Just as new start-ups are created all the time, there will be businesses that have to close down as well.
There are a variety of reasons why a company may no longer be able to continue operations, either due to poor business, becoming insolvent, or even when they lose the founder or key personnel, who may prefer to focus on another venture.
In 2022, nearly 50,000 businesses ceased operations. In the first eight months of 2023, there have already been high-profile closures, such as UFC Gym and Home goods retailer Crate & Barrel. In total, 32,340 business entities have shuttered so far – this is on track to be slightly under 2022 figures.
When you are closing shop, you either officially close your company or will be ordered to wind up. You can’t just stop doing business and be done with it – you have to take active steps to close down your company in the right manner.
There are two main ways that businesses are closed down in Singapore – by striking off the name of your company from the Register or winding up your business – and you need to go about it the right way.
Read Also: Retrenching Some Staff VS Pay Cut For All: Pros And Cons Of Each Cost-Saving Method
#1 Striking Off Your Company
A company can apply to the Accounting and Corporate Regulatory Authority (ACRA) to strike off its name from the Register. Before ACRA strikes off the company, your company needs to satisfy a list of criteria:
- The company has not commenced business since incorporation or has ceased trading
- The company has no outstanding debts owed to the Inland Revenue Authority of Singapore (IRAS), CPF Board and any other government agency.
- There are no outstanding charges in the charge register.
- The company is not involved in any legal proceedings (within or outside Singapore)
- The company is not subject to any ongoing or pending regulatory action or disciplinary proceeding.
- The company has no existing assets and liability as at the date of application and no contingent assets and liabilities that may arise in the future.
- All/majority of the director(s) authorise you, as the applicant, to submit the online application for striking off on behalf of the company.
If the company is GST-registered, it has to also apply for cancellation of GST with IRAS.
The company director, company secretary or the registered filing agent can submit an online application via BizFile+ using SingPass or CorpPass to strike off the company. There are no filing fees for this.
Once the application is approved, ACRA may send a notice to the company’s registered office and its officers. If there are no objections after 30 days, ACRA will publish the name in the Government Gazette Notification. After another 60 days, if there are no objections, the company will be struck off the register. The entire process may take at least four months.
A director who has at least 3 of his companies struck off by ACRA, within a period of 5 years, will be disqualified from acting as a director, or from taking part in the management of any company for a period of 5 years commencing after the date on which the third company is struck off.
Read Also: When Do You Know It’s Time To Shut Down Your Unprofitable Business?
#2 Liquidation Or Winding Up
A company may also choose to wind up if it has ceased business activities, engaged in a management deadlock or shareholders dispute (under section 216 of the Companies Act (Cap. 50)), is involved in a corporate or financial restructuring and others.
An Extraordinary General Meeting (EGM) may be convened in order to pass resolutions winding up the company. From the commencement of the winding up, the company should cease to carry on its business.
There are 3 main ways for companies to wind up:
Members’ Voluntary Winding Up
A company may decide to wind up its affairs voluntarily if the company is solvent or able to pay its debts in full within 12 months after the commencement of the winding up. The directors of the company are required to file a declaration of solvency. If the company is insolvent, it has to wind up via a creditors’ voluntary winding up.
The company will have to appoint a liquidator to wind up its affairs, by collecting and selling its assets in order to pay its debts. Any funds left over will be distributed to shareholders.
The company also has to file the necessary notifications required under the Companies Act / Insolvency, Restructuring and Dissolution Act (IRDA).
Creditors’ Voluntary Winding Up
If a company is insolvent or not able to meet its liabilities, the company can convene a meeting with its creditors to consider a voluntary winding up of the company. If a resolution is passed in favour of the winding up, the company will appoint a liquidator to wind up its affairs.
Creditors may not be able to receive their entire amount owed, but may view this option as an amicable way to receive a portion of their money.
Compulsory Winding Up
The company itself, creditors, contributories, liquidator, judicial manager or the Minister may present a compulsory winding up application to the High Court.
The applicant has to pay a winding up deposit of $10,400 to the Official Receiver, and the Court may appoint the Official Receiver as the liquidator of the company.
The common grounds for a company to be wound up by Court include:
- Inability to pay off its debts – The company is deemed unable to pay its debts if a company’s creditor is owed more than $15,000, and has served a demand for the sum owing at the registered office of the company, and the company has not paid this sum for 3 weeks thereafter.
- Just and Equitable – When the court is of the opinion that it is just and equitable that the company be wound up. This may be because a company is insolvent, where its liabilities are in excess of its assets.
Source: Ministry of Law
Company Closures Are Part And Parcel Of Business
While no one starts a business with a mind to shut it down after a while, this is a reality many new businesses may have to accept. As mentioned above, over 32,000 business entities have already ceased in the first eight months of 2023.
But, we can also take heart that more business entities have formed in the same timeframe – with 48,674 business entities forming in the first eight months of 2023.
Depending on your company’s debt, you need to choose to close your business down the right way.
In July 2020, in the midst of business hardships due to the COVID-19 pandemic, a new Insolvency, Restructuring And Dissolution Act (IRDA) also came into effect, consolidating all existing laws relating to individual and corporate insolvency into a single legislature.
Introduction Of The Insolvency, Restructuring And Dissolution Act (IRDA) For Both Corporates And Individuals
From 30 July 2020, the Insolvency, Restructuring and Dissolution Act (IRDA), together with its 48 related pieces of subsidiary legislation commenced, updating relevant individual and corporate laws to be in line with international best practices.
This move builds on changes to the Bankruptcy Act for individuals, and the Companies Act amendment in 2017, which enhanced Singapore’s corporate rescue and restructuring framework to benefit business experiencing financial difficulties as well as their creditors.
For corporates, the new legislature facilitates restructuring of a distressed company’s business, enlarging the range of causes of actions which may be funded by third parties, summary procedure to dissolve companies that have insufficient assets to pay for administration of winding up.
You can refer to the entire piece of legislature here.
Read Also: Complete Guide To Employer’s CPF Contributions In Singapore
This article was first published on 22 September 2020 and has been updated with the latest information.
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