Winding Up

Statutes/ Governing Law

Companies Act 1965
Companies (Winding up) Rules 1972
Rules of Court 2012

Definition:
WU known as liquidation
It is collective insolvency process leading to the end of
companys existence (proceedings been taken jointly by the
creditors to benefit them in return)
Method of dissolving a business by selling off its
assets and satisfying the creditors from the proceeds of
the sale
In the process of WU:
A liquidator will be appointed to collect and sell off the
companys assets and distributes the proceeds of sale to pay
the companys debts to creditor(s)
If there are funds left, a liquidator will distribute it to members
of the company but in compulsory winding up must obtain
leave from the court

Objective:
Is to dissolve the company, to sell off the assets and to pay the creditors
debt owed by the company
The end result is:
the co existence comes to an end when the company is deregistered
What is deregistered?
Deregistered or deregistration is an action that brings the cos
existence to an end- s.308CA 1965 -i.e. to strike out the name of the
company off register
Because a wu does not completely kill off the co but only deregistration
will kill the co completely
this act is being carried out by the CCM- s.308(1) CA 1965, or order of
Court- s.240 CA 1965 or voluntary deregistration- s.272 CA 1965
By CCM: the CCM has power to deregister/ strike a defunct co ( useless
co) off the register if the CCM has reasonable cause to believe that the co
is not carrying on business or is not in operation
By Court: the CCM must deregister a co if the Court orders the co
deregistration following the completion of the cos wu
Voluntary: is the automatic consequence of the completion of wu
process- co will automatically be dissolved in 3 months time from the
date of the order of Court

Effect of deregistration:
the co ceases to exist
if the co has any property, it all vests in the CCM- s.310(1)
CA 1965
Can the cos registration be reinstated?
Can
Be done by CCM by Order of Court
The application can be made within 15 years after
the name has been struck off from the register
If the Court satisfied, the Court will order for the company
to be reinstated- s.308(5) CA 1965
After reinstated:
The co is taken to have continued in existence as if it had
not been deregistered
The court can make order to place the company and all
other persons back in the same position they were in
before the company was deregistered

Parties to WU proceedings
Creditors- secured, unsecured,
preferential
Co- debtor (unable to pay debt)
Liquidator/ Official Receiver
Court/ CCM

Creditor:
is a person who could enforce his claim against the company
by an action of debt- if you are not a creditor you are not
allowed to file wu petition as you ha s no locus standi :
Jurupakat Sdn. Bhd (1988) 3MLJ 49
Secured Creditors
security in hands
Need not prove their debts: they may realize the
secured assets and prove for deficiency (shortage) if any
A SC also has an option of surrendering its security to
the liquidator for the benefit of creditors generally, and
proving for its debts as unsecured creditors
Realize its security and if it does not produce
enough money to pay off its debt, then prove for the
balance owing by filing proof of debt

Unsecured creditors:
They will be paid after the cos
assets have been used to pay the
secured creditors
However if the unsecured creditors
obtain judgment for the debt against
the company before the floating
charge crystallizes the unsecured
creditor will be paid before the
floating charge holders.

Preferential creditors
they are unsecured creditors and normally
be paid after the secured creditors
However if the company has preferential
creditors, they have priority over the
holders of the debentures of the company
secured by a floating charge- s.191 &
s.292(4) CA 1965

Liquidator
Refer s.4 CA 1965- liquidator to include official
receiver i.e. DGI
An approved company auditor who has been
approved by the Minister of Finance under s.8 as
the liquidator and whose approval has not been
revoked
Not eligible to be liquidator- s.10 CA 1965
Refer also to s.258 ( co and creditors are given
power to nominate a liquidator & 227(1) if no
appointment is made the OR shall be appointed
as provisional liquidator ( temporary) to protect
and preserves the assets of the company

Types of WU
Two types of w/up:
Voluntary w/up (members /creditors w/up)
Compulsory w/up (by court)

Voluntary w/up s.254 CA 1965:

