Question

Malaysian Company Law:

Explain the legal effects of winding up order made by the court with reference to the relevant legal provisions and decided cases.

Answer 1

Malaysian Company Law:

A company must have a minimum of two directors, being natural persons of full age and having their principal or only place of residence in Malaysia and not under bankruptcy .Directors need not be shareholders of the company. A director has onerous duties under the Companies Act as in common law. The duties of directors stipulated in the Companies Act are not exhaustive and generally directors are imposed with statutory duties, duty of care and fiduciary duties. In addition, directors are also governed by a Code of Ethics.

A register of directors is kept at the registered office of the company and is available for public inspection.

(1) Every company shall have at least two directors, who each has his principal or only place of residence within Malaysia.

(1A) In subsection (1), “director” shall not include an alternate or substitute director.

(2) No person other than a natural person of full age shall be a director of a company.

(3) The first directors of a company shall be named in the memorandum or articles of the company.

(4) Any provision in the memorandum or articles of a company which was in force immediately before the commencement of this Act and which operated to constitute a corporation as a director of the company shall be read and construed as if it authorized that corporation to appoint a natural person to be a director of that company.

(5) On the commencement of this Act any corporation which holds office as a director of a company shall cease to hold office and the vacancy may be filled as a casual vacancy in accordance with the articles of the company.

(6) Notwithstanding anything contained in this Act or in the memorandum or articles of a company or in any agreement with a company, a director of a company shall not resign or vacate his office if, by his resignation or vacation from office, the number of directors of the company is reduced below the minimum number required by subsection (1) and any purported resignation or vacation of office in contravention of this section shall be deemed to be invalid.

Persons connected with a director.

(1) For the purposes of this Division a person shall be deemed to be connected with a director if he is –

(a) a member of that director’s family; or
(b) a body corporate which is associated with that director;
(c) a trustee of a trust (other than a trustee for an employee share scheme or pension scheme) under which that director or a member of his family is a beneficiary; or
(d) a partner of that director or a partner of a person connected with that director.

(2) In paragraph (1) (a), “a member of that directors’s family” shall include his spouse, parent, child (including adopted child and stepchild), brother, sister and the spouse of his child, brother or sister.

(3) For the purposes of paragraph (1) (b), a body corporate is associated with a director if –

(a) the body corporate is accustomed or is under an obligation, whether formal or informal, or its directors are accustomed, to act in accordance with the directions, instructions or wishes of that director;

(b) that director has a controlling interest in the body corporate; or

(c) that director or persons connected with him, or that director and persons connected with him, are entitled to exercise, or control the exercise of, not less than fifteen per centum of the votes attached to voting shares in the body corporate.

Undischarged bankrupts acting as directors.

(1) Every person who being an undischarged bankrupt acts as director of, or directly or indirectly takes part in or is concerned in the management of, any corporation except with the leave of the Court shall be guilty of an offence against this Act.

Penalty: Imprisonment for five years or one hundred thousand ringgit or both.

(2) The Court shall not give leave under this section unless notice of intention to apply there for has been served on the Minister and on the Official Receiver and the Minister and the Official Receiver or either of them may be represented at the hearing of and may oppose the granting of the application.

About Shelf Companies

Ready Made or Shelf companies are companies which are already incorporated under the Companies Act, and are available to investors who require a Malaysian company on an urgent basis. These companies are normally dormant and have the minimum number of Malaysians, as required under the Companies Act, being named as the subscribers to the Memorandum of Association and first directors in the Articles of Association of the companies. The cost of the purchase of such companies includes the payment of minimum capital registration fee and statutory minute book, registers and the common seal of the company. The name of the shelf company may be changed to another name subject to the approval of the ROC.

