Winding Up A Company: Compulsory Winding Up
Companies that are unable to pay their debts and continue operations may be moved to wind up instead of being struck off Singapore’s business registry. The process of winding up ultimately leads to the closing down of the company takes two forms: voluntary and compulsory. This process is also called liquidation, which aims to pool funds from company assets to repay creditors before finally closing down.
While voluntary winding up involves a majority decision from company members and creditors, compulsory winding up would be borne out of an Order of the Court, usually because of company insolvency.
According to section 254 (1) of the Companies Act, the Court could deem a company insolvent if it fulfills any of the following criteria:
First, the said company has not commenced business a full year after its incorporation. In other cases, a company that has ceased operations for at least a year (and running) would also be considered insolvent, and will be subjected to liquidation.
Second, company directors are deemed to have acted for their personal interest instead of that of the company or the other members.
A company is deemed insolvent and therefore, right for compulsory winding up if it is unable to pay off its debts under Section 254 (1) (e) of the Companies Act. At this point, it is the Court that appoints a liquidator, in contrast with the voluntary winding up, when the company members appoint the liquidator. In case the Court could not appoint a liquidator, the Official Receiver would take on such role.
The Official Receiver is a person appointed by creditors to take control of certain company assets in an effort to collect payment for the company’s debts. The Official Receiver would then take on the liquidator’s role, at which point he or she would have to put all company assets for sale in exchange for cash. Funds gathered from the sale would be used to pay off creditors, and any excess amount will be distributed to the members.