Is done by members / creditors

takes place where the company is solvent and the creditors will be
paid in full
To initiate a v.w/up a resolution (special resolution) of the
members must be passed and liquidator will be appointed at the
meeting
Here declaration of solvency is required to be made by the cos
directors stating that the company will be able to meet within a period
not exceeding 12 months after commencement of the w/up process
From the time of resolution the co stops carrying on its business
unless with the permission of the liquidator: the liquidator will carry
out their functions to realize the cos assets and distribute to the
members/ creditors
If this declaration is rejected by liquidator/no declaration is madew/up has to be creditors w/up

 A creditors v/ wu
Is similar to members v/wu
Except here: the co is insolvent (unable
to pay the debt)
There is proposal to wu the co
voluntarily : but the directors do not
make and lodge a declaration of
solvency under s.257
Therefore the creditors will appoint a
liquidator to proceed with wu s.260 &
s.261 CA 1965

The steps involved:

i. a cos directors ( majority) declare in writing and lodge with CCM
declaration of solvency (i.e. ability to pay debt)- s.257 CA 1965
ii. Cos members in general meeting pass special resolution (2/3) for
the co to be wound up voluntarily-s.254(1) (b)
iii. Members appoint a liquidator in general meeting- s.258(1) CA 1965
& s.258(2) : director loss powers except get approval from liquidator
iv. Liquidator will carry out his duties- the co stops carrying on business
and are not allowed to transfer shares unless with liquidator
permission- s.256(1) CA 1965, if done without liquidator approval it
is void- s.256(2) CA 1965
v. Liquidator will collect, realise, ascertain claims and distribute it to
the cos creditors
vi. If the liquidator, believes that the co could not pay within 12 months
period, will call for a cos creditors meeting
vii.So the wu will proceeds as if it were creditors wu- s.259(1) CA 1965
viii.Wu completed , co then is deregistered

 Both creditors + members v w/up

requires resolution to be passed and this
resolution may take place:
When the period fixed under the MOA
expires
The occurrence of any event in which in
MOA provide that the company is to be
dissolved
A company in GM passes resolution
requiring the co to be wound up voluntarily
The co resolves by special resolution to be
wound up

 W/up by the Court

This is wu of insolvent co that is triggered from
the Court Order
The application is made by parties listed under
section 217 CA 1965 : co, creditor, liquidator etc
The petitioner must establish ground of wu as in
section 218(1) CA 1965: at least one ground
Refer s.218 (1)( a- n) & (2)
Inability to pay debts s.218(1)(e) (common ground) if:

A creditor, to whom the company is indebted in a sum

exceeding RM500, serves a NOD requiring the co to settle the
debt and the co has for 3 weeks (21 days): s.218(2)(a)
thereafter failed to do so: co is presumed to be insolvent; or
Execution proceedings are taken against the company but is
returned unsatisfied, in part or in whole; or
It is proved to the satisfaction of the court that the company is
unable to pay its debts

Unable to pay debt??

Case : Hotel Raya Sdn. Bhd. (1990) 1 MLJ 21
In this case the phrase unable give
interpretations:

two

i. That a co is unable to pay its debt if it is shown to be

financially insolvent in the sense that its liabilities
(debts) exceeds its assets.
ii. Insolvency in the commercial sense- i.e. inability to
meet current demands irrespective of whether the
company is possessed of assets which if realized would
enable it to discharge its liabilities in full

Here the court will look: whether the co able to meet the
demand/ obligation on the dateline made.
If the co has liquidity (cash/assets) but their money is tight up
in assets ( to sell assets) the company is still insolvent

 Under s.218(2) CA 1965:

Co is deemed to be unable to pay its debt for the
purpose of s.218(1) in 3 situations:
The co fails to pay a debt after being served with a NOD by a
creditor which complies with s.218(2)(a):

A debt owed exceeding RM500

NOD has been served to the co registered office
Co was given 3 weeks to comply with the notice, but failed to do so

