There are two common methods for closure of a company. Winding Up vs. Strike Off. Find out the difference between strike off and winding up.
Due to the economic downturn and other key elements, business owners need to close down their companies to prevent further loss. Hence, it’s up to company’s management to decide when it is the right time to cease its operations or make it inactive.
When it comes to company closure in Malaysia, there are two possible methods:
- Winding Up
- Strike Off/Deregistration
These methods are quite different in terms of their execution. To help you know how both these methods work, we have discussed them below. So, without any further ado, let’s dive in!
To put it simply, winding up refers to a process that dissolves a company. This method of company closure involves the termination of business operations. During this process, all assets belonging to a company are sold to pay off its debt.
There are two types of winding up procedures including:
- Voluntary Winding Up
- Compulsory Winding Up (by the court)
Voluntary Winding Up
This type of winding up of a company is further divided into 2 categories. These are:
- Creditor’s Voluntary Winding Up (CVWU)
- Member’s Voluntary Winding Up (MVWU)
When a company isn’t capable of meeting its liabilities, it’s time for the Creditor’s Voluntary Winding Up. To start this process, the company convenes a meeting with all of its creditors. The purpose of this meeting is to consider the proposal of voluntary winding up.
On the other hand, the procedure for Member’s Voluntary Winding Up is different. Here, the majority of company directors declare solvency. Directors are also bound to declare that all the debts should be paid within a period of 12 months (after the Declaration of Insolvency).
The process of Compulsory Winding Up starts with the filing of a petition in Court. This petition is presented by the liquidator, creditors, Official Receiver US-271(1), or Registrar.
The creditors can apply to the court to initiate the winding-up process when a company is declared insolvent. It is the job of a director to pass a Statutory Declaration regarding the solvency of a company. In this situation, such a company is unable to continue its liabilities or pay off the debt. Court summons the creditors within one month of such a declaration. This is done to finalize the date of winding up.
Conditions for Winding-Up
A company can wind up its operations and put to a halt if it meets the following conditions:
- Before commencement of a winding-up procedure, the company must have shown compliance with the SSM. For instance, it must complete the mandatory submission requirements including Audited Financial Statements and Annual Return.
- The director of the company must pass a resolution or the order of winding up is made by the court.
- Shareholders/creditors or the court must have appointed the liquidator.
- It is essential to advertise in a Newspaper that a company is going to wind up. This ad must be published in a local newspaper 2 times (Both English and Malay newspapers).
- The amount left after paying the debt is then distributed among the shareholders/members.
Strike Off or De-registration
During this process, a company is deregistered or struck off from the Register. This usually happens when the Registrar has certain reasons to believe that a company is not operational or it has ceased to carry out its routine business operations.
During this process, a company submits an application to the ‘Companies Commission’ for striking off its name from the Register. This application is made under Section-308 of the Companies Act.
Usually, this type of company closure method is initiated when a company isn’t doing any business. After the publication of a Notice in the Gazette, such a company will be termed as dissolved.
Under Section 308 (Companies Act), the Registrar is authorized to strike off the name of a company from the Register. However, Registrar can only exercise his powers when there are reasons to believe that company is dormant or no longer operating.
Generally, Registrar suggests company officials to initiate the deregistration process. Besides, it is recommended that company owners must close down a company that isn’t doing any business. Inability to do this may result in a huge fine.
Business owners can initiate the de-registration process of their companies by applying to the Companies Commission. This application is made under Section 308 of the Companies Act. Upon approval, the name of the company is struck off from the Register.
However, the company must satisfy the Registrar that it meets all the requirements of De-registration. Some of these are listed below:
- The company has started its business or has ceased its operations
- There are no assets or property belonging to such a company
- The company isn’t intended to resume its business activities in the future
- There are no liabilities or payable debts
- Doesn’t falls under the receivership category
Conditions for Striking Off
In order to start the striking off process, the company needs to meet these conditions:
- The company should be Inactive or Dormant. There are no current expenses or revenue generation streams associated with this company.
- The majority of the shareholders have given their consent to initiate the striking-off process.
- There are no bank accounts or assets related to the company.
- No liabilities including outstanding tax/payments related to SOCSO, EPF, LHDN, etc.
- The company has updated its status with SSM.
- No legal proceeding is pending against the company in any court (within or outside Malaysia).
- There are no charges against the company in the Register of Charges.
- The capital isn’t returned to the shareholders
- shouldn’t be a subsidiary of another corporate body or a holding company
The decision of striking off can be challenged in the court by any of the aggrieved parties. The application for restoration of a company should be made under the same section. However, the applicant must prove that the company was operational at the time of striking off. After the application is approved, the name of a company is restored to the Register.
This is all about winding up vs strike off. And now you have got the key difference between winding up and strike off. By the help of this guide, you can decide which method will remain convenient for you when closing the company.