The landlord is harassing you every day demanding for his rent. The suppliers and vendors are calling you repeatedly for their payment. Your customers say they have not been paid so they cannot pay you. Your sales is nowhere close to where it was before Covid-19 started and your bank account is depleting.
To survive till now, you have already topped up large sums of monies which you borrowed from family, friends or took it from your own reserves.
The future looks grim. You shout “I can’t take it anymore. I just want to close my company today.”
Measures in Place to Cushion You
The above sentiment, is probably being felt by companies trying to survive.
While the decision to close is probably easier because of the pressure and circumstances you are facing, there are many factors to consider before making this draconian decision. What are your options?
The Covid-19 (Temporary Measures) Act 2020 has put in place certain safeguards to ensure local companies are protected from being sued or forced to close by creditors.
The Landlords have been asked to behave by extending to tenants rental reliefs and additional rental reliefs to ease the crunch.
The Companies Act has provisions giving business owners the power to propose a compromise or an arrangement with creditors by calling for a creditor’s meeting.
The Government, Banks, SME Centres, Chambers of Commerce and private organisations have extended lifelines by way of loans, allowing you to borrow working capital funds to tide you over and to defer your principal payments.
Before your decision to close your company, consider the following factors:-
- What are your or your company’s strengths and is it worthwhile to give this all up? Can you partner with someone else to continue operating at a lower profit margin;
- What are your weaknesses which could wipe you out? Should you focus on a narrow range of products or discontinue or cut costs?;
- What are your opportunities? Are you lacking cash flow to realise your opportunities? Can a joint-venture help you realise the opportunities?;
- What are your threats? Is it too late to turnaround? Has Covid-19 made your product or services redundant or unnecessary?
- Which aspect can you or your company manage to sail through this downturn?
- Do you need finances, guidance and mentorship or to collaborate with a third party;
- Do you need to negotiate an extension of time for your lease, projects or payment terms;
- Is there business to sustain you for the future;
- Is your cost well beyond your means of earning enough for a recovery;
- Are you in the wrong business?
- Do you need to change your business model?
- Do you have redundant staff?
- Are you committed with a personal guarantee which requires you to make payment now?
- Do you need expert advice on finance, business strategy or legal?
Having considered these questions and factors and after speaking with the experts and your mentors, if you still decide that you can no longer keep the company alive, then you should know the 5 ways of how to close your company.
Each method of closing a local company would depend on the specific facts and circumstances. The 5 ways may not apply to all companies.
#1 Striking Off a Local Company
Under section 344A(1) of the Companies Act, a company makes an application to the Accounting and Corporate Regulatory Authority (ACRA) to strike off its name from ACRA’s register.
ACRA will consider whether the company
- intends to cease carrying on its business;
- is able to satisfy its debts that it has no liabilities with IRAS, CPF or any Government agencies e.g. NEA;
- is not involved in any court proceedings. (If you have been served with a letter of demand, do note that it does not count as a court
- proceeding unless a writ of summons or originating summons has been filed in Court before it being served on your company); and
- That the company does not have any charges in the company’s charge register.
If it meets all the above requirements, ACRA can approve the striking out of the company. However, there will be a period of60 days after the publication by ACRA in the Gazette of a notice for any creditor or concerned person to object to the striking out of a company. (The Gazette is not a publication that is read by the common public.)
#2 Voluntary Winding-Up
Under section 119(1) of the Insolvency, Restructuring and Dissolution Act 2018, a company can undergo winding-up either by way of a shareholders’ winding up or voluntary or by the Court.
A shareholders’ winding up is when the company decides to wind up its affairs voluntarily if the directors believe that the company will be able to pay its debts, in full, within 12 months after the commencement of the winding up.
A creditors’ winding up is when the company chooses for the creditors to wind up the company because its directors believe that it cannot continue its business due to its liabilities.
In both situations, a private liquidator is used to assist the company to wind up the affairs and file the necessary notifications under the IRD Act. In such situations, the court is not involved.
#3 Compulsory Winding-Up
If the Singapore Courts are involved, then the winding-up process becomes a compulsory winding up application.
Typically, a compulsory winding-up application is taken out by a creditor by first sending a Statutory Demand stating the amount owed and giving the Company time to make payments. If the company is unable to make payment or fails to respond, the Statutory Demand will stand as proof that the company is unable to pay its debts unless shown otherwise.
The company may appoint a private liquidator to wind up the affairs of the company. Where there is no appointed liquidator, the Official Receiver will be appointed as the liquidator of the company.
The process for a compulsory winding-up is more complex, contentious and tends to attract additional costs. The court has wide powers on choosing the best course of action if it considers that winding up may not be just and equitable for all parties concerned.
#4 Judicial Management
Judicial management is when the court considers, upon an application, that the company need not be wound up but instead managed by professional managers or judicial managers to nurse the company to better health.
Usually, such companies suitable for judicial management would have many assets, buildings and equipment, and existing operations possibly in multiple jurisdictions with viable business but there has been some mismanagement of its resources.
The process is not an easy one and it is best to seek professional advice.
#5 Receivership
If there are assets in your company that has been charged or pledged to the banks or specific creditors because of debentures or security notes, then the company may be placed under receivership instead of liquidation. The receiver appointed would only be interested in the assets of the company that has been charged as the appointed receiver would want to act on the charge for the benefit of debenture or notes holders.
Conclusion
The 1st option of striking out is quite straight forward and less costly but it can be blocked by a creditor.
The voluntary and compulsory winding up process depends very much on the participation and negotiation with your creditors or shareholders.
Judicial management and receivership are more complex mechanisms available to creditors and debenture holders. There may be a variety of factors including cross-border assets and different parties claiming a stake on the multiple assets in different jurisdiction.
Whichever step that you eventually take to close your company, you must first prepare your company as there are various criteria and requirements to be met.
Wittingly or unwittingly, it is not as simple as proclaiming that “I just want to close my Company today”.
