There are 2 ways to close (or liquidate) a company: either by winding up or striking off. Striking off is more suitable for small or dormant companies, and is a simpler, quicker, and cheaper way to close a company. Companies may only apply for striking off if they are not involved in any insolvency proceedings or a compromise or arrangement with their members or creditors. Alternatively, winding up entails a lengthy process of company liquidation, realizing assets, ceasing operations, paying off debts, and distributing surplus assets among members.
This article will take you through both processes. Should you want to register a new company in Singapore after closing one, we can help you with the paperwork.
Reasons To Shut Down a Company
Shutting down a company is a natural part of a business cycle. Business owners close down their companies for various reasons, either by their own choice or ordered by the Court. When a company fails to pay its debts when they are due, it is the duty of the company’s directors to wind up its business as it is insolvent. A creditor, too, could apply for the company to be wound up in the Court if it could not collect its debts from that insolvent company.
We use the cash flow and balance sheet test to determine which winding up method to use when closing a company under Singaporean law.
A company would be insolvent if:
- Through the Cash Flow test, the company fails to meet a current debt demand.
- Through the Balance Sheet Test, a deficit is presented by the company after the balancing of its total liabilities against its total assets.
A company would also be deemed insolvent under the the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) if:
- A company fails to pay or secure the sum of SGD $15,000 or more to the company creditor's after three weeks since the demand was served.
- A company's creditor enforces against it, through a court judgment or order, for a sum of money. If the creditor does not receive the entire amount, the company will be declared insolvent.
- The court is confident that a company cannot pay its outstanding debts by taking into account the company's contingent and prospective liabilities.
3 Ways to Wind up a Company in Singapore:
- its members’ voluntary winding up
- creditors’ voluntary winding up or
- winding up by the Court’s Order.
Members’ Voluntary Winding Up
The directors of a company may decide to wind up its affairs voluntarily if they believe that their company will be able to pay its debts, in full, within 12 months after the start of the winding up.
The company will appoint a liquidator, or provisional liquidator, to wind up its affairs and file the necessary notifications required under the Companies Act/IRDA.
The assets of the company would be liquidated, i.e. The company’s assets are converted into cash to pay off the company’s debts and liabilities.
Any remaining assets or surplus cash would be distributed among the company’s creditors and shareholders, and this would mark the company’s closure.
A company might be voluntarily wound up in these cases:
- Not generating enough profit to continue the business
- Disagreement among shareholders
- The company or its members have breached their statutory duties
Steps to Take:
- Sign the Declaration of Solvency (with an attached statement of affairs) by the majority of directors
- Convene an Extraordinary General Meeting of members (EGM) within 5 weeks to put into place the winding up of the company, appoint liquidators and approve their compensation
- Pass a special resolution during EGM for winding up the company and receive assistance of a professional liquidator
- Meet the requisite solvency and publicity requirements
- File the special resolution with the Accounting and Corporate Regulatory Authority (ACRA) within 7 days and advertise the winding down in a Singapore newspaper within 10 days (one for each of the official languages English, Chinese, Tamil, and Malay);
- Notify the Inland Revenue Authority of Singapore (IRAS) for tax clearance by submitting a final set of management account and final set of tax computations until business cessation date
- Decide the final meeting date and publish the final advertisement after receiving tax clearance from IRAS
During the final meeting, the liquidator will tell the members about the winding up process and how the company's assets were disposed of.
Within 7 days after the final meeting, the liquidator is required by the Companies Act to submit a return to the Accounting and Corporate Regulatory Authority (ACRA) and Official Receiver showing that the meeting was held with a copy of the account attached.
3 months after the return has been submitted, the company will finally be dissolved. However, keep in mind that the court can declare the dissolution of a company to be void any time within 2 years after the date of the dissolution.
Creditors’ Voluntary Winding Up
Despite being known as "Creditors' Voluntary Winding Up", the decision to wind up the business is ultimately made by the company's directors, not its creditors.
The directors would opt for this winding up method if they believe that the company cannot continue the business because of its liabilities, unable to pay its debts within 12 months of winding up, and no Declaration of Solvency is filed.
A liquidator, or provisional liquidator, would be appointed to wind up its affairs and file the necessary notifications required under the Companies Act and the Insolvency, Restructuring and Dissolution Act.
The company’s creditors, however, will still have a say to decide whether or not the company should be wound up, and they would choose who should be appointed as the liquidator. They would also be the ones holding a creditors meeting.
Steps to Take:
- File a declaration with the Official Receiver;
- Convene an Extraordinary General Meeting (EGM) with the company’s creditors to establish the reason for winding up the company;
- Appoint a provisional liquidator in the next EGM;
- Pass a resolution for creditors’ winding up to be proposed by holding an EGM.
The directors of the company must first set a date to meet with its creditors within 1 month of the date of the declaration before filing a declaration with the Official Receiver. If a resolution is passed in favour of the winding up, the company will appoint a provisional liquidator who is selected by the creditors.
