The company has stopped trading: striking off, winding up, and "I just want out"

Hook

When you open a company, there is a whole crowd of people to teach you. When you close one, there is nobody. So the method most people use is — ignore it. Do not file tax, do not lodge anything, do not hold meetings, just pretend it does not exist. Let me tell you what happens when you do that: the company does not disappear. It turns into a penalty notice that keeps growing, and that notice is recorded against your name.

Three roads, get them clear first

There are only three roads out of a private limited company. The first, striking off. It applies when the company has no business, no assets and no debts. Cheapest and fastest. The second, a members' voluntary winding up. The company can still pay its debts, but the shareholders have decided to stop. You have to appoint a liquidator and it costs money, but it is clean. The third, when it cannot pay its debts. Then it is not your choice any more — creditors can apply and the court can order it. This episode covers the first two, because those are the ones where you still have a choice. And the key point is this: whether you can take the first road depends on how clean your company is right now.

Striking off: it is an application, not a right

First, the road most people want to take: striking off. The provision is written plainly: the Registrar may strike the company off the register — he may do it on his own initiative, or on the application of a director, a member or the liquidator. Note that word: may. What you send in is an application, not a notification. Whether it is approved is not your decision. The procedure runs like this: the Registrar issues a notice first, and if within thirty days you have not replied showing cause, he publishes it publicly. Thirty days after that publication, if nobody objects, the Registrar may formally strike the name off and gazette it. The moment it is gazetted, the company is dissolved. It sounds straightforward. But there is a gate in the middle, and that is where most people get stuck.

One supplier can stop you

The provision says: within that period, any person may pay a fee and lodge an objection. The grounds for objecting include — the company is in fact still carrying on business; the company is a party to legal proceedings; the company is in receivership or in liquidation; and, most important of all: the objector is a creditor, a member, or a person with an outstanding claim against the company. In other words: one supplier you have not paid, one person on his own, can block your striking off. So the order for a striking off is not "file the form first". It is — clear the debts first, collect the accounts clean, and only then send in the application. Do it the other way round and you will wait two months for nothing, and then get a letter of refusal.

Striking off is not an eraser (the most important part of this episode)

A lot of bosses assume that striking off means a clean slate. The provision says exactly the opposite. First sentence: after the company has been struck off and dissolved, the liability of every director, every officer and every member continues, and may still be enforced as if the company had never been dissolved. Second sentence: if there is evidence that the company still has realisable property, the court may still order it to be wound up — even though the name has already been struck off. Third sentence, and the one fewest people know: anybody aggrieved by the striking off may, within seven years after it, apply to the court to have the company reinstated. Once reinstated, in law it is treated as never having been struck off. Seven years. So keep this line: striking off takes the company off the register, but it does not take your liability away — and within seven years, it can still be pulled back.

Members' voluntary winding up: the road for a company that can pay

If the company still has assets and debts to deal with, then you take the members' voluntary winding up road. It starts with a special resolution of the shareholders. After that there are two very short deadlines: within seven days, lodge a copy of the resolution with the Registrar; within ten days, publish an advertisement in one national-language newspaper and one English newspaper. Both are required, and missing one is an offence. Fine not exceeding RM10,000, and if the default continues there is a further daily penalty. Then comes the real gate on this road — the declaration of solvency. A majority of the directors have to make a written declaration that they have enquired into the affairs of the company and are of the opinion that it will be able to pay its debts in full within twelve months after the commencement of the winding up. The declaration also has to have a statement of the company's affairs attached, setting out three things: the assets and how much they are expected to realise, how much the liabilities are, and — the estimated expenses of the winding up. The timing is fixed too: the declaration has to be made within