Winding-up of Manufacturing Company in Singapore

What is winding-up or liquidation?

The process of liquidating the assets of a business that has ceased operations is known as winding up. The sole purpose of a company winding up is to sell off assets, pay off creditors, and distribute any remaining assets to the owners.

What causes a Manufacturing Company in Singapore to shut down?

The following are various causes that result in the shutting down of a Manufacturing company:

1. The company has ceased business activities either due to losses or is dormant;
2. Breach of law or non-compliance by the promoters of the company;
3. Dispute between stakeholders;
4. Corporate restructuring;
5. Management deadlock

Methods of winding up a Singapore Company:

A company can be wound up when it is solvent or insolvent.
For solvent companies, members can voluntarily apply to be wound up through a “members’ voluntary winding up” method, whereas there are two methods for winding up insolvent companies:

1) Voluntarily winding up through “creditors’ voluntary winding up”; or “members’ voluntary winding up”;

2) Involuntary winding up (e.g. upon creditor application) by court order (“compulsory winding up”).

How do you determine the solvency of a company?

To determine the solvency of a manufacturing company, a cash-flow test may be done, which assesses whether the company’s current assets exceed its current liabilities such that it is able to meet all debts as and when they fall due within a period of 12-months.

Additionally, a company can be presumed to be insolvent if the following conditions are met:

1. A creditor has served a statutory demand on the company for a sum of $15,000 or above, and the company fails to pay the sum to the creditor’s reasonable satisfaction within 3 weeks from the date that the demand was served; or

2. A creditor tries to enforce a court judgment or order for a certain sum of money against the company but cannot recover the entire sum.

Winding-up of a solvent company in Singapore:

Members’ voluntary winding-up

To begin, the company’s directors must file a Declaration of Solvency at the Board of Directors’ meeting as well as with the Accounting and Corporate Regulatory Winding Authority (ACRA)

The Solvency Declaration states:

1. The directors have investigated the company’s affairs;

2. The directors have concluded that the company will be able to pay its debts in full within 12 months of the commencement of the winding-up process.

The most recent statement of affairs, showing the company’s assets, an amount expected to be realized from the assets, liabilities, and estimated winding-up expenses, should be attached to the declaration of solvency.

The next step is to notify the business’s members that an Extraordinary General Meeting (EGM) will be held to enact a Special Resolution to dissolve the company. Within five weeks of the Directors’ Meeting approving the Solvency Declaration, the EGM must be held.

After the special resolution has been passed, the company must:

• Within 7 days after passing of the resolution for voluntary winding up, lodge a copy of the resolution with ACRA; and
• Within 10 days after the passing of the resolution, give notice of the resolution in the Gazette and at least one English local daily newspaper.

Further to that, the company must appoint a liquidator to wind up its affairs and distribute its assets. An Ordinary Resolution must be approved to appoint the liquidators (and approving their salary). Once the liquidator is appointed, all of the company’s directors’ powers cease to exist unless the liquidator approves their continuation.

Furthermore, the company must ensure that all documents issued by it or its officers (that contain the company’s name) include the words “in liquidation” after its name. The company’s books and records must be turned over to the liquidator.

Winding-up of a insolvent company in Singapore:

The two ways to wind up an insolvent company are as follows:

• Apply for a creditors’ voluntary winding up; or
• Apply for a winding up by order of the court

1) Creditor’s voluntary winding-up:

The process of creditors’ voluntary winding-up is similar to that of members’ winding-up with some additional steps-

Appointment of provisional liquidator

A licensed insolvency practitioner is a provisional liquidator. His principal goal is to preserve the company’s assets between when the winding-up petition is filed and when it is officially winded up. The company’s directors must draft and file a statutory declaration with the official receiver before the provisional liquidator is appointed. They must also submit a declaration with ACRA stating that the company has been unable to continue its operation as a result of default payment of debts. Within 30 days of making a declaration, administrators must convene a meeting with the company’s creditors. Following 14 days after the provisional liquidator’s appointment, the statutory declaration described above, and the provisional liquidator’s notice of appointment, must be published in the Gazette and a minimum of one English local daily newspaper. The appointment of a liquidator lasts for one month or until the firm decides otherwise, whichever comes first.

