The closing down of a company is one of the major decisions that need deep thinking about and a structured plan. In Malaysia, two primary methods exist for dissolving a company: Strike Off and Wind Up. Each has a different set of procedures, charges, and considerations for appropriateness.
Method 1: Strike Off
Strike Off is a comparatively easy and cheap option for liquidating a solvent company, which has ceased its activities without any liabilities. It entails filling a form from SSM as requested by the company with the intention of removing it from the Register of Companies.
On winding up proceedings, striking off a company amounts to RM 2,500, which is less expensive than the entire process. A tax clearance letter from LHDN is necessary before the strike off. For dormant companies it is optional. The minimal period it takes to process SSM is six months. Directors/Shareholders can only be waived from repaying any owed amount if it is in writing. Directors may still be prosecutable, and the court can continue to reinstate (cancel) the strike off.
To qualify for a Strike Off, a company must adhere to the following criteria:
- To this end, the company is expected to be solvent and able to pay for all its debts.
- Such a firm must have closed all current transactions.
- Payment of all outstanding taxes and an LHDN tax clearance must be obtained.
- These include any unpaid amount due to directors and shareholders.
The Strike Off process typically follows these steps:
- Board Resolution: Call a board meeting to resolve to windup the company.
- Creditor Notification: Tell all creditors and stakeholders of the company that the company will strike off.
- Notice Publication: Publicize an intention Strike Off notice in a daily newspaper and in Government Gazette.
- SSM Application: Fill in and submit the required documents, Form C and board resolution to SSM.
- SSM Processing: SSM will assess the application and could demand more documents or explanations.
- SSM Approval and Strike Off: On approval, SSM will strike the concerned company from the Register of Companies.
Duration and Costs
The Strike Off process typically takes a minimum of six months to complete, with an estimated cost of RM 2,500.
Method 2: Wind Up – Navigating Insolvency and Court-Ordered Dissolutions
Wind Up is a more complex and time-consuming process compared to Strike Off. It is typically used for insolvent companies with outstanding debts or companies that require a formal dissolution order from the court.
However, winding up is an expensive affair as it costs anything from RM 10,000 to RM 20,000. This entails that one has to settle their outstanding liabilities with LHDN by acquiring a tax clearance letter from LHDN before commencing. The period of 12 months is the shortest period for SSM processing for the purpose of winding up.
Types of Winding Up
There are three main types of Winding Up:
- Members’ Voluntary Winding Up: The company’s directors or shareholders, when the company’s solvent and able to meet all the debts.
- Creditors’ Voluntary Winding Up: Carried out by the company’s creditor when the business becomes bankrupt that is non paying all its debts.
- Compulsory Winding Up: Commenced in court through a motion initiated by a creditor, a shareholder or perhaps a government body.
The Winding Up process involves the following steps:
- Liquidator Appointment: A liquidator is appointed by either the court, or the directors of the company undertaking the Winding.
- Creditor Notification: A notice is sent by the liquidator to creditors and other interested parties that the business is subjected to Winding Up proceedings.
- Asset Realization: The liquidator collects the company’s assets and sells them in order to realize value for cash.
- Debt Settlement: The liquidator distributes the net proceeds from the sale to the creditors in accordance with statutory order.
- Court Dissolution Order Application: The liquidator seeks a winding-up order from the court.
- Court Dissolution Order: The company is finally wound up upon court approval.
Duration and Costs
The winding up process can take up to 12 months or even more at an estimated cost varying between RM 10,000 and RM 20,000.
There may be many factors leading to the necessity of closing a company such as depleting capital, business becoming nonviable, strained relationship among the business partners, intensive loss making, idle ongoing through absence ongoing.
Establishing a new company can be a relatively quick process, sometimes accomplished within a day, while shutting down a company involves a lengthier procedure that generally follows two paths:
- Strike Off
- Wind Up
Cost and Financial Position
These methods vary significantly in cost. Strike Off costs about RM 2,500 whilst Wind Up requires up to RM 10,000-RM 20,000. Strike Off, in financial terms, requires a company with no liabilities or assets, thus making the closing process easy. On the other hand, Wind Up is a complex monetary process dealing with elaborate asset/liability appropriateness.
Duration and Limitations
Strike Off is a faster process, with the least being 6 months. Nevertheless, it has the disadvantage of possible reestablishment seven years following the close date. In contrast, Wind Up requires a lengthier duration which mostly ranges as a minimum of 12 months and ultimately confirms that the company will die when they reach this time span, giving in final slow death.
Professional Assistance and Compliance
While professional assistance is beneficial for both approaches, Strike Off may be the beneficiary of simplified processes whereas Wind Up requires strict adherence to legal compliance, which makes proper legal counsel a must. Annual filings and pending payments due to employees, creditors, and tax authorities need to be addressed in both ways.
|RM 10,000 – RM 20,000
|No assets & liabilities
|Complex financial procedures
|May reinstate within 7 years
|Beneficial for process streamlining
|Highly recommended for adherence
|Dormant Company Consideration
|Assess eligibility for dormant status
|Evaluate dormant status eligibility
|Minimum 6 months
|Minimum 12 months
|Recommended for compliance
|Essential for legal compliance
|Maintain closure records
|Preserve closure-related docs
Between the Strike Off and the Wind Up approach to closing down a company in Malaysia, similarities exist amidst the distinct differences.
Tax Clearance and Annual Compliance
The general terms for both methods relate to the settlement of outstanding taxes with the Inland Revenue Board of Malaysia (LHDN), ensuring up-to-date filings with the Companies Commission of Malaysia (SSM). They also require resolving the claims of employees, creditors, and the relative problems associated with assets and liabilities.
Handling Assets and Liabilities
One common aspect between the two methods is addressing assets and liabilities. Strike Off requires the closure of a completely characterized company while Wind Up deals with scrupulous disposal of assets and complete payment of liabilities.
It is important for companies considering closure to understand these differences and similarities. Regardless of choosing a speedy, less complicated liquidation or desiring a definitive, legally binding annulment, entities must assess their situation and responsibilities wisely to adopt the best conduction. Thus, seeking the help of legal and financial professionals can be very helpful in this major decision.
|LHDN Tax Clearance
|Necessary (Except for Dormant)
|Ensure filings are up-to-date
|Employees & EPF
|Settle outstanding payments
|Inform and settle debts
|Asset & Liability Management
|Handle asset disposal, settlements
A company’s closure is a major step and ought not to be done in a flipping manner. It is essential to comprehend the differences between Strike Off and Wind Up so that you can pick the best approach suitable for your company’s particular circumstances. The process of dissolution should be carried out in a smooth and compliant manner for which it is important to seek help from a corporate lawyer or an accountant. Contact FastLane Group for professional corporate services.
Frequently Answered Questions
Yes, you have to bear the expenses of a Company Secretary till formal liquidation of the company.
No. You cannot apply for Strike Off now. The company’s audited financial statement should reflect that there are no outstanding assets and liabilities. The company should also be operating at a loss or should not be earning any gains at all.
The SSM is likely to reject your application for strike off in the event that your company possesses retained earnings but zero outstanding assets or liabilities. One should seek advice from corporate lawyers and accountants to know what steps are best in such circumstances. Talk to FastLane Group for free consultation.
No, Strike Off or Winding Up will not automatically result in the bankruptcy of the company or blacklisting of its directors and shareholders. But, SSM may approach the court for disqualification of a director who is guilty of breaching the Companies Act 2016.
However, when a director files for bankruptcy owing to private causes in course of the Winding Up procedure, the Director General of insolvency (Liquidator) assumes the authority. Therefore, there is nothing that the Company or its Shareholders should do.