Topic 2: Proceedings in Company

Liquidations
&
The Effects of Such Proceedings

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Liquidation /winding up of a company is the
process by which its assets are collected, its debt
paid and the surplus, if any, distributed among its
members.

Until this process is completed, the company

remains in existence as a legal entity.

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A company is wound up for various reasons
and the most obvious and common reason
is that the company is insolvent i.e. unable
to pay its debt.

In such cases, liquidation is the process

whereby the company’s assets are realized
and distributed to creditors in payment of
the debts due to them.

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Winding up of a company is the process whereby
its life is ended and its property administered for
the benefit of its creditors and members.
 Types of
winding up.

Compulsory Voluntary
Winding Up winding up
 Voluntary winding
( s439 CA 16) is divided
into 2 categories:

Members’ voluntary
winding up Creditors’ voluntary
winding up
See also s444
Section 439(1) of Companies Act
2016:

•A members’ voluntary winding up is initiated

by special resolution of the company; and
can only proceed if the company is SOLVENT.
•A liquidator is then appointed by the
members in general meetings (Sec 445 of CA)

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Before a member’s voluntary winding up can
proceed, the directors must make a written
declaration to the effect that they have made
an inquiry into the affairs of the company and
are of the opinion that it will be able to pay its
debt in full within a period of 12 months after
the commencement of winding up. (Sec 443(1)
of CA)

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A creditor’s voluntary winding up is similar to a
member’s voluntary winding up except that the
company is INSOLVENT.
(See s.444)

This type of winding up despite its name cannot be

initiated by the creditors. A member’s voluntary
winding up is converted into a creditor’s voluntary
winding up if the company is insolvent.

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This situation may arise in the
following situations:-

a) No declaration of solvency

where there is a proposal to wind up the company

voluntarily but the directors do not make and lodge a
declaration of solvency under Sec 443, the liquidation
proceeds as a creditor’s voluntary winding up.

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In this situation, the company is
required to convene a meeting of
its creditors within the day or the
next day on which the members’
resolution for voluntary winding
up is proposed.

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 b) After appointment of
liquidator by members

A member’s voluntary winding up may be

converted into a creditor’s voluntary
winding up even after the directors have
made and lodged a declaration of solvency.

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If a liquidator appointed by the
members, during the course of the
liquidation forms the opinion that the
company is unable to pay its debt in full
within the period stated in the
declaration of solvency, the liquidator is
required to convene a meeting of
creditors.

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The liquidator is then required to
lay before the creditor’s meeting a
statement of the assets and
liabilities of the company and
draw their attention to their right
to appoint a new liquidator.

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From the date of the Creditor’s
meeting, the liquidation proceeds
as a creditor’s voluntary winding
up whether or not the creditor
appoint a new liquidator.

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Winding up by Court is also known as
a compulsory winding up. It begins
with the presentation of a petition in
Court. The petitioners include
creditors, liquidator, the Registrar of
companies or the Official Receiver.
 Compulsory winding up

Where the court makes an

Initiated by application to the
order winding up a company,
court by any one of the
it appoints the official
persons listed in the
receiver to wind up the
s.464(1)CA 2016
company.

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Usually there is an interval of several
weeks between the filing of the petition
and the hearing of the application.

During the interval, the company

remains under the control of its
directors and members.

18
An applicant may also apply for the
appointment of provisional liquidator

The court usually appoints a provisional

liquidator where it is satisfied that there
is a need to protect the company’s assets
from dissipation prior to the hearing.

19
 See section 464 CA 2016

enable creditor to apply for a

a creditor, including winding up even though their
contingent or prospective debts are not immediately
creditor, of the company. due and payable at the date
of the application

20
 Jurupakat Sdn Bhd v
Kumpulan Good Earth
(1973) Sdn Bhd [1988]
3 MLJ 49;

a creditor is a person who

could enforce his claim
against the company by an
action of debt.

21
 Re William Hockley Ltd
[1962] 1 WLR 555;

a person who is owed a debt by the

company which is still unpaid at the
date of the application is a creditor.

