Generally, companies can be wound up or liquidated either by striking off or winding up. Both winding up and striking off result in the dissolution of the company. Despite this, the processes are very different and should not be confused.
A strike-off is a straightforward process whereas liquidation can be categorised as either a Members’ Voluntary Liquidation, a Creditors’ Voluntary Liquidation, or a Court Winding Up. A company in liquidation is taken over by the liquidator.
A company must cease conducting business except as required by the liquidator for the beneficial disposal or winding up of the business.
In general, liquidations can be divided into two (2) categories:
a) Insolvent (unable to pay debts)
An insolvent company is wound up by a court order on the application of one or more parties. One such party may be a creditor, a contributor, or the personal representatives of a deceased contributor. Under this type of winding-up, the petitioner is required to state the grounds for the winding-up as set out in Section 465(1) of the Companies Act 2016
b) On Other Grounds
A court has the authority to wind up a company for reasons other than insolvency. Even if the company is solvent, the court may order its winding up due to a deterioration of relations between two groups of shareholders. According to Section 465 of the Companies Act 2016, to wind up a corporation, an application must be made stating the reasons for the winding up.
a) Members’ Voluntary Liquidation (“MVL”)
MVL refers to the liquidation of a solvent company in which the directors must determine that a company will be able to pay its debts in full within twelve (12) months of the commencement of winding up, as stated in section 443 of CA 2016.
b) Creditors’ Voluntary Liquidation (CVL)
CVL is the liquidation of an insolvent company in which the directors state that the company is unable by reason of its liabilities to continue operating. A meeting of the company and its creditors will be convened within one (1) month from the date of the declaration. The declaration must be filed with the Registrar and the Official Receiver.
To obtain more information on the liquidation process of a Malaysian company, please contact us for legal representation.
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