Any order of Court that was made in favour of a creditor is

returned unsatisfied in whole or in part- e.g. serve judgment
to co- co unable to meet obligation per the judgment/ to
settle the judgment
The court after taking into account any contingent (future
liabilities) liabilities of the company is satisfied that the co is
unable to pay its debt

How the Court know this:

The court will do the test: cash flow/ balance sheet test

 Cash flow test:

The fact that cos assets exceed its
liability( debts) is irrelevant, if the co could not make
payment , the co is considered insolvent, there is no
reason the creditors should be expected to wait for
the co to realise assets and pay them ( normally if co
could not pay the debts when its fall due( due
date) it is assumed to be insolvent)

Balance Sheet test:

Where the cos assets are insufficient to
discharge its liabilities( not enough for the co
to realise and to meet the obligation if its total
liabilities is more than assets)

 After the filing of wu application and before the

making of wu order, the Court may appoint a
provisional liquidator ( temporary) to protect cos assetss.231 CA 1965
Once appointed, the directors powers are suspended
and they could not act without approval of provisional
liquidator
However rebuttable presumption of inability to pay the
debt is acceptable and the co may dispute the debt at a
later stage:

A co can apply to the Court for the statutory NOD to be set aside
or other creditors may oppose if they are not been named as
creditor in the petition
Grounds that can be used:

NOD contains a major defect

There is genuine dispute about the amount of the debt
Co think they can raise money to settle the debt owed
There is counterclaim, set off or cross demand
Issue of locus standi- applicant has no right to apply etc.

Set aside
Formal defect/ irregularities will not invalidate the wu
proceedings unless the Court is satisfied that substantial
injustice has been caused by the defect or irregularity
which cannot be remedied by any order of court r.194

Kampat Timber Industries (1990) 2 MLJ 46

1.
Notice not quantifying the amount of interest and
costs whether valid or not?
YPJE Consultancy Service Sdn Bhd. (1996) 2 MLJ 482
Msia Air Charter (2000) 4 MLJ 657

valid
At least has to show how to reach at the sum claim
The amount due must exceed RM500 and remained unpaid after NOD is
served and no reasonable explanation on failure to pay on the part of
the debtor= valid
Re Perusahaan Jenwatt (1990) 2 MLJ 178
Sri Hartamas Development Sdn. Bhd. (1992) 1 MLJ 313
The NOD was valid since the sum and interest could easily be
ascertained, although the exact amount of the costs was not mentioned

 2.Service of statutory NOD

There must be adequate proof of physical delivery of demand to
the cos registered office- r.18(a) Co wu rules 1972
Weng Wah Construction Co. Sdn. Bhd. (1994) 2 MLJ 266
Cymun Development Sdn. Bhd. (1995) 2 MLJ 233

3.Misstatement of amount due

Mis-statement of amount due is not fatal, as long as the debt
can be ascertained and exceeds the statutory limit stated i.e.
RM500
If the co fails to pay undisputed debt portion, it raises the
presumption that the co could not pay the debt
It is not open to the co to decide not to pay at all
E.g. Co A owed B RM 1,500 and in the NOD claimed RM3,500, so
the disputed amount is RM2000 and the undisputed is RM1,500so co has to pay this RM1,500: although it is wrongly stated/
there is mis-statement of the amount due
Re Perusahaan Jenwatt (1990) 2 MLJ 178
YPJE Consultancy Service Sdn Bhd. (1996) 2 MLJ 482

 4. Disputed debts on substantial ground

(e.g. locus standi, c/claim etc.)
The Court/ creditor cannot make a presumption that the co
is unable to pay the debt, if the debt is disputed on
substantial grounds
Ann Joo Metal Sdn. Bhd. (2000)5 MLJ 709
Securicor (1985) 1 MLJ 84
A co would not be protected from a wu order under s.218 simply by
purporting to dispute a sum claimed in the notice of demand without
substantiating( proving) that it was a real bona fide dispute
So if the co really want to dispute the claim the evidence must be brought
before the Court to support the ground
E.g. the co has a c/claim against the petitioner but these claims not wholly
extinguish the petitioners debt, even if successful, the petition will not be
dismissed ( still owed RM500)
The court has power / discretion to decide on whether the grounds brought
forward is bona fide or not and can be acceptable or not
The court has power to order stay pending resolution of dispute or if court
thinks the ground is not be acceptable will proceed with petition

 Abuse of process
If the Court finds that the wu petition is an abuse of process,
Court may stay all proceedings or dismiss the petition
Apirami Sdn. Bhd. ( 1986) 1 CLJ 493
Where the petition was dismissed with costs as it was not a bona fide attempt
to obtain the relief sought but was for collateral purpose of embarrassing the
defendant
Because great damage can be caused to a company that is solvent/
reputation of the company by improper proceedings to wu the co.
So a petition which amounts to abuse of process may also be struck
out under ROC
Here the Court has no power to order damages to be paid to the company
when exercising its jurisdiction to strike out the petition, damages may only
be obtained in a separate suit for malicious prosecution / abuse of process

** can file more than one petition gita notes pg 9Sinarlim Sdn. Bhd. (2012) 3 CLJ 678

 Commencement of w/up:
S.219(2) Co Act
w/up shall be deemed to have
commenced at the time of the
presentation of the petition
However if the petition is pending
consideration by the court, the
companys business and managerial
affairs need not come to a standstill
unless a liquidator has been appointed
with specific task assigned to him by the
Court
Generally once a petition is filed, the
company will going on with the business

Procedure for w/up

*Served statutory Notice under section 218 of the CA
* Company must comply with the period stipulated under s.218(2)
(a)
*File Winding up Petition
*Affidavit verifying Petition
*Hearing date is fixed by the Registrar
*Serve Petition
*File Affidavit of Service of Petition
*Advertisement and gazette
*Registrars Certificate
*Hearing of Winding-up Petition
*File Draft Order
*Extract Sealed Copy of order
*Advertise Notice of Winding Up
*File of Proof of Debt

 Service NOD
NOD is a letter or form setting out a debt worth at least
RM500 due and payable to creditors within 21 days
This NOD is served to warn the debtor of impending
petition- s.218(2) (a) and to make sure justice and fair
play as creditors will give chance to the company to make
payment or to settle the debt within 21 days
R.18(a) : sufficiently served if left/ sent by prepaid registered
post to the cos last known address or to the person to be
served with ( director of the co)

Cymun Development(1996) 1 CLJ 545

ET Mix Sdn Bhd ( 2005) 6 CLJ 163

Co has 3 options upon receiving the NOD:

To make payment
To ignore ( and after 3 weeks there will be presumption of unable to
pay the debts, unless the NOD is bad in law)

Re Perusahaan Jenwatt: notice bad in law

Dispute the debt ( by making application to set aside the NOD)

 Procedures:

Served notice under s.218 ( creditor serve to the debtors company)

The notice is served after final judgment is obtained/ if it is J.I.D: it is a good

judgment unless it is set aside by the Court on application based on meritO.42r.13 ROC : 30days to set aside judgment: if not crystallise as final
judgment

The co then was given 3 weeks to comply with the notice under s.218

Failure to comply within the stipulated period there is presumption that the co is
unable to pay the debt/ to meet the obligation/ liabilities of the co against the
creditor

Therefore the creditor has a right to proceed and file a petition

( winding up petition). There is presumption that the co is unable to
pay the debt.
However if within 21 days, the co has a c/claim, set off or cross
demand or if the co argued or disputed the debt claim by the creditor
then the application has to be filed by the so to set aside:

S.I.C + affidavit ( h/crt)

NOA + affidavit ( lower court)

Upon received the application the registrar must give a (H) date to
hear the application before he can proceed to hear wu petition/ allow
creditor to file petition

Sometimes it is filed late by the co- but the court will allow it with reasonable
grounds ( to ensure justice been done)

 Winding up petition
Issue of affidavit