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Sometimes, the business plans do not work out as expected. There could be many reasons for this. However in these cases it doesn’t make sense to keep the company live. The option for the entrepreneur in this case is to close down one's venture. Some of the primary reasons for business closure are as follows:
Liquidation refers to the process of seizing and realizing (converting into cash) the company's assets to pay off the company's creditors, liabilities, and debts. If a company is in liquidation, it means it is going to shut down soon and has already stopped all its business operations.
There are two different methods to close a company in Singapore.
Striking off is a method that is more suitable for inactive or dormant companies which are solvent. These types of companies are no longer in business. They typically don’t have any debt which can not be paid. Therefore, they do not tend to have any assets or liabilities.
However for insolvent companies, the only method to cease its existence is by winding up.
Winding up is the formal liquidation of the company. It is the procedure of orderly winding-up of the company's operations. It involves:
The winding-up procedure ensures that the company's assets are distributed among its creditors and members fairly. Once all the debts and liabilities are paid off, the company's existence is terminated. The laws to wind up a Singapore company are set out by the IRDA (Insolvency, Restructuring, and Dissolution Act).
The winding-up procedure can be used to liquidate both a solvent company and an insolvent company.
Therefore, you can wind up a Singapore company in three different methods.
For a solvent company:
For an insolvent company:
A company's solvency status determines its winding-up method. Hence, it is imperative to confirm the solvency status of a company beforehand.
Singapore law has set up two tests that determine if a company is solvent or insolvent.
IRDA also has specific provisions that declare a company insolvent in the following conditions:
This method is only applicable if the company is solvent. Being solvent means that a company can pay its entire debts and liabilities within 12 months from the winding-up procedure's commencement date.
Some of the most common reasons why a solvent company would want to wind up are:
A solvent company in Singapore must take a few steps to commence a members' voluntary winding up.
As the first step, company directors must file a Declaration of Solvency with ACRA on its online portal, BizFile+. The declaration states:
Directors are held guilty of an offense if they make the Declaration of Solvency without any reasonable grounds for their opinions. They may face:
With the Declaration of Solvency, a statement of affairs must be attached. This statement must be following Form VWU-9, which can be found on the Insolvency Office of the Ministry of Law's website. It must show the latest:
An EGM (Extraordinary General Meeting) of the company's members must be held within five weeks after filing the Declaration of Solvency. They must pass a special resolution in the EGM, declaring the company's winding up.
After passing the resolution, the company must:
You must note that the company's directors lose their powers after a liquidator's appointment. However, a liquidator can allow the directors to use their powers.
The winding-up procedure for an insolvent company is quite different. There are two methods to wind up an insolvent company in Singapore.
The company initiates the creditors' voluntary winding up and not the creditors. However, creditors have a saying in the following matters:
The creditors' voluntary winding-up procedure is similar to the process of the member's voluntary winding-up. However, two more steps are required for this procedure:
The steps involved in a creditors' voluntary winding up in Singapore are in the following order.
The company's directors must prepare a statutory declaration and lodge it with the Official Receiver. Another statement as per Form VWU-1 is lodged with ACRA stating:
The declaration to ACRA must include the company's name and identities of all the directors who have made the declaration.
A provisional liquidator is either an insolvency practitioner or the Official Receiver. Generally, a licensed insolvency practitioner is considered for this role. A provisional liquidator must ensure that the company's assets are preserved and do not disappear until the company is wound up.
Within 14 days after appointing a provisional liquidator, the company must advertise the notice of his/her appointment and the declaration (mentioned above) in the Gazette and one English local daily newspaper.
A provisional liquidator remains appointed until:
Do note that the Official Receiver can extend the appointment period of the provisional liquidator.
The company must hold a creditors' meeting on the day, or a day after, the special resolution is proposed for the company's winding up. This meeting must be held at a convenient place and time for the creditors with the majority in value.
Creditors' meeting notices are sent at least ten days prior to the creditors' meeting and:
At least one company director must attend this meeting.
Also, one of the company directors must also create the following statements before the creditors' meeting:
A company or other parties can obtain a court order to wind up a company. Such an application to the court can be made by:
Other than insolvency, there could be multiple situations in which the court can order the winding up of a company, including:
The court can also order a company winding-up if it believes it is fair and equitable. Multiple scenarios can be shown by an applicant under which the court may order a company's winding up.
