What is Voluntary Liquidation?

Voluntary Liquidation: A company is insolvent when its assets are less than its liabilities (Balance sheet insolvency) or when it is unable to pay its debts owing when due (cash flow insolvency). 

Winding up should not be confused with striking off.  Striking off is only applicable if there are no assets or liabilities of the company so if your company is insolvent, it can only be wound up and no struck off.

Voluntary Liquidation

Voluntary Liquidation comes in two forms, namely, members voluntary winding up or a creditors winding up. 

A members voluntary winding up is an application to court for the shareholders of the company to wind up the company. 

A creditors voluntary winding up is an application to court by the creditors to appoint a liquidator to wind up the company. 

For a members’ voluntary winding up, the company must be able to pay its debts in full within 12 months after the commencement of winding up. The directors of the company are required to file a solvency declaration to confirm that the company is able to make its debts payment as set out above.  If this declaration is made without reasonable grounds, there are penal consequences (i.e. a jail for a false declaration). In a members’ voluntary winding up, the liquidator will be appointed by the company.

If a company is unable to pay its debts and needs to be wound up, the company may apply for winding up by way of a creditors winding up and the company must appoint a liquidiator subject to any preferential creditors (for example a bank with a mortgage or charge over your assets) or any preference of any creditors.  For a creditors winding up, the company must convene a meeting of creditors to approve the proposal for creditors voluntary winding up.

From the commencement of winding up, the company shall cease to carry on its business. All the powers of management of the company during that period will vest with the liquidator in Singapore. 

Court appointed liquidation

If any creditor disputes the members voluntary winding up or wishes to appoint its own liquidators, they may apply to court to take over the process and then it turns from voluntary liquidation to that of court appointed liquidation.

Voluntary liquidation requires the appointment  of an accounting and liquidation professional.  If you need assistance in this area, do not hesitate to contact us today.

Whichever option is the best for your company, you would want to contact us to learn more about the best way to restructure the debt obligations of your business.

About Raffles CPA

Raffles CPA is a niche professional firm headquartered in Singapore with a relentless dedication to help global and local clients in solving their complex business problems in areas of corporate services, accounting, capital market, legal and compliance.

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