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WHAT IS INSOLVENCY AND WINDING-UP ?

A company is a legal entity and it is a different legal person from it directors and shareholders, unlike the proprietorships where the assets and liabilities of the proprietor are just one form of assets of the proprietor.

When a company cannot pay its debt as and when it falls due, a company is insolvent. The Company Act 1965 Section 218(2) states that a company shall be deemed insolvent if a creditor to whom a company owes more than RM500 and such sum is due for payment, serves a written notice is given or to secure or compound such sum to the satisfaction of the creditor.

A company that is insolvent will cease business and go into liquidation after being wound up by the court. The company will be struck-off from the register of companies and the assets of the company will be liquidated or sold off. The proceeds of the sale will be distributed according to law.

Generally secured creditors and preferred creditors will have higher priority in their claims.

WHAT HAPPENS WHEN A COMPANY IS IN LIQUIDATION ?

A liquidator is an authorized person who will deal with the assets and liabilities of the company including the bank account and employees of the company.

When a provisional receiver or official liquidator is appointed over the affairs of a company, the company is said to be in liquidation.

Once the liquidator has been appointed, the directors cannot bind the company. The directors will be removed from office.

WHAT ARE THE DUTIES OF THE PROVISIONAL RECEIVER OR LIQUIDATOR ?

The primary duty of the receiver or liquidator is to realize the assets of the company and distribute them to repay creditors.

The liquidator will also investigate the assets and liabilities of the company and recover any assets that are missing or have been transferred out of the company at undervalue. The liquidator can revoke these transactions.

WHAT HAPPENS IF THE COMPANY CARRIED ON FRAUDULENT TRADING ?

Under section 304 of the Company Act 1965, where it appears that any business of the company has been carried on with intent to defraud creditors or for any fraudulent purpose, the court may declare that any person who was knowingly a party to the carrying on of the business in the manner will be personally liable for the debts or other liabilities of the company. This is regardless that a company is a legal entity and it is a different legal person from it directors and shareholders.

HOW CAN I CHECK WHETHER A COMPANY IS BEING WOUND UP ?

You should proceed to the Official Assignee Office or Jabatan Pemegang Harta and obtain a copy of search form from the counter. A copy of the search form costs RM1. Photocopies of the form are also acceptable.

Fill up the form and submit it.

The Official Assignee Office will then forward your request to the head office in Kuala Lumpur where the search will be conducted.

The official result of the search will then be sent to the address provided in the search form.

The fee to conduct a bankruptcy search on a company is RM3.