22
 Mann & Anor v
Goldstein & Anor
(1968) 2 All ER 769;
(1968) 1 WLR 1091

A petitioner who is not a creditor is not

entitled to present a petition or apply for
winding up order as he has no locus
standi
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A person to whom a debt is owed,
payment of which is only due on the
occurrence of some future event.
(Re William Hockley Ltd [1962] 1 WLR
555)

24
 Community Development Pty
Ltd v Enqwirda Construction
Co (1969) 120 CLR 455;

the High Court of Australia held that a builder

whose debt only became payable on the
outcome of arbitration proceedings was a
contingent creditor and was therefore capable
of filing a winding up petition.
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A creditor to whom a
debt is due but not
immediately payable.

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Section 465 (a) to (l) of
Companies Act

Section 466(1)(a): the company

is unable to pay its debt.

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Under section 466(1) a
company is deemed to be
unable to pay its debt for
the purpose of this section
in three different situations:

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(a) The company fails to pay a debt after being served a
notice by a creditor which complies with section 466(1)(a);

(b) an execution or other process issued on a judgment,

decree or order of any court in favour of a creditor of the
company is returned unsatisfied in whole or in part;

(c) the court after taking into account any contingent and
prospective liabilities of the company, is satisfied that the
company is unable to pay its debt
• Meaning
• See Hotel Royal Sdn Bhd v Tina Travel & Agencies Sdn Bhd [1990] 1 MLJ
21

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 (a) The company fails to pay a debt after
being served a notice by a creditor which
complies with section 466(1)(a):-

iii) Company failed to

i ) Minimum sum ii)Creditor served 466 comply within three
indebted RM10,000.00 Notice by hand weeks (21 days) of the
notice.

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Section 466(1)(a); embody rule of fair play and
justice to warn debtor of impending petition

Re Perusahaan Jenwatt Sdn Bhd [1990] 2 MLJ

178;

Sri Hartamas Development Sdn Bhd v MBF

Finance Bhd [1992] 1 MLJ 313

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A petition for WU must be
presented to the HC within
6 months from the expiry
of the notice s466(2)

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Re Perusahaan Jenwatt Sdn Bhd [1990] 2 MLJ 178
Zakaria Yatim J held:
 In the present case, the notice of demand has not complied
strictly with the requirements of s218 (2)(a). Since the
amount stated in the said notice is far in excess of the
debt due, failure on the part of the company to pay the
sum claimed does not mean the company is unable to pay
its debt under the section. The notice of demand is
therefore bad and the court cannot presume that the
company is unable to pay its debts.

 Sri Hartamas Development Sdn Bhd v MBF Finance Bhd

[1992]1 MLJ 313
 Sungei RinchingSdn Bhd v Sri Keluarga Sdn Bhd
[1996] 2 MLJ 199

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 Lim Tok Chiow v Dian Tong Credit & Development
Sdn Bhd [1994] 2 MLJ 345; under item (iii) of the
notice, the amount of interest was not quantified
but was left to the company to do so. Section
218(2)(a) of the Act however talks of the
company requiring the company to pay the sum
so due, and the company has for three weeks
thereafter neglected to pay the sum…’, which
would mean the creditor claiming the exact
amount duly quantified.

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 On the question of non-quantification of the
exact sum due from the debtor company, Abdul
Kadir Sulaiman J expressed the view that
though the Bankruptcy Act 1967 and the
Bankruptcy Rules 1969 are not directly
applicable to a case of a winding up of a
company under the Act, yet the analogy
obtained from the authorities in bankruptcy
cases must equally apply in company winding-
up cases, as the consequences of the order made
by the court in both cases are the same.

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 Re Perusahaan Jenwatt Sdn Bhd [1990] 2 MLJ
178
 Sri Hartamas Development Sdn Bhd v MBF
Finance Bhd [1992] 1 MLJ 313
 The notice of demand was valid since the sum
and interest could easily be ascertained,
although the amount of the costs was not
mentioned since it could not ascertained at that
stage because of the appeal

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 It is settled law that a statutory notice of
demand issued pursuant to section 218(2)(a) will
not be invalid for the reason that it claims any
amount in excess of what is due or where it fails
to quantify the interest on the principal amount
so long as the requisite particulars are furnished
which will facilitate the ascertainment of the
exact amount.