Form CIR-12 must be filed with a supporting affidavit to obtain the court's order in order to wind up a company. The winding-up application has to be served on the company's directors, employees, members, Official Receiver, and insolvency practitioner nominated to be the liquidator (if any).
A minimum of five days before the hearing of a winding-up application, you must file an affidavit of service with the court. A total deposit fee of S$10,400 is also needed to be paid to the Official Receiver to create the application for winding up.
Also, you must give the winding up application notice at least seven days before the hearing of the application:
A party that intends to attend the winding up application hearing must serve an intention-to-appear notice as against the application making party. The intention-to-appear notice must be in accordance with Form CIR-15.
Any party that intends to oppose the winding-up application needs to file and serve an affidavit at least five days before the hearing.
The company winding-up process includes the company ceasing all its activities, paying all debts to the creditors, and realizing all assets to make a final payment to its members. There are specific steps for a company to close its business in Singapore:
To claim their debts from the company, creditors must file proof of debt against the company in accordance with Form CWU-1. The evidence of debt must include the following:
A liquidator has the responsibility to distribute the company's assets in a particular order to its members and creditors. Following is the payment order of the funds available for distribution.
Under certain circumstances, a company may not have enough funds to pay its unsecured creditors. In this scenario, the debt owed to them is either reduced in equal proportions or entirely left unpaid.
After the company's been wound up, the liquidator must draw up an account that demonstrates the following:
The liquidator must also have regard to the directions given by the creditors' resolution.
A creditor must also explain how a particular account is computed after preparing it. He/she call for and demonstrate the account at:
A liquidator must publish an advertisement to call a meeting. You must take care of the following things while posting the ad:
The liquidator must lodge a return of holding and meeting's date to ACRA and the Official Receiver within seven days after the meeting is held. It is the liquidator's responsibility to notify the Official Receiver and the ACRA if a quorum was not present at the meeting. He must inform them that a meeting was held, but no quorum was present.
A quorum constitutes when:
The company gets dissolved after three months from the lodging of the return. Though the company's liquidator, or someone who might be interested, can apply to the court to declare its dissolution as void. This application can be made any time within two years from the dissolution date.
The steps above are too complicated and required much documentation that must be adequately done without fail. Therefore, it is advised to engage a professional service provider with experience in this field, just like Epica.
The Company Registrar in Singapore can strike off a company from the Register as per Section 344 of the Singapore Companies Act. You can apply for a strike-off if the company is solvent and is no longer in business. It is a faster and more convenient procedure than winding up and generally applies to dormant or small companies.
ACRA will approve the strike off application if it has reasons to believe that your company is no longer operational and it satisfies the following strike-off criteria:
In case a company has been dormant since its incorporation, it must also demonstrate that:
The company must not be older than 18 months to fall into this category as all Singapore-incorporate companies must hold their first AGM within 18 months from incorporation.
A company is not deemed inactive as long as it has outstanding liabilities with IRAS. The company must clear all its dues and deal with all the queries IRAS raises.
The first step includes canceling the GST (Goods and Services Tax) registration (if it's applicable). You can easily cancel your GST registration by filling an online form on myTaxPortal. The application usually takes a day to process. However, it may take about ten working days in some cases.
The next step involves submitting all the pending ITR (Income Tax Returns).
The IRAS does not issue a letter of tax clearance. Hence, you must use the latest Statement of Accounts and Notice of Assessment to demonstrate the above.
All the company's shareholders must consent to the company striking off by submitting a letter of consent to the company. In the next step, the company must lodge an application with ACRA for striking off on its online portal, BizFile.
If ACRA has reasonable cause to believe that the company fulfills all the striking off requirements, it will send a 'striking off' notice to the:
If no one objects to the striking off, ACRA will publish the First Gazette Notification after a month of the striking off letter. It publishes a Final Gazette Notification after three months from the First Gazette Notification. The struck off date will be slated.
A company can withdraw its striking off application until five days before the strike off date.
The guidelines above for striking off or winding up apply to a local company in Singapore. Foreign businesses that own a representative or branch office in Singapore must inform the IRAS in writing before ceasing their business activities in Singapore.
A foreign company needs to dissolve its local branch under two scenarios. The authorized representative of the branch must file two different notices for both these scenarios.