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Closing Down a Company in Malaysia

If you are a foreign investor who has been operating in Malaysia and would like to close down or change your business focus, you must be aware of how to close down Private Limited (Sdn Bhd) Company properly. It is better closing down a Sdn Bhd company than having it remain dormant. This is because a dormant company can easily rack up annual expenditures in excess of MYR 4,000. This includes the costs of remaining compliant which involve filing annual returns, filing taxes, accounting, audit and other requirements by the SSM. On the flip side, closing down a Sdn Bhd company will cost you around MYR 1,500.

Methods

There are two ways of closing down a Sdn Bhd company.

  1. Being struck off by the SSM
  2. Voluntary winding up

Of these two methods, striking off is more preferred as it is quicker and cheaper as opposed to voluntary winding up which can cost as much as MYR 10,000. The cost for striking off is between MYR 1500 to 2000.

Requirements for a strike off

  1. The company has not commenced business since incorporation and is not carrying on any business.
  2. The company does not intend to begin business or carry on any business.
  3. The company does not have any assets or outstanding liabilities. There should be no entries at the registrar of charges.
  4. The company has no outstanding penalties incurred under the Companies Act of 1965.
  5. The company does not owe any tax liabilities. The company should also be free of debt of any Malaysian government department or agency.
  6. The company is yet to make any dividends to the shareholders.
  7. The information of the company as lodged with the registrar of companies is up to date.
  8. The company is not involved in any legal proceedings in or out of Malaysia
  9. The company should not be a holding company or subsidiary of another company
  10. The company does not identify as a guarantor corporation.

SSM submissions

For a strike off, the SSM is at the discretion to ask for audited accounts. Typically, the SSM will accept unaudited accounts without assets or liabilities. If the SSM accepts the submissions the striking off process takes 6-12 months. The SSM is likely to accept a striking off request for a company that:

  • Has been dormant during the entire period
  • Has been inactive with very minimal sales
  • Has very low paid up share capital

Closing down by striking off can face difficulties in some circumstances:

  • Where the company has a very large shareholders’ base and paid up capital.
  • Where the company has retained profits
  • Where the company has sold off a valuable asset and gained a big profit from the sale.

The SSM can decline to strike off a company from its list which would leave winding up as the other option.

Winding up

This is the longer route to closing down a Sdn Bhd company. Winding up is declaring the life of the company has come to an end. This involves selling off the company’s assets, paying off its liabilities and distributing the remainder to the shareholders. In Malaysia, a company can wind up voluntarily or compulsorily. A voluntary winding up is by a mutual agreement of the shareholders and the shareholders. A compulsory winding up is where the company is brought to an end as it cannot meet its obligations.

Voluntary winding up involves several filings to the SSM, numerous director and shareholder meetings. This process can go on 9 months to 1 ½ years. It is also costly with minimum costs at MYR 10,000 and topping out at MYR 20,000. In Malaysia, the winding up process is guided by the Companies Act of 1965.

There are two types of voluntary winding up:

  • Where the company is solvent but the shareholders agree to fold up the company and distribute the assets to the owners. This method is known as members’ voluntary winding up or members’ voluntary liquidation.
  • Where the company is insolvent. The directors and shareholders can agree to wind up the company but the creditors have the final say on who should liquidate the company. This is called creditors voluntary winding up or creditors’ voluntary liquidation.

There are several reasons to opt for a voluntary winding up:

  • It allows for fair distribution of the company’s assets among the shareholders. This is unlike the past where the creditor rushed to liquidate as many assets as possible without considering the liabilities of the company to its employees.
  • It removes a loss making business from the industry. This is good as it eliminates the possibility of the company continuing to operate and incurring more debts.
  • It allows for proper investigation as to the cause of the problem. It identifies any wrong doing and holds those responsible to account.

Compulsory winding up

This is where the company is forced to wind up as it cannot settle its debts. This is a process forced through the courts. The law allows any creditor owed a debt of more than MYR 500 to send a demand note that should be payable within 21 days. If the demand note is not settled within this period, the creditor can invoke ‘Section 218 Notice’ simply known as ‘Section 218’ which comes from Section 218 of the Companies Act 1965. The creditor can then move to the court to have the company declared insolvent and forced to wind up.

Liquidator role

This is an independent entity that is mandated to oversee the winding up of the company. The liquidator takes control of the company’s assets, oversees the disposal, and the distribution of the residue to the shareholders.

The Director General of Insolvency is the default liquidator in Malaysia. A qualified auditor can also be appointed a private liquidator. When the liquidator takes over, the powers of the directors in managing the company’s affairs are finished. However, the company continues to exist as a legal entity. The liquidator is also mandated to do internal investigations into the cause of the insolvency.

When the liquidator finishes paying off the company’s liabilities and distributing the residue assets, the winding up is complete. The court can then declare the company dissolved.

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