Publication Of Name

(1) The name of the company (whether or not it is carrying on business under a business name) in legible romanized letters and the company number of the company shall appear on-

(a) its seal; and (b) all business letters, statements of account, invoices, official notices, publications, bills of exchange, promissory notes, endorsements, cheques, orders, receipts and letters of credit of or purporting to be issued or signed by or on behalf of, the company, and if default is made in complying with this subsection the company shall be guilty of an offence against this Act.

(1A) Where a company has changed its name pursuant to section 23, the former name of the company shall also appear beneath its present name on all documents, business letters, statements of account, invoices, official notices, publications, bills of exchange, promissory notes, endorsements, cheques, orders, receipts and letters of credit of, or purporting to be issued or signed by or on behalf of, the company for a period of not less than twelve months from the date of the change, and if default is made in complying with this subsection the company shall be guilty of an offence against this Act.

(2) If an officer of a company or any person on its behalf-

(a) uses or authorizes the use of any seal purporting to be a seal of the company where on its name does not so appear;

(b) issues or authorizes the issue of any business letter, statement of account, invoice, official notice or publication of the company wherein its name and former name (if applicable) is not so mentioned; or

(c) signs issues or authorizes to be signed or issued on behalf of the company any bill of exchange, promissory note, cheque or other negotiable instrument or any endorsement, order, receipt or letter of credit wherein its name and former name (if applicable) is not so mentioned, he shall be guilty of an offence against this Act, and where he has signed, issued or authorized to be signed or issued on behalf of the company any bill of exchange, promissory note or other negotiable instrument or any endorsement thereon or order wherein that name and former name (if applicable) is not so mentioned, he shall in addition be liable to the holder of the instrument or order for the amount due thereon unless it is paid by the company.

Name to be displayed on all offices.

(3) Every company shall paint or affix and keep painted or affixed on the outside of every office or place in which its business is carried on, in a prominent position in romanized letters easily legible its name, and also, in the case of the registered office, the words “Pejabat Yang Didaftarkan” and if it fails so to do the company shall be guilty of an offence against this Act. Penalty: One thousand ringgit. Default penalty.

(4) In this section, “company number” means the number allocated by the Registrar to a company on its incorporation.

Registered office of company.

(1) A company shall as from the day on which it begin to carry on business or as from the fourteenth day after the date of its incorporation, whichever is the earlier, have a registered office within Malaysia to which all communications and notices may be addressed and which shall be open and accessible to the public for not less than three hours during ordinary business hours on each day, Saturdays, weekly and public holidays excepted.

(2) If default is made in complying with subsection (1) the company and every officer of the company who is in default shall be guilty of an offence against this Act. Penalty: One Thousand Ringgit. Default penalty.

Interpretation

(1) In this Act, unless the contrary intention appears—”accounting records”, in relation to a corporation, includes invoices, receipts, orders for payment of money, bills of exchange, cheques, promissory notes, vouchers and other documents of prime entry and also includes such working papers and other documents as are necessary to explain the methods and calculations by which accounts are made up;” accounts” means profit and loss accounts and balance sheets and includes notes or statements required by this Act (other than auditors’ reports or directors’ reports) and attached or intended to be read with profit and loss accounts or balance sheets;” annual general meeting” in relation to a company means a meeting of the company required to be held by section 143;

“Annual Return” means

(a) in relation to a company having a share capital, the return required to be made by subsection 165(1); and (b) in relation to a company not having a share capital, the return required to be made by subsection 165(5),and includes any document accompanying the return;

“appointed date” has the same meaning as is assigned to that expression in the Companies Commission of Malaysia Act 2001 [Act 614];

“approved company auditor” means a person approved as such by the Minister under section 8 whose approval has not been revoked;

“approved liquidator” means an approved company auditor who has been approved by the Minister under section 8 as a liquidator and whose approval has not been revoked;

“articles” means articles of association;

“banking corporation” means a licensed bank, a licensed merchant bank and an Islamic bank;

“books” includes any register or other record of information and any accounts or accounting records, however compiled, recorded or stored, and also includes any document;