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 lapse of 3 weeks
Issue of Statutory Winding-up
and no payment
Notice of Demand Petition (Form 2)
made

file affidavit of service of petition File Affidavit in F7

service and affidavit to verify petition
 to advertise in 2
Petitioner/Solicitor
local dailies twice 7 File of affidavit of
to appear on
clear days b4 compliance
hearing date
hearing

any person who Debtor may oppose

Petitioner may file
intends to appear the petition by filing
and serve affidavit in
during hearing, must and servicing affidavit
reply within 3 days
file notice of intention in opposition (AIO) 7
upon receipt of AIO.
to appear F8 days b4 hearing

Notice of winding-up Service of the notice on

The ct may dismiss appointed liquidator or
must be up must be
CCM, debtor. Must
the petition or gazzetted gazzetted
inform the liquidator in
grant an order. and advertized in F F10 within 14 days of the
12 order.
 Prescribed by R22 Companies (Winding up)
Rules 1972
 Form no 3 (specific format for creditor’s petition)
or Form no 2 (all petitions on other grounds)
 Debt owed by company to petitioner will have
to be stated; state also consideration for the debt
with particulars in order to establish the debt
claimed is due.

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 The prescribed form requires petitioner to state:
 (a) The company is insolvent
 (b) Unable to pay its debt
 (c) Just and equitable to wind up the company

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 Rule 26 Companies (Winding up) Rules 1972
(a) Affidavit should be made after the signing
or presentation of the petition

(b) Affidavit verifying petition will have to be

filed within 4 days after the presentation

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 Chin Yoon Timber Co v Overseas Lumber Bhd
[1978] 2 MLJ 173; affidavit sworn 4 days before
petition filed, court held requirement mandatory not
curable by rules 193 and 194

 Sari Atlantic Sdn Bhd v Aik Kim Enterprise

[1988] 1 MLJ 201; non compliance with r26 did not
render petition a nullity and defect curable
 Sam Hin Timber Co v Perusahaan Sri Duyong
Sdn Bhd [1983] 2 CLJ 269;premature swearing or
affirming affidavit a mere irregularity

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 Sobri Arshad v Assoc Traders Sdn Bhd [1991] 3
MLJ 32; Re Mohd Sharif Sapie [1992] 2 MLJ 102;
Lim Tok Chiow & Anor v Dian Tong Credit &
Development; rule 26 is a condition precedent to
validity of the petition

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 YPJE Consultancy Service Sdn Bhd v Heller
Factoring (M) Sdn Bhd (formerly known as Matang
Factoring) [1996] 2 MLJ 482; on question of validity
of affidavit sworn pre maturely, the view appears to
be that:
(a) An affidavit will not be invalid if it is
sworn on the same day as borne in petition
provided no indication to show affidavit sworn
prematurely

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(b) Affidavit sworn in prior to signing and/or
filing of petition invalid
(c) In appropriate cases, if good cause is shown
and delay not too long court can grant extension
of time/permit petition to be resworn

 Format in form no 7
 Extension of time Rule 193 discretionary power
of the court

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 A petition for a winding up of a company has to
be presented at the office of the Registrar. Rule 23

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 Advertised in manner prescribed by Rule 24
 (i) Form no 4 in First Sch to the rules
 (ii) Clear period of 7 days between date of
advertisement and hearing. (Court may direct
longer period)
 (iii) Advertisement to be published:
 (a) Once in Gazette
 (b) Twice in local newspaper

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 TO FILE MEMORANDUM OF ADVERTISEMENT

 TO FILE REGISTRAR’S CERTIFICATE

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 Rule 32 certificate
 After the petition has been presented, the
petitioner or his solicitor has to attend before the
Registrar on a day appointed by the latter and
satisfy him on the following matters, namely:
 (a) the petition has been duly gazetted and
advertised
 (b) The prescribed affidavit verifying the
statements and affidavit of service has been duly
filed.

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 (c) the consent in writing of the approved
liquidator nominated by the petitioner has been
obtained and filed
 (d) the provisions of these rules as to petitions
have been complied with
 (e) A sum of RM3000 has been deposited to
cover the fees and expenses to be incurred by
the approved liquidator or the Official Receiver
as the case may be. (Rule 23A)

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 Rule 25(1); a copy of the petition has to be served upon
the company at its registered office.

 if no registered office, then at principal office or last

known principal place of business

 Rule 25(2); where a petition is presented by any other

person than the liquidator, in relation to a company
which is in the course of being wound up, the petition
shall be personally served upon the liquidator
 Affidavit of service-Rule 25-Form 5

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 A notice has to be served on the
petitioner/solicitor by every person who desires
to support or oppose it.