Conducting meeting of creditors

A meeting of creditors is conducted on the day the special resolution for winding up is proposed. The notice of the creditors’ meeting must be accompanied by a statement listing the names of all creditors and the amounts of their claims. The notice must be delivered at least ten days before the creditors’ meeting. The notice of the creditors’ meeting also has to be advertised in at least one English local daily newspaper at least seven days before the meeting date. Directors of the company must produce the following to be laid during the creditors’ meeting-

• A complete statement of the company’s affairs showing the method of valuation of the company’s assets,
• A list of the creditors and the estimated amount of their claims.

Compulsory winding-up

To wind up an insolvent company, the order of the court is required. The company itself, creditors, contributories, liquidator, judicial manager, or the Minister may present a winding-up application to the High Court.

• The common grounds for a company to be wound up by the court include:
• Inability to pay its debts,
• The company is deemed unable to pay its debts if a company’s creditor, who is owed more than $15,000, has served a demand for the sum owing at the company’s registered office, and the company has not paid this sum for 3 weeks after that.

Insolvency is not the only reason a company may have to be wound up through a court process. Other reasons may include:

• The company has no members;
• The company did not commence business within a year of its incorporation or suspend its business for a whole year;
• Directors have acted in the affairs of the company in their interests rather than in the interests of members as a whole;
• The court is of the opinion that it is just and equitable for the company to be wound up; or
• The company had carried on any illegal multi-level marketing or pyramid-selling activities.

The Court appoints a liquidator (or the Official Receiver if none is appointed) to attend to the winding up of the company.

The role of the liquidator includes the following:

1. Prepares a Statement of Affairs on the company’s assets and liabilities for the company’s submission by examining the company’s assets and creditors’ claims

2. Investigate the affairs and assets of the company, the conduct of its officers, and the claims of creditors and third parties.

3. Recover and realize the company’s assets in the most advantageous manner for the company.

4. Adjudicate the claims of the creditors and ensure an equitable distribution of the company’s assets in accordance with the provisions of the Insolvency, Restructuring and Dissolution Act 2018

5. Upon the completion of the liquidation, the liquidator applies to the court for the company to be dissolved and to be released as a liquidator where it discharges the liquidator from all liability in respect of his conduct in the course of winding up.

The liquidator may also authorize the continuation of the business if he believes it is the best option, and the company’s officers must assist and cooperate with him even if they are otherwise deprived of their power to run the company or in other matters not sanctioned by the court.

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Winding-up process

A winding-up process typically involves the company ceasing its operations, paying its debts to creditors, and realizing its assets before final payments are made to the company members. Companies should take the following steps while closing the business:

1. Proper retrenchment of employees;

2. Terminate contracts that it may have with business partners;

3.Terminate phone and Internet Service Provider subscriptions; and

4. Informing customers about the closing of business.

The company being wound up will also need to include the words “in liquidation” next to its name on its website, invoices, and business correspondences. This is done to inform parties that it deals with that it is currently being wound up and may not be able to pay any debts it incurs to them.

The liquidator will also distribute the company’s assets to its creditors and members in a particular order of preference. The creditors will need to file a proof of debt against the company before they can claim their debts from them. Payments received from the company being wound up should also be validated.

What happens after the company has been wound-up?

After the company has been wound up, the liquidator must prepare an account detailing the company’s locking up and disposition of its assets. In distributing the company’s assets, the liquidator should also consider any directions provided by the creditors’ resolution.

Once the account has been prepared, the liquidator must call a general meeting of the company (in the case of a members’ voluntary winding up) or a meeting of the company’s members and creditors (in the case of a creditors’ voluntary winding up or a court-ordered winding up) to layout and explain how the liquidator arrived at the decision.

Consult our expert winding up lawyers if you need legal assistance in winding up your Singapore company or advise on legal concerns that your company may face when winding up.

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