“borrowing corporation” means a corporation that is or will be under a liability (whether or not such liability is present or future) to repay any money received or to be received by it in response to an invitation to the public to subscribe for or purchase debentures of the corporation in accordance with Division 4 of Part IV;

“Branch Register” means

(a) in relation to a company

(i) a branch register of members of the company kept in pursuance of section 164; or(ii) a branch register of holders of debentures kept in pursuance of section 70,

as the case may require; and

(b) in relation to a foreign company, a branch register of members of the company kept in pursuance of section 342;

“certified”, in relation to a copy of a document, means certified in the prescribed manner to be a true copy of the document and, in relation to a translation of a document, means certified in the prescribed manner to be a correct translation of the document into the national language or into the English language, as the case requires;

“charge” includes a mortgage and any agreement to give or execute a charge or mortgage whether upon demand or otherwise;

“Commission” means the Companies Commission of Malaysia established under the Companies Commission of Malaysia Act 2001;

“company” means a company incorporated pursuant to this Act or pursuant to any corresponding previous enactment;

“company having a share capital” includes an unlimited company with a share capital;

“company limited by guarantee” means a company formed on the principle of having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up;

“company limited by shares” means a company formed on the principle of having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them;

“contributory”, in relation to a company, means a person liable to contribute to the assets of the company in the event of its being wound up, and includes the holder of fully paid shares in the company and, prior to the final determination of the persons who are contributories, includes any person alleged to be a contributory;

“corporation” means any body corporate formed or incorporated or existing within Malaysia and includes any foreign company but does not include— or outside

(a) any body corporate that is incorporated within Malaysia and is by notice of the Minister published in the Gazette declared to be a public authority or an instrumentality or agency of the Government of Malaysia or of any State or to be a body corporate which is not incorporated for commercial purposes;
(b) any corporation sole;
(c) any society registered under any written law relating to co-operative societies; or
(d) any trade union registered under any written law as a trade union;

“corresponding previous written law” means any written law relating to companies which has been at any time in force in any part of Malaysia and which corresponds with any provision of this Act;

“Court” means the High Court or a judge thereof;

“creditors’ voluntary winding up” means a winding up under Division 3 of Part X, other than a members’ voluntary winding up;

“debenture” includes debenture stock, bonds, notes and any other securities of a corporation whether constituting a charge on the assets of the corporation or not;

“default penalty” means a default penalty within the meaning of section 370;

“director” includes any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the directors of a corporation are accustomed to act and an alternate or substitute director;

“Division” means a Division of this Act and a reference to a specified Division is a reference to that Division of the Part in which the reference occurs;

“document” includes summons, order and other legal process, and notice and register;

“emoluments”, in relation to a director or auditor of a company, includes any fees, percentages and other payments made (including the money value of any allowances or perquisites) or consideration given, directly or indirectly, to the director or auditor by that company or by a holding company or a subsidiary of that company, whether made or given to him in his capacity as a director or auditor or otherwise in connection with the affairs of that company or of the holding company or the subsidiary;

“equity share” means any share which is not a preference share;”exempt private company” means a private company in the shares of which no beneficial interest is held directly or indirectly by any corporation and which has not more than twenty members none of whom is a corporation;

“expert” includes engineer, valuer, accountant and any other person whose profession or reputation gives authority to a statement made by him;

“filed” means filed under this Act or any corresponding previous written law;”financial year”, in relation to any corporation, means the period in respect of which any profit and loss account of the corporation laid before it in general meeting is made up, whether that period is a year or not;

“Foreign Company” means

(a) a company, corporation, society, association or other body incorporated outside Malaysia; or(b) an unincorporated society, association or other body which under the law of its place of origin may sue or be sued, or hold property in the name of the secretary or other officer of the body or association duly appointed for that purpose and which does not have its head office or principal place of business in Malaysia;

