Liquidation in Malaysia

A Guide on Closure of Company – Members’ or Creditors’ Voluntary or Compulsory Winding-up in Malaysia

Companies can be closed down through either "Striking Off" or "Winding Up/Liquidation," resulting in the cessation of the company's existence. However, it's crucial to note that these are distinct processes and should not be confused with each other.

Striking Off is a simpler process, whereas Liquidation can be categorized into three types: Members' Voluntary Liquidation, Creditors' Voluntary Liquidation, and Court Winding Up. In Liquidation, the appointed Liquidator assumes control of the company.

During Liquidation, the company must halt its business operations, except as deemed necessary by the Liquidator for the beneficial disposal or winding up of the business.

Reasons for Liquidation

• Company has ceased all business activities;

• Management deadlock;

• Oppression – shareholders dispute Section 181 of the Companies Act, 1965;

• Corporate or financial restructuring of the group to which the company belongs;

• Minimise tax liabilities or maximise tax advantages for the group to which the company belongs;

• Breach of statutory provisions, including offences committed;

• Company acting outside its scope of activities.

Our Liquidators are experienced in managing all methods of company closure, including:

Striking Off – Solvent Company

In the striking-off process, directors must declare that the company either hasn't commenced business since incorporation or has ceased operations, has no assets or liabilities, and doesn't owe any dues to authorities. Following this, directors propose and shareholders approve the application for striking off the company. This entire process, from document submission to SSM, typically takes around 6 to 12 months, pending approval from SSM Malaysia.

A company can be restored within 15 years from the date of striking off. To restore the company, an individual must obtain a Court Order for the reinstatement of the struck-off company.

For details on Strike Off Company.

Members’ Voluntary Liquidation (“MVL”) – Solvent Company

The company's members, also known as shareholders, may pass a resolution for the company to undergo winding up and appoint a liquidator.

The liquidation process begins upon passing the resolution appointing the liquidator. This method is chosen when the company can settle all its debts within 12 months from the start of the winding-up process.

A Members' Voluntary Liquidation (MVL) is initiated by the shareholders. Directors must convene a Board of Directors’ Meeting to execute a Declaration of Solvency, which is then lodged with the SSM. Subsequently, shareholders appoint a liquidator to wind up the company's affairs, file necessary notifications with the Companies Act through SSM and the Official Receiver, and arrange for publications about the liquidator's appointment and final meeting in a widely circulated Malaysian newspaper. The Liquidator is responsible for distributing/disposing assets, settling liabilities, obtaining clearances from relevant authorities like IRB, EPF, SOCSO, Customs, etc. If the MVL extends beyond 1 year, a general meeting of the company must be convened. The entire MVL process typically takes around 2 years, subject to official clearances.

Any individual capable of fulfilling the duties of a liquidator, such as a Director, can be appointed as the Liquidator. In cases where a company has been dissolved, the Court can, within 2 years of dissolution, upon application by the liquidator or any interested party, declare the dissolution void, allowing for further proceedings as if the company hadn't been dissolved.

Our fees for assisting with MVL start from RM15,000. This fee excludes out-of-pocket expenses (e.g., newspaper advertisements, courier services, assistance in closing bank accounts, final tax submissions, auditing of final accounts, etc., if required), and additional fees may apply in exceptional circumstances like unresolved assets/liabilities, creditor claims, court orders reversing the liquidation process, etc.

Creditors’ Voluntary Liquidation – Insolvent Company

In cases where a company is unable to meet its liabilities, it may organize a meeting with its creditors to present a proposal for voluntary winding up.

If the creditors pass a resolution in favor of the winding up, the company will then appoint a liquidator. This appointment is subject to any preferences that creditors may have regarding the choice of liquidator.

For further details, please feel free to reach out to us.

Compulsory Winding Up – Insolvent Company

Under section 217 of the Companies Act, 1965, the company itself, creditors, contributories, liquidator, or the Minister have the authority to file a winding-up application with the High Court.

Section 218(1) of the Companies Act, 1965 outlines the grounds upon which the Court may order the liquidation of a company. Common reasons for a company to be wound up by the Court include the inability to pay debts and just and equitable circumstances.

The liquidation of an insolvent company involves the collective enforcement of debts for the benefit of all creditors. While not strictly an execution process aimed at a specific creditor, it functions similarly by enforcing the payment of debts on an equal basis for all creditors. Therefore, the liquidation process resembles execution in its objective of debt enforcement, albeit for multiple creditors simultaneously.

Notification of Government body

A company must notify the following authorities once winding-up commences:-

• Companies Commision of Malaysia / Suruhanjaya Syarikat Malaysia (CCM/SSM)

• Official Receiver

• Employees Provident Fund (EPF)

• Inland Revenue Board (IRB)

• Social Security Organization (SOCSO)

• Royal Malaysian Customs Department (Customs)

• Relevant Licensing Authorities

In compulsory liquidation, the liquidator plays a crucial role outlined in section 269 of the Companies Act, 1965. Their responsibilities include:

1. Investigating the company's affairs, assets, the conduct of its officers, and claims from creditors and third parties.

2. Recovering and realizing the company's assets in the most beneficial manner for the company.

3. Adjudicating creditors' claims and ensuring a fair distribution of the company's assets in line with the Companies Act's provisions.