIQUIDATOR

 It’s different with a compulsory winding-up…

Section 477 CA 2016 provides:

• if no approved liquidator, other than the Official Receiver is appointed the Official Receiver
becomes the provisional liquidator and continues to act until he or another person becomes liquidator;
• if no liquidator is appointed the Official Receiver summons separate meetings of the creditors
and contributories of the company to determine whether or not an application is to be made to the
Court for appointing a liquidator in the place of the Official Receiver.
• The Court may make any appointment according to what is determined at the meetings of the creditors
and contributories. If there is a difference of opinion the court may make such order as it thinks fit.
• Where a liquidator is not appointed by the Court, the Official Receiver shall be the liquidator of the
company.
 LIQUIDATOR

 What are the functions of the liquidator?

Section 483 CA 2016 states:
“(1) Where an interim liquidator has been appointed or a winding up order has been made, the interim
liquidator or liquidator shall forthwith take into his custody or under his control all the property to
which the company is or appears to be entitled.

(2) On the application of the liquidator, the Court may order that all or any part of the property
belonging to the company or held by trustees on behalf of the company shall vest in the liquidator
and the property shall, subject to subsection
(3), vest accordingly and the liquidator may, after giving such indemnity, if any, as the Court directs,
bring or defend any action which relates to that property or of which is necessary to bring or
defend for the purpose of effectually winding up the company and recovering its property.”
 LIQUIDATOR

 Powers of the liquidator See the Twelfth Schedule of the Companies Act of 2016.
(By virtue of Part 1 of the 12th Schedule - Powers exercisable without authority):
“The liquidator may—
(a) bring or defend any action or other legal proceedings in the name and on behalf of the company;
(b) 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 does not exceed ten thousand ringgit;
(c) sell the immovable and movable property and things in action of the company by public auction, public tender or private
contract with power to transfer the whole immovable and movable property and things to any person or company or to sell the
same in parcels;
(d) do all acts and execute in the name and on behalf of the company all deeds, receipts and other documents and for that
purpose use when necessary, the company’s seal;
(e) prove rank and claim in the bankruptcy of any contributory or debtor for any balance against his estate, and receive
dividends in the bankruptcy in respect of that balance as a separate debt due from the bankrupt and rateably with the other
separate creditors;
 LIQUIDATOR
“The liquidator may…. continue…—
(f) draw, accept, make and indorse any bill of exchange or promissory note in the name and on behalf of the company with
the same effect with respect to the liability of the company as if the bill or note had been drawn, accepted, made or
indorsed by or on behalf of the company in the course of its business;
(g) raise on the security of the assets of the company any money requisite;
(h) take out letters of administration of the estate of any deceased contributory or debtor, and do any other act necessary for
obtaining payment of any money due from a contributory or debtor or his estate which cannot be conveniently done in the
name of the company, and in all such cases the money due shall, for the purposes of enabling the liquidator to take out the
letters of administration or recover the money, be deemed due to the liquidator;
(i) make any payment as necessary in carrying on the affairs of the company in its ordinary course of business including
payment of utility bills, statutory fees and all other such payments;
(j) appoint an agent to do any business which the liquidator is unable to do;
(k) appoint an advocate to assist him in his duties; and
(l) do all such other things as are necessary for winding up the affairs of the company and distributing its assets.
 LIQUIDATOR
 Powers of the liquidator See the Twelfth Schedule of the Companies Act of 2016.
(By virtue of Part II of the 12th Schedule - Powers exercisable with
authority):
“1. The liquidator may, with the authority either of the Court or of the committee of inspection
—
(a) 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;
(b) subject to the priorities under section 527, pay any class of creditors in full;
(c) 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
 LIQUIDATOR
cont…
(d) 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 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
(e) 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.
2. The liquidator may apply to the Court or the committee of inspection for the authority given for the purpose of
subparagraph 1(e) without additional approval provided that the debts referred to in that paragraph does not exceed
fifty thousand ringgit.
**A committee of inspection is a committee which represents the interests of all creditors of a company going into
liquidation.
 WHAT IS THE STATUTORY ORDER OF PRIORITY FOR THE
DISTRIBUTION OF ASSETS ON A WINDING-UP?
This is provided for in Section 527 CA 2016:
 “ Subject to this Act, in a winding up there shall be paid in priority to all other unsecured debts— (a)
firstly, the costs and expenses of the winding up including the taxed costs of a petitioner payable under
section 468, the remuneration of the liquidator and the costs of any audit carried out under section 514;
 (b) secondly, all wages or salary, whether or not earned wholly or in part by way of commission,
including any amount payable by way of allowance or reimbursement under any contract of
employment or award or agreement regulating conditions of employment, of any employee not
exceeding fifteen thousand ringgit or such other amount as may be prescribed whether for time or
piecework in respect of services rendered by him to the company within a period of four months before
the commencement of the winding up;
 (c) thirdly, all amounts due in respect of worker’s compensation under any written law relating to
worker’s compensation accrued before the commencement of the winding up;
 WHAT IS THE STATUTORY ORDER OF PRIORITY FOR THE
DISTRIBUTION OF ASSETS ON A WINDING-UP?
continue…..
(d) fourthly, all remuneration payable to any employee in respect of vacation leave, or in the case of his
death to any other person in his right, accrued in respect of any period before the commencement of the
winding up;
(e) fifthly, all amounts due in respect of contributions payable during the twelve months next before the
commencement of the winding up by the company as the employer of any person under any written law
relating to employees’ social security contribution and superannuation or provident funds or under any
scheme of superannuation or retirement benefit which is an approved scheme under the federal law
relating to income tax; and
(f) sixthly, the amount of all federal tax assessed under any written law before the date of the
commencement of the winding up or assessed at any time before the time fixed for the proving of debts
has expired.