“guarantor corporation”, in relation to a borrowing corporation, means a corporation that has guaranteed or has agreed to guarantee the repayment of any money received or to be received by the borrowing corporation in response to an invitation to the public to subscribe for or purchase debentures of the borrowing corporation;

“limited company” means a company limited by shares or by guarantee or both by shares and guarantee;

“liquidator” includes the Official Receiver when acting as the liquidator of a corporation;

“lodged” means lodged under this Act or any corresponding previous written law;

“manager”, in relation to a company, means the principal executive officer of the company for the time being by whatever name called and whether or not he is a director;

“marketable securities” means debentures, funds, stocks, shares or bonds of any Government or of any local authority or of any corporation or society and includes any right or option in respect of shares in any corporation and any interest as defined in section 84;

“members’ voluntary winding up” means a winding up under Division 3 of Part X, where a declaration has been made and lodged in pursuance of section 257;

“memorandum” means memorandum of association;”minimum subscription”—

(a) in relation to any shares of an unlisted recreational club which are offered to the public for subscription, means the amount stated in the prospectus relating to the offer in pursuance of paragraph

4(a) of the Fifth Schedule;(b) in relation to any issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase, shares made pursuant to the Securities Commission Act 1993 [Act 498], means the amount stated in the prospectus relating to the issue, offer or invitation in pursuance of the requirements of the Securities Commission relating to contents of prospectuses, as the minimum amount which in the opinion of the directors must be raised by the issue of the shares so offered;

“Minister” means the Minister charged with the responsibility for companies;”office copy”, in relation to any Court order or other Court document, means a copy authenticated under the hand or seal of the Registrar or other proper officer of the Court;

“officer” in relation to a corporation includes

(a) any director, secretary or employee of the corporation;(b) a receiver and manager of any part of the undertaking of the corporation appointed under a power contained in any instrument; and(c) any liquidator of a company appointed in a voluntary winding up,

but does not include

(d) any receiver who is not also a manager;(e) any receiver and manager appointed by the Court; or(f) any liquidator appointed by the Court or by the creditors;

“Official Receiver” means the Director General of Insolvency, Deputy Director General of Insolvency, Senior Assistant Directors of Insolvency, Assistant Directors of Insolvency, Insolvency officers and any other officer appointed under the Bankruptcy Act 1967 [Act 360];

“preference share” means a share by whatever name called, which does not entitle the holder thereof to the right to vote at a general meeting or to any right to participate beyond a specified amount in any distribution whether by way of dividend, or on redemption, in a winding up, or otherwise;

“prescribed” means prescribed by or under this Act;

“principal register”, in relation to a company, means the register of members of the company kept in pursuance of section 158;

“printed” includes typewritten or lithographed or reproduced by any mechanical means;

“private company” means

(a) any company which immediately prior to the commencement of this Act was a private company underthe repealed written laws;(b) any company incorporated as a private company by virtue of section

15; or(c) any company converted into a private company pursuant to section 26(1), being a company which has not ceased to be a private company under section 26 or 27;

“profit and loss account” includes income and expenditure account, revenue account or any other account showing the results of the business of a corporation for a period;

“promoter”, in relation to a prospectus issued by or in connection with a corporation, means a promoter of the corporation who was a party to the preparation of the prospectus or of any relevant portion thereof; but does not include any person by reason only of his acting in a professional capacity;

“prospectus” means any prospectus, notice, circular, advertisement or invitation inviting applications or offers from the public to subscribe for or purchase or offering to the public for subscription or purchase any shares in or debentures of or any units of shares in or units of debentures of a corporation or proposed corporation and, in relation to any prospectus registered under the Securities Commission Act 1993, means a prospectus as defined under that Act;

“public company” means a company other than a private company;

“registered” means registered under this Act or any corresponding previous written law;

“Registrar” means the Registrar of Companies as designated under subsection 7(1);

“regulations” means regulations under this Act;

“related corporation”, in relation to a corporation, means a corporation which is deemed to be related to the first-mentioned corporation by virtue of section 6;