A notice of appointment, together with a copy of the declaration, is lodged with the Official Receiver and must be advertised within 14 days in at least 4 local daily newspapers in English, Malay, Chinese and Tamil languages.
The provisional liquidator would be in place for one month or until the appointment of a liquidator, unless the Official Receiver calls for an extension of his appointment.
After the company’s directors have proposed for a creditors’ voluntary winding up, a meeting of the company's creditors should be called on that same day or the next day after the meeting of the directors. The notices sent to the creditors should be by post, and announced in a local newspaper, 7 days in advance of the creditors’ meeting.
If a company is liquidated voluntarily -either by members’ or creditors’ voluntary winding up-, these are the effects that are set to take place:
- When the date of the special resolution is passed, the company must stop its business activities. Only those that the liquidator thinks would be necessary for a successful winding up could continue.
- The directors’ powers will cease, except if the shareholders agree that the directors should continue to have such powers, and only with the consent of the liquidator.
- Any transfer of shares is void unless made to, or ordered by, the liquidator. The status of the company’s members cannot be changed.
Compulsory Winding Up
A compulsory winding up occurs when a company is closed down by someone other than its owners (e.g., its directors), like a creditor, liquidator, or receiver.
An Originating Summons has to be filed in court for the process to take place.
Here are some reasons which may cause compulsory winding up of a company:
- Insolvency (e.g. the company is unable to pay its debts);
- Failing to lodge statutory reports;
- Failing to hold statutory meetings;
- Not commencing business within a year of incorporation;
- Using the company for illegal purposes.
The Court may appoint a liquidator to wind up the affairs of the company. If the Court does not appoint any liquidators, the Official Receiver shall be the liquidator of the company. The liquidator will file the notice of appointment of liquidator and advertise the winding up of the company within 14 days in at least 4 local daily newspapers (in English, Malay, Chinese and Tamil languages) required under the Companies Act and the IRDA.
These are some of the effects of a company’s Compulsory Winding Up:
- Any disposition of company property, transfer of shares, or change of status of company members made after the start of the winding up process initiated by the court is void.
- A liquidator, creditor, or contributor of the company may apply to a court to make a person who was responsible for or took part in any fraudulent business activities of the company before winding up liable for the company's debts.
- In cases where a company and a creditor have mutual credits, debts, or dealings, these can be offset against one another, with a creditor or company claiming only the balance due on each side of the counterclaim.
Fresh Bakes Pte Ltd, is a bakery that is going bust. It had accumulated a sizable debt and had to be closed down by Compulsory Winding Up. A liquidator appointed in this case would take the following actions:
- Take hold of the company's assets to cover the costs and expenses of liquidation.
- Compensate staff. Salary, then retrenchment benefits and other contractually-agreed sums, compensation for work injuries, contribution to CPF and similar schemes, and compensation owed because of unused annual leave, need to be paid in this order of priority.
- Pay taxes assessed before the company fell deep in financial trouble to the Inland Revenue Authority of Singapore (IRAS).
- Pay any others who are owed, including other companies and individuals.
According to Section 344 of the Singapore Companies Act, the Company Registrar in Singapore can strike off a company from its Register. A solvent company no longer doing business can apply for a strike off rather than winding up as it is a quicker and simpler way of shutting down a company for dormant or small companies.
As a director of a company, you may apply to the Accounting and Corporate Regulatory Authority (ACRA) to strike off the company's name from the register. ACRA may approve the application if it has reasonable cause to believe that the company is not carrying on business. The company must also satisfy the following criteria for striking off:
- Did not commence business since incorporation or has ceased trading.
- No outstanding debts owed to Inland Revenue Authority of Singapore (IRAS), Central Provident Fund (CPF) Board and any other government agency.
- No outstanding charges in the charge register.
- Not involved in any legal proceedings (within or outside Singapore).
- Not subject to any ongoing or pending regulatory action or disciplinary proceeding.
- No existing assets and liabilities as at the date of application and no contingent assets and liabilities that may arise in the future.
- All or majority of the director(s) authorises the applicant, to submit the online application for striking off on behalf of the company.
Make sure that there is no outstanding tax credit owed to the company before applying for striking off. When the company is dissolved, any tax credit due to the company will be paid over to the Insolvency and Public Trustee’s Office (IPTO) and not direct to the company. The shareholders of the now defunct company may approach IPTO if they wish to claim the tax credit. The IPTO might impose charges for the processing of the claim.
To apply to strike off a company, the procedure is fairly straightforward. The company director, the company secretary or the registered filing agent can submit an online application via ACRA’s BizFile+ using SingPass or CorpPass to strike off the company.
There is no filing fee for the online application.
The effects of striking off a company are:
- Once the application is approved, ACRA may send a striking off notice to the company’s registered office address, its officers (such as director, company secretary and shareholder) to their addresses.
- ACRA will publish the name of the company in the Government Gazette after 30 days from the approval of the striking off application, if there is no objection. This is known as the First Gazette Notification.
