Liquidation, also called winding up, is the process by which a company's affairs are brought to an end, its assets are realised and distributed, and the company is eventually dissolved. Unlike a rescue mechanism, it does not aim to preserve the company as a going concern.
The modes of winding up
The Companies Act 2016 provides that a company may be wound up either by a winding up order made by the Court, or by a voluntary winding up. A voluntary winding up is effected by resolution and takes one of two forms:
- a members' voluntary winding up, where the directors have made the declaration required by section 443; or
- a creditors' voluntary winding up, where that declaration has not been made.
In a creditors' voluntary winding up, the company nominates a liquidator and the creditors may also nominate one. The creditors' nominee normally takes priority if the nominees differ; if creditors make no nomination, the company's nominee acts, subject to the Court's powers under section 450.
Solvency and the declaration
The statutory distinction depends on a valid declaration of solvency, not simply on describing the company as solvent or insolvent. Under the Act, where a voluntary winding up is proposed, the directors (or a majority of them) may make a written declaration that they have inquired into the company's affairs and formed the opinion that it will be able to pay its debts in full within a period not exceeding twelve months after the winding up commences. The declaration must also meet the Act’s supporting-statement, timing and lodgement requirements. Directors should obtain advice on those requirements before signing.
Where a company in difficulty may still be viable, other options exist; see our comparison of corporate rescue mechanisms in Malaysia and our article on early warning signs of financial distress.
Financial records to assemble for the advisers
Before discussing the appropriate route, establish a common information date and assemble the latest financial statements, management accounts and bank reconciliations. Prepare schedules of assets, receivables, creditors, borrowings, security, guarantees, related-party balances and contingent or disputed liabilities. Identify employee-related obligations and outstanding statutory amounts for specialist review.
Distinguish the carrying amount of an asset from an estimate of recoverable proceeds. Record the evidence and assumptions behind expected collections and disposal values. Include the costs and timing assumptions used in any cash forecast. A positive net-asset balance alone does not establish that debts can be paid when required or that a declaration can validly be made.
Keep original records, contracts and correspondence available. If a demand, court document or other urgent notice has arrived, tell the legal or insolvency adviser immediately and record the relevant response date. Do not delay seeking advice until every accounting schedule is complete.
Keep the advisory and formal roles clear
Financial-information, cash-flow and reporting support can help directors and their advisers understand the position. Decisions about the legal process, valid declarations, creditor rights and formal appointments require the appropriately authorised advisers and office-holders. This article does not state that Saifudin & Co will act as liquidator or take a statutory appointment.
This article is general information only. Requirements depend on each company's circumstances; please refer to the Companies Act 2016 published by SSM, and see Saifudin & Co's winding-up and company-closure services for financial-information, cash-flow and reporting support.