“repealed written laws” means the written laws repealed by this Act;

“resolution for voluntary winding up” means the resolution referred to in section 254;

“rules” means rules of court;

“securities” has the same meaning as is assigned to that word in the Securities Commission Act 1993;

“share” means share in the share capital of a corporation and includes stock except where a distinction between stock and shares is expressed or implied;

“statutory meeting” means the meeting referred to in section 142;

“statutory report” means the report referred to in section 142;

“Subdivision” means a Subdivision of this Act and a reference to a specified subdivision is a reference to that Subdivision of the Division in which the reference occurs;

“Table A” means Table A in the Fourth Schedule;

“this Act” includes any regulations;

“transparency”, in relation to a document, means

(a) a developed negative or positive photograph of that document (in this definition referred to as an “originalphotograph”) made on a transparent base, by means of light reflected from or transmitted through the document;
(b) a copy of an original photograph made by the use of photo-sensitive material (being photo-sensitive material on a transparent base) placed in surface contact with the original photograph; or
(c) any one of a series of copies of an original photograph, the first of the series being made by the use of photosensitive material (being photo-sensitive material on a transparent base) placed in surface contact with a copy referred to in paragraph
(d), and each succeeding copy in the series being made, in the same manner from any preceding copy in the series;

“Trustee Corporation” means

(a) a company registered as a trust company under the Trust Companies Act 1949 [Act 100]; or(b) a corporation that is a public company under this Act or under the laws of any other country, which has been declared by the Minister to be a trustee corporation for the purposes of this Ac

“unit”, in relation to a share, debenture or other interest, means any right or interest therein, by whatever term called;

“unlimited company” means a company formed on the principle of having no limit placed on the liability of its members;

“unlisted recreational club” has the same meaning as is assigned to that expression in the Securities Commission Act 1993;

“voting share”, in relation to a body corporate, means an issued share of the body corporate, not being

(a) a share to which, under no circumstances, there is attached a right to vote; or(b) a share to which there is attached a right to vote only in one or more of the following circumstances:

(i) during a period in which a dividend (or part of a dividend) in respect of the share is in arrears;
(ii) upon a proposal to reduce the share capital of the body corporate;
(iii) upon a proposal affecting the rights attached to the share;
(iv) upon a proposal to wind up the body corporate;
(v) upon a proposal for the disposal of the whole of the property, business and undertakings of the body corporate;
(vi) during the winding up of the body corporate.

(1A) In this Act—

(a) “licensed bank”, “licensed business”, “licensed discount house”, “licensed finance company”, “licensed institution”, “licensed merchant bank”, “licensed money broker”, “nonscheduled institution”, “scheduled business” and “scheduled institution” shall have the meanings assigned thereto in subsection 2(1) of the Banking and Financial Institutions Act 1989 [Act 372]; and
(b) “Islamic bank” or “Islamic banking business” shall have the meaning assigned thereto in the Islamic Banking Act 1983 [Act 276].

(2) For the purposes of this Act a person shall not be regarded as a person in accordance with whose directions or instructions the directors of a company are accustomed to act by reason only that the directors act on advice given by him in a professional capacity.

(3) For the purposes of this Act a statement included in a prospectus or statement in lieu of prospectus shall be deemed to be untrue if it is misleading in the form and context in which it is included.

(4) For the purposes of this Act a statement shall be deemed to be included in a prospectus or statement in lieu of prospectus if it is contained in any report or memorandum appearing on the face thereof or by reference incorporated therein or issued therewith.

(5) For the purposes of this Act any invitation to the public to deposit money with or to lend money to a corporation shall be deemed to be an invitation to subscribe for or purchase debentures of the corporation and any document that is issued or intended or required to be issued by a corporation acknowledging or evidencing or constituting an acknowledgement of the indebtedness of the corporation in respect of any money that is or may be deposited with or lent to the corporation in response to such an invitation shall be deemed to be a debenture, but an invitation to the public by a prescribed corporation as defined in subsection 38(7) shall not be deemed to be an invitation to the public to deposit money with or to lend money to the corporation for the purpose of Division 4 of Part IV.