- After 60 days from the First Gazette Notification, if there is no objection, ACRA will publish the name of the company in the Government Gazette again and the name of the company will be struck off the register. The date of the company strike off will be stated. This is known as the Final Gazette Notification.
This whole process will take at least 4 months.
Eric is the director of Trade Pte Ltd, incorporated in June 2004. Trade Pte Ltd has long ceased doing business, and has been dormant since May 2020. He has been paying SGD $2,000 since then just to maintain his company, although it has been dormant and has not had any new business since last year. All of Trade Pte Ltd's assets have been sold off. He has no outstanding payables to any creditors or Government Authorities, no outstanding Annual Return Filing with ACRA and no outstanding Tax Filing with IRAS.
Eric could submit an application to strike off his company through ACRA’s online BizFile+ platform so that he does not need to continue to maintain his dormant company.
Settling Debts and Taxes
A company that owes creditors and won't be able to pay them must inform them of its plans to close. In this case, the company must find out whether the claims are true and that they are accurate. Debtors may file claims against the business for unpaid loans.
A company must also ensure that all outstanding tax obligations and liabilities are settled before closing.
There are two ways to check whether your company has any outstanding tax issues:
- Accessing myTax Portal allows you to view your Account Summary, Corporate Tax & GST Filing Statuses and Corporate Tax & GST Notices; or
- Calling the IRAS 24-hour toll-free automated answering service. This service allows you to inquire about your tax assessment status, as well as the status of your accounts.
Return of Capital to Shareholders
As companies raise funds to start their businesses, shareholders obtain ownership stakes in the companies. When a company shuts down or is liquidated, the company’s liabilities need to be paid off first. In the event that there are surpluses, the cash or property will be distributed back to the shareholders or owners after consideration of liquidation costs.
Preference shareholders would be given priority over ordinary shareholders. The remaining assets will be divided among ordinary shareholders. All distribution would be proportionate to the shareholders’ share ownerships.
Conversely, to reduce a stakeholder’s share capital prior to shutting down a company, certain procedures must be followed. For example, private companies are required to pass a special resolution and must also meet the requisite solvency and publicity requirements.
Additional Things To Consider
Laying Off Your Employees
You should give due notice to your employees of the impending company shutdown, and pay them all salaries owed, including unused annual leave and notice pay. You could also negotiate a compensation amount with your employees if there is no mention of retrenchment compensation in the company’s employment contracts.
The notice period can be waived upon if both parties come to a mutual agreement. Employees who have fully served the required notice period, are entitled to Central Provident Fund (CPF) contributions for the notice period salary that they receive.
Terminating Office Space Tenancy
Do notify your landlord early if you want to end the tenancy of your office space rent earlier than stated in your contract.
A one month’s notice period would be reasonable if you pay monthly rent as the notice period may correspond with how frequently a tenant pays rent.
You should write to your landlord requesting the surrender of your lease, that is, to return the leased premises before the expiration of the lease. It’s possible that the landlord is not compelled to give in to the request, and may request for monetary compensation from the tenant.
Ending Contracts With Suppliers and Service Providers
You should communicate your intention well in terminating your existing contracts as you will still need to maintain relationships with your existing suppliers during any notice period to serve your remaining clients. Refer to your written contracts with them to see how long your notice period should be.
If your existing supplier is holding any stock, or any deliveries that are only part-transferred, you need to agree with the supplier how this will be dealt with. Provide them with a date for all of your stock to be delivered to you to avoid redundant delivery of goods after your company is shut down.
Ensure that you have paid all outstanding bills to your internet and phone line providers, and inform them of the last day of service that your business requires, to avoid being charged unnecessarily. The address of the final bill needs to be provided as well.
Dealing With Clients and Closing Down Website and Social Media Accounts
Be open and honest with your clients and customers that your business is closing down through your company websites and social media accounts. Tell them why you are no longer in operation, or if you have any plans for a comeback, and provide them with contact details if they need to contact you post winding up or striking off. Notify customers on the status of their existing orders with you: you could either fulfill these or offer them refunds.
Bid your online followers and page visitors goodbye before shutting down your websites and closing your social media accounts. Pin a message explaining that your website and business has ceased to exist, and you could thank your customers for their support.
Create a backup of the content, design and code of your website, and download all necessary information if you want to. If your website uses third-party services, turn them off and end any subscriptions to them.
Notification of Official Bodies in Singapore
Lastly and most importantly, a company in Singapore must notify the following bodies as part of closing down its business:
- Accounting and Corporate Regulatory Authority (ACRA)
- Central Provident Fund (CPF) Board
- Inland Revenue Authority of Singapore (IRAS)
- Relevant Licensing Authorities
Shutting down a company might be the necessary step taken to expand even more in the future, thus we hope that this guide made it less painful for you. However, it does not mean your journey as an entrepreneur has ended. Shutting down a company does not mean you have failed in your entrepreneurial pursuit as well. You can always try again. If you would like to start over to set up a new company after closing down your last business, we’d love to help you with a new beginning. Concentrate on growing your business while you let expert accountants and bookkeepers take over the routine administration tasks.