 Service in person or by post has to reach the

addressee not later than 12 noon on the day
previous to the day appointed for the hearing of
the petition.

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 Rule 29; petitioner/solicitor to prepare a list of the
names and addresses of the persons who have
given notice of their intention to appear on the
hearing

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 All affidavits in opposition to petition is to be filed
and a copy to be served on the petitioner / solicitor
at least 7 days before the time appointed for the
hearing of the petition. Rule 30(1)
 Cetico Sdn Bhd v The Tropical Veneer Co Bhd [1988] 2
MLJ 665

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 Rule 30(2); to be filed within 3 days of the date of
service on the petitioner of the affidavit in
opposition

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On hearing of the Petition, the Court may:-
a) Dismiss the petition with or without cost
b) The Court may adjourn the hearing
conditionally
c) To make any interim order or other orders
as it thinks fit.

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I) PETITIONING CREDITOR TO FILE DRAFT
WINDING UP ORDER (within 7 days from
the WU Order

II) TO ADVERTISE (WITHIN 14 DAYS FROM THE

DATE OF THE ORDER) (rule 34 of the WU
Rules 1972)
i) Twice in Local newspaper
ii) Once in Government Gazette

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 within 7 days from the winding up order,
Petitioner to lodge to Registrar of
Companies :
a) The Notice of the Winding Up Order and
its date
b) the name and address of the
liquidator

NOTICE OF LIQUIDATION TO BE LODGED

TO OFFICIAL RECEIVER

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 SEALED COPY OF WINDING UP ORDER
EXTRACTED.

 SERVED CERTIFIED TRUE COPIES OF

WINDING UP ORDER to:-
a) Respondent (The Company)
b) Official Receiver
c) Registrar of Companies

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 Rule 81: file PROOF OF DEBT with OFFICIAL
RECEIVER (Form 55)

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 • Section 466 - the company is unable to pay its
debts (the most common ground)
• section 466(1)(h) - the court is of the opinion
that it is just and equitable that the company
be wound up (which, as we have seen, may be
useful in the event on unfairness or deadlock
Winding Up by the
or if the substratum of the company has been
Court (Compulsory
Liquidation) destroyed).
• if the company has, by special resolution,
resolved that the company should be wound up
by the court.
• the company does not commence its business
within a year from its incorporation, or
suspends its business for a whole year.
 • when the period, if any, fixed for the
duration of company by its articles, has
expired
• an event has taken place, on the
occurrence of which the articles provide
Voluntary that the company is to be dissolved

Winding • if the company passes a special

resolution that the company should be
Up wound up voluntarily
• In circumstances (a) and (b), an ordinary
resolution passed in a general meeting
for winding-up is sufficient.
Impacts of
Winding Up

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 1. On CREDITORS
 Under section 467(2) a compulsory
winding up is deemed to commence at the
time of the winding up order the application
for winding up
 Any disposition of the company’s property
made after the presentation of the WU petition
other than one made by the liquidator, shall be
void unless the court order otherwise; section
472

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 Re J Leslie Engineers Co Ltd (In Liq) [1976] 2 All ER
85
 An outsider has purchased goods from the company
for cash and therefore has no reason to check the
company’s financial position. Under section 223, the
transaction is void and the goods can be recovered by
the liquidator and the outsider must stand in line
with all other creditors for a refund of money.

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 Creditors cannot enforce any judgment or orders
they have obtained after commencement of
winding up. S471

 No legal proceedings can be brought against the

company without leave of the court s470

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 2. On the company
 The company is prevented from carrying
on its business except for the purpose of
winding up
 The company’s property remains with
the company but its power to deal with it are
severely restricted s472
 All documents issued on its behalf must
have the word “ in liquidation”

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 The directors lose their powers to manage the
company’s affairs: Re Farrow Bank Ltd [1921] 2 Ch
164 (the company’s affairs are controlled by liquidator)
 Members lose right to transfer shares s472 (1):
Koutsojiannis v Brown [1981] NZCLC 95,007

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 3. On company’s employees

 Publication of the winding up order serves as a

notice of dismissal to the company employees: Re
General Rolling Stock Co (1872) 7 Ch App 646

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