Corporate Recovery & Insolvency
What is liquidation?
Liquidation is a process that involves the orderly winding up of a company’s affairs, the appointment of a liquidator to oversee the process of realizing the company’s assets, discontinuing operations or selling them, paying any debts owed to it, and distributing any surplus assets to its members.
4 ways for a company to close
A firm’s director may opt to wind up its affairs if they feel the company will be able to pay its debts in full within 12 months of the winding up’s start date.
The following conditions must be followed for MVL:
- The majority of shareholders (75% or more) agree that the company should be closed down
- The majority of business’ board directors believe the company will be able to settle its obligation within a year of MVL
A liquidator will be appointed, tasked with:
- realizing the insolvent company’s assets and obtaining the greatest feasible price
- taking care of any outstanding claims against the limited company and satisfying them per the law
- distributing returns to the company’s creditors priority order
- submission of accounts to the ACRA and the Comptroller of the income tax
A company’s director may decide to opt for a creditor’s voluntary winding up if they consider the company’s liabilities prevent it from continuing to operate. To wind up its affairs and file the requisite notices under the Companies Act, the firm will appoint a liquidator or interim liquidator. The method is identical to that of MVL.
The following conditions must be followed for CVL:
- The majority of shareholders (75% or more) agree that the company should be closed down
A liquidator will be appointed with the same tasks as of the MVL liquidator.
A corporation may be wound by court order in certain situations, such as when the firm is unable to pay its debts or when the court believes it is otherwise just and equitable to liquidate the company.
The firm, its creditors, shareholders, and the liquidator wind up the company’s affairs. If the Court does not appoint a liquidator, the company’s liquidator is the Official Receiver.
Section 344 of the Companies Act allows a company to apply to ACRA (Accounting and Corporate Regulatory Authority) to have its names removed from the Register.
If ARCA has reasonable cause to think that the company is not carrying on business and the company can meet the conditions for striking off, it may approve of the application.
Scheme of Arrangement
A Scheme of Arrangement, to put it simply, is an agreement between a corporation and its creditors that contains terms that allow the company to reorganize and pay its debt commitments. Unlike other types of restructuring, a Scheme is largely a “debtor-in-possession” rehabilitation process in which the company’s current management is not replaced by a court-appointed officer. Schemes are basically contractual in nature, as they are based on the Scheme document, which resembles a contract between a corporation and its creditors. A Scheme, on the other hand, differs from a contract in that it can bind even dissenting creditors in certain circumstances. As a result, there is an element of Court monitoring over the procedure to prevent abuse.
In a nutshell, a Scheme of Arrangement becomes legally enforceable on a company’s creditors once the three processes below are accomplished:
- The company must petition the Court for permission to call a creditors’ meeting to consider and, if appropriate, approve the proposed Scheme of Arrangement. The company may also seek a halt on future proceedings in any action or proceeding against it to allow itself temporary relief and time to call the meeting.
- The proposed Scheme of Arrangement must be adopted by a majority of the creditors present and voting in each class (more than 50%) at the creditors’ meeting, and this majority must represent 75% of the voting class’s worth. The dissident minority will be bound by the Scheme once the required majority is obtained. This “squeezing” of the dissident minority is unique to Schemes of Arrangement and represents a considerable divergence from standard contractual standards – a party might be obligated by the Scheme’s conditions even though it did not consent to them; and
- Finally, the company will need to file an application with the court to get the Scheme approved. Because a Scheme has the ability to bind even non-consenting creditors, this step is required to prevent abuse. Following the filing of the Court order authorizing the Scheme with the Registrar of Companies, the Scheme will become legally binding on all creditors.
Company Moratorium
A moratorium (also known as a ‘suspension of payments’) allows a debtor company to postpone payment of its obligations, providing it some breathing room. The debtor might petition to the court for a moratorium if its knows it will not be able to continue repaying its debts. The court then selects an administrator to oversee the moratorium’s implementation. The administrator must produce regular progress updates and grant authorization for any transactions (officially known as ‘acts of management’ or ‘acts of disposition’) that the debtor desires to carry out.
Contact us!
- +65 6561 0398 (Anthony)
- INSOLVENCY@e-management.com.sg