Company liquidation, or winding up, refers to the formal closing of a company, with its assets being seized and realized to pay off any outstanding debts or liabilities before being distributed to the company’s shareholders according to their respective rights and interests.
This process is overseen by a court-appointed liquidator, who takes control of the company’s assets, finances, bank accounts, and business operations.
Types of Liquidation
Voluntary Liquidation
A company may undergo voluntary liquidation should this be initiated by its members or creditors:
- Members’ Voluntary Liquidation: The company’s directors believe that the company’s debts may be paid in full within 12 months after the initiation of the liquidation process.
- Creditors’ Voluntary Liquidation: The company’s directors don’t believe that the company can continue its business due to its liabilities.
Compulsory Liquidation
A company may be ordered to undergo liquidation by the court during certain circumstances, such as if the company isn’t able to pay its outstanding debts, or if the court has reason to believe that a company’s debts are more or less equal to the value of the company being liquidated.
In these situations, the company or other authorized parties—such as the liquidator, creditors, shareholders, or judicial manager—may commence liquidation proceedings with the court.
How is a Company Liquidated?
The following steps must be taken for a Voluntary Liquidation:
- Step 1: A majority of the directors must pass a written Declaration of Solvency at a directors’ meeting before filing this with the registrar. This declaration should be sent to the members of the company.
- Step 2: An Extraordinary General Meeting (EGM) must be held within five weeks of the directors’ meeting to pass a special resolution in favor of winding up the company, along with an ordinary resolution to appoint a liquidator and decide his or her remuneration. Another special resolution must be passed to authorize the liquidator to divide the company’s assets and properties among its members. At this stage, the company has now formally commenced its liquidation process.
- Step 3: Within 7 days of passing the special resolution, the company must submit a printed copy of the resolution to the Accounting and Corporate Regulatory Authority.
- Step 4: Within 10 days of passing the special resolution, the company will have to release a notice of appointment of the liquidator and a copy of the declaration in at least four local daily newspapers covering the English, Chinese, Malay, and Tamil languages.
- Step 5: Within 14 days of his or her appointment, the liquidator must submit a notice of appointment to ACRA and the Official Receiver. The company must also ensure that all issued documents are amended to include “in liquidation” after the company’s name.
- Step 6: The company must also surrender all books and records to the liquidator. The liquidator will file the necessary documents to the relevant authorities as stated in the Companies Act. This may include the company’s income tax clearance, settlements of creditor claims, as well as determining the amount to be returned to the company’s shareholders after all debts and liabilities have been settled.
- Step 7: Afterward, the liquidator will have to provide a detailed account of how the company was wound up and conduct a final EGM to discuss this, with members receiving at least 30 days’ notice. This notice must also be published in one English newspaper and in the eGazette
- Step 8: After seven days from the meeting, the liquidator will have to submit a return to ACRA and the Official Receiver that the general meeting has been held and attach a copy of his or her account. Once this return expires after three months, the company will officially be dissolved. However, the company’s dissolution may still be rendered void by the court within two years after.
On the other hand, the process of Compulsory Liquidation can be outlined in the following steps:
- Step 1: After liquidation proceedings are initiated with the High Court, a liquidator will be assigned to handle the affairs of the company. The liquidator may be appointed by the court or may be the Official Receiver.
- Step 2: The appointed liquidator will begin to review and assess the company’s assets, as well as the creditors’ claims to realize these assets in a way that provides the most benefits to the parties involved. The liquidator may also choose to carry on the business if he or she believes that this is in the best interests of the company and the creditors.
- Step 3: While no longer having any power in the company’s operations, the company’s members are still obligated to assist and cooperate with the liquidator during this process. An example of a possible task is providing a Statement of Affairs that covers the company’s assets and liabilities.
- Step 4: After the liquidator has dealt with and reviewed the company’s assets, he or she will evaluate each claim against the company and either accept or reject them. Any remaining fees will be distributed among the shareholders.
What Does a Liquidator Do?
The following are the tasks that an appointed liquidator may perform:
- Realization and Distribution of Assets: The company must surrender all assets and liabilities to the appointed liquidator. He or she will then assess these assets and distribute them in a way that benefits all the involved parties the most.
- Evaluation of Claims: After realizing a company’s assets, the liquidator will have to evaluate all claims of creditors and third parties and either admit or reject them. Rejected claims will require the liquidator to send a notice of rejection to the creditor with the reason for the rejection.
- Filing of Relevant Notices and Documents: The liquidator will be required to file the necessary notices and documents to the relevant authorities. These documents include an account of the company’s liquidation, a notice of liquidation, a notice of appointment, and the cancellation of the company’s registration.
How Long Does It Take to Liquidate a Company in Singapore?
In general, the duration of the liquidation process may take several months. However, this will depend on several factors such as the complexity of the company’s affairs, the cooperation of relevant stakeholders, and the efficiency of both the liquidator and the liquidation process.
When Does Liquidation End?
Liquidation formally ends when all the tasks related to the winding up process are completed and all the required notices, reports, and documents are submitted to the relevant authorities by the liquidator.
The liquidation of a company is the process of closing the problems of the company in a systematic way so that its advantages can circulate reasonably to these creditors when necessary, as well as the members of the company.
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