(6) Any reference in this Act to offering shares or debentures to the public shall, unless the contrary intention appears, be construed as including a reference to offering them to any section of the public, whether selected as clients of the person issuing the prospectus or in any other manner; but a bona fide offer or invitation with respect to shares or debentures shall not be deemed to be an offer to the public if it is—

(a) an offer or invitation to enter into an underwriting agreement;
(b) made to a person whose ordinary business it is to buy or sell shares or debentures whether as principal or agent;
(c) made to existing members or debenture holders of a corporation and relates to shares in or debentures of that corporation and is not an offer to which section 46 of the Securities Commission Act 1993 applies; or
(d) made to existing members of a company within the meaning of section 270 and relates to shares in the corporation within the meaning of that section.

(7) Unless the contrary intention appears any reference in this Act to a person being or becoming bankrupt or to a person assigning his estate for the benefit of his creditors or making an arrangement with his creditors under any written law relating to bankruptcy or to a person being an undischarged bankrupt or to any status, condition, act, matter or thing under or in relation to the law of bankruptcy shall be construed as including a reference to a person being or becoming bankrupt or insolvent or to a person making any such assignment or arrangement or to a person being an undischarged bankrupt or insolvent or to the corresponding status, condition, act, matter or thing (as the case requires) under any written law relating to bankruptcy or insolvency.

In getting our terminology right, we should refer to the term ‘winding up’ or even ‘liquidation’ when referring to this process of winding up a company. In Malaysia (and a few other jurisdictions like Singapore, the UK and Australia), these are the correct terms to be used. In contrast, in Malaysia at least, the term ‘bankruptcy’ is for individuals and where an individual may be adjudged bankrupt.

Nonetheless, we sometimes see news reports referring to companies entering ‘bankruptcy’ of companies or certain companies seeking ‘bankruptcy protection’. The likely reason for this is that in the United States, it has a Bankruptcy Code and which will govern both the insolvency of individuals and companies.

Legal Effects of winding up:

I examine briefly the reasons for the enactment of winding up laws universally, and how Malaysia introduced its winding up laws.

It is useful to look back and understand the underlying aims of winding up. For the winding up of a solvent company, it allows the assets of the company to be distributed back to the shareholders after paying off the debts of the company.

When winding up an insolvent company, there are three main aims of the winding up procedure. First, it allows an orderly and fair distribution of the assets of the company among its creditors. In the past, a creditor could rush to seize the assets of the company and it became a race against the clock as to which creditors could get some of the assets first. This fair distribution of assets also recognises the public interest in allow certain types of debts (for instance, a certain amount of wages owing to employees) to have priority over say, normal trade debts.

Secondly, allowing for the winding up of an insolvent company serves the greater good. It does not benefit the business community to have an insolvent company continue to trade and incur even more debts.

Thirdly, winding up allows for an independent and appropriately qualified person (i.e. the liquidator) to investigate the affairs of the company. Was there any mismanagement? Was there any wrongful depletion of assets of the company that led to the winding up?

In Malaysia, our winding up laws are contained in our Companies Act 1965 (and with some minor cross-referencing to the Bankruptcy Act). In turn, the Companies Act 1965 was based on the English Companies Act 1948 and the Companies Act 1961 of the Australian state of Victoria. Hence, the very persuasive value that we can draw on English and Australian company law cases.

With this framework in mind, I set out the ways in which one can initiate the winding up of a company.

Voluntary Winding Up: Company itself starts the winding up

The first form of winding up is known as a voluntary winding up. The process is initiated by the company itself, through its directors and shareholders, in deciding that the company should be wound up. This process does not involve the court at all.

A company could very well be solvent and be rich in terms of assets. The directors and shareholders may decide that they wish to wind up the company, and for all of the assets to be sold, and for the proceeds to then be distributed back to the shareholders. A method to essentially realise the investment the shareholders made into the company. Such a solvent method of winding up is known as a members voluntary winding up, or members voluntary liquidation. Safeguards are put into place to ensure that this method is solely reserved for the situation when a company is truly solvent.

A second form of voluntary winding up where the company is insolvent. This is a situation where the company is unable to pay off all of its debts. Nonetheless, a voluntary winding up process can still be initiated by its directors and shareholders. A creditor who is owed money by a company cannot object to a company deciding to wind itself up or the company deciding to close down its business. That is the usual business risk when dealing with any company.

This second method of winding up is known as a creditors voluntary winding up or a creditors voluntary liquidation.

The company (through its directors and shareholders) can make the decision to start the winding up process. However, the creditors now can have the final say in who should be appointed as the liquidator of the company.

This voluntary winding up process is known as a creditors voluntary winding up or creditors voluntary liquidation. The creditors have the ultimate say in the identity of the liquidator as the liquidator has the important role of taking control of the assets of the wound up company, selling the assets and then trying to maximise the distribution of the proceeds to the creditors. Since the company is insolvent, it is very likely that the creditors would not be able to be paid in full. Therefore, their interests need to be protected.

Court Process for Winding Up: Compulsory Winding Up

In the Malaysian context, it is very common to come across the winding up of a company through the court process. This is known as a compulsory winding up. I highlight the most common example where a company is unable to pay its debts.

A creditor who is owed more than RM500 can send out a demand letter to the company to pay within 21 days. Colloquially, this is known as a ‘Section 218 Notice’ or a ‘218 Notice’ since the demand is issued pursuant to section 218 of the Companies Act.

If the company fails to pay the amount demanded in this letter, there is a statutory presumption that the company is now insolvent. The creditor can now file the court papers, known as a winding up petition, to seek the Court Order for the winding up of the company.

Where the company still has an active business, and where the company disputes the demand, the filing of a winding up petition can often cause grave reputational and business damage.

The Court process for the winding up petition will require mandatory advertisement and inserting of a notice in the Government Gazette. The public knowledge may cause contracting parties to fear whether the company is going under and banks may also take the step to freeze the company’s bank accounts. So, as a matter of litigation strategy, if the company disputes the sum demanded, it is important for a company to take steps to prevent the filing of a winding up petition.

Enter the Liquidator

An important facet of all forms of winding up is the role played by the liquidator. A liquidator is essentially the independent person or entity who takes charge of the wound up company. One of the primary roles of the liquidator is to take control of all of the company’s assets, sell off the assets and then distribute the proceeds.

In Malaysia, the liquidator could be the Director-General of Insolvency, the government official designated to be in charge of the administration of bankruptcy and winding up matters in Malaysia. Alternatively, a private liquidator could be appointed. This would have to be an accountant since a person can only obtain a liquidator’s license if he holds an audit license.

When the liquidator takes over the company, the company continues to exist as a legal entity. But the directors’ powers of managing the company ceases, and the liquidator is now in the driving seat of the company. In other words, if the company were a giant robot, there is now just a change in the person piloting that robot.

So if the liquidator wanted to carry on the business of the company for a limited time, or if the liquidator were to sell off the company’s lands, it is still the company carrying out such tasks but the liquidator piloting these actions.

As mentioned earlier, besides the external dealings of the company, the liquidator will also have the powers to investigate the internal matters of the company.

The winding up will come to an end, and the company will cease to exist, upon the dissolution of the company. So the winding up process should have been completed and the company is then dissolved.

Conclusion

Even in the upcoming changes to Malaysia’s company law, the relevant winding up provisions will be retained within the new Companies Act. The winding up regime will be tweaked and strengthened in certain areas, as it continues to evolve to meet the changing business environment.