2020 has been an exceptionally tough year for businesses. It’s no surprise that many companies may be struggling and looking for ways to cut costs to stay afloat during the downturn.
One reality is that some companies may no longer able to continue operations, because business is too bad or it has become insolvent. When this happens, you may choose to close your company or 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 do it the right way.
#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 to take 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.
#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:
#i 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).
#ii 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.
#iii 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. [Due to the COVID-19 (Temporary Measures) Act, the monetary threshold for bankruptcy of firms has been increased to $60,000 and the monetary threshold for insolvency of other businesses to $100,000, for a period of 6 months commencing 20 April 2020]
- 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. By August 2020, close to 28,000 companies have shut down in the year. This is actually less than the over 32,100 companies that closed down in the same period last year. Post-government support measures, Singapore may see a spike in companies closing downs.
The same pattern can be seen in corporate bankruptcies with 164 applications filed to liquidate companies, with 150 companies already would up, as at July 2020. This is lower than the same period in 2019, where 213 applications were filed and 142 companies would up.
Depending on your company’s debt, you need to choose to close your business down the right way.
Most recently, in July 2020, 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 legislature here.
Need Financing Support During This Period?
From now till 31 March 2021, SMEs can enjoy extra financing support of up to $5 million through the Temporary Bridging Loan Programme.
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