In Singapore, a company can either be closed by Court Order or by the decision of its owners. The former may result from a creditor filing a petition for winding up. In this article, we discuss the key details about the liquidation of a Singapore company.
Once a company becomes insolvent (unable to pay its debts by a certain due date), the Directors are responsible for liquidating it. In business terms, the meaning of liquidation is the process of closing a business by allocating assets to claimants. As for its meaning in accounting terms, liquidation is a process that involves the selling of assets to convert them into cash. The proceeds will be used to pay off creditors. When there is no debt to pay, the assets are distributed to the owners of the entity.
The Common Reasons Behind a Singapore Company’s Liquidation
- A company isn’t gaining profits and has ceased its operations
- Restructuring of the group where the company is under
- The entity is insolvent
- The shareholders’ interests are oppressed – Section 216 of the Companies Act (Cap. 50)
- A company doesn’t comply with statutory requirements
- The company operates outside of its activity scope
Types of Liquidation or Winding Up
Members’ Voluntary Winding Up
A resolution may be passed by the shareholders for the company to be wound up and a liquidator to be appointed. The process begins once the resolution has been submitted. This type of liquidation can only happen when a company is able to fulfil its financial obligations within 12 months after the start of winding up. Directors need to file a declaration of solvency.
Compulsory Winding Up
According to the Insolvency, Restructuring and Dissolution Act 2018 section 124, the following individuals may apply to wind-up the company to the High Court:
- The company director
- The company’s contributories
- Judicial manager/Minister
A winding-up deposit of $10,400 is paid by the applicant to the Official Receiver. At this stage, the High Court may designate the Official Receiver or the insolvency as the entity’s liquidator. The company is considered wound up upon presenting the application.
The grounds for winding up compulsorily are listed under Insolvency, Restructuring and Dissolution Act 2018 section 125. Below are the typical grounds:
- Just and Equitable. This is based on the opinion of the High Court.
- The entity is unable to pay its debts. The company is considered unable to pay its debts when a creditor has demanded payment at the company’s registered office and it has not fulfilled its obligation after three weeks.
Creditors’ Voluntary Winding Up
A company can gather for a meeting with its creditors to have them acknowledge a proposal to voluntarily wind up the company. After a winding-up resolution has been passed, the company can then appoint a liquidator but is subject to the preferred options of the creditors.
Why do you need the assistance of a liquidator?
Winding up a company is a tedious process that involves compliance with a range of legal requirements. If your company is closing down, it’s best to ask for help from a professional firm such as CorpXervices. You’ll be assisted throughout the whole process. We assess your situation carefully and recommend the best steps to take.