The Difference Between Liquidation and Strike Off

A Singapore company may decide to shut its doors for a variety of reasons, but winding down operations can be a lengthy, complex process. The amount of time it takes to shut down the operation will depend on how well the company has been administered and managed as well as the method chosen to close down.

Liquidation (also known as Members Voluntary Winding Up) and strike off are the two primary options when closing a business in Singapore.

What is Liquidation?

The Directors of a company can voluntarily put the business into liquidation. Members voluntary winding up occurs when a company is solvent and the Directors believe the company can pay its liabilities and debts within 12 months of starting the winding up process.

The company must first appoint a liquidator, who will be responsible for winding up affairs and file all required notifications under the Companies Act. All available assets will be realised and distributed amongst Shareholders.

In order to go this route, Directors must sign an affidavit declaring that they have made a full inquiry into the company's affairs and believe that all debts can be paid in full (along with statutory interest) within a certain period of time.

The declaration must also include an up-to-date statement of the company's liabilities and assets.

In order to be effective, the declaration must be made no more than 5 weeks before the liquidation and must also be filed with the Registrar of Companies within 15 days of commencing the liquidation.

The Director of the company may face imprisonment or a fine if the company cannot pay its debt in full within the specified period of time.

Liquidation also requires a special shareholders resolution, which must be filed with the Registrar of Companies within 15 days and advertised in the Gazette within 14 days of the adoption. During the special resolution, shareholders must approve the liquidation and appoint at least one liquidator.

The liquidation commences once the resolution is passed. At that point, the company exists purely for the purpose of winding up. The business may continue operations, but only to benefit of the liquidation.

With voluntary liquidation, Directors lose power and the transferring of company assets must be sanctioned by a valid liquidator.

What is Strike Off?

A company may also choose to close down using the strike off method. Under this method, a company may apply to ACRA to strike its name from the Register under the Companies Act (Section 344).

The ACRA may choose to approve the application if it believes:

  • The company is not carrying out business, and
  • The company can satisfy the criteria for striking off

In order to qualify for striking off, a company must meet the following requirements:

  • Must not have any outstanding tax liabilities with the IRAS.
  • Has not started business operations since incorporating, or has ceased operations.
  • Does not have any debts owed to government agencies.
  • No employers' CPF contributions owed to the Central Provident Fund Board.
  • Have written consent from the majority of shareholders for the winding up.
  • No involvement in court proceedings inside or outside of Singapore.
  • No debts owed to any government agency.
  • Cannot have outstanding charges in the charge register.
  • Does not have current or possible liabilities or assets.

If a business incorporates and remains dormant, it may be approved for striking off. The company must submit a letter stating that the company:

  • Has not had a business transaction since incorporating.
  • Has not opened a bank account, or the bank account has been closed.
  • Has not held an AGM, or the first AGM is not due.

If a company provides its last audited accounts, the accounts must not show any liabilities or assets. If there are liabilities and assets shown, the company must be able to prove that the assets have been disposed of and liabilities have been waived or settled.

A strike off application can be submitted by the company's Director, a professional firm or the corporate secretary using an online application.

How Long Does the Process Take?

Once the application has been submitted, the ACRA will process it within five business days. If approved, a letter will be sent to the company's registered office address, the IRAS and to the company's officers at their residential addresses.

If there is no objection within one month of sending the letter, the ACRA will publish the company's name in the Government Gazette.

If there is still no objection after three months, the ACRA will publish the company's name again and the name will be struck off the register. The Final Gazette Notification will include the date of the strike off.

The entire process can take five months to complete.

Objections

Interested persons can lodge an objection to the striking off of the company through Biz File.

If a person suspects a company may file for striking off, he or she may lodge a Notice of Intention to Lodge Objection to Future Striking off Application. The notification is valid for one year. If the company submits an application within that time frame, the objector will be notified.

A Lodgement of an Objection against Striking Off may also be filed by an interested person. In this case, the ACRA will halt the striking off process and send a notice to the company. The company will have two months from the filing of the objection to clear the matter.

If the matter is cleared within the time frame, the objector must file a Clearance of an Objection to Striking Off to allow the ACRA to continue with the process. If the matter is not resolved, the application will lapse, and the company will have to submit a new one.

Companies that have been struck off can be restored within 15 years of the striking off. Restoration requires a court order.

Liquidation vs. Strike Off: What's the Difference?

Liquidation and strike off are two very different processes for closing a company.

With liquidation, the company's Directors must be able to prove that the company can fulfill its debt obligations in full within one year of liquidation. There are no such requirements with the striking off method, but that's only because the company cannot have assets or liabilities to begin with.

Another difference between these two methods is the time frame. The striking off method can take significantly longer to complete – around five months – and objectors can complicate the process.

Either method can be complex and lengthy. A professional can help move the process along and act as a guide as the company winds up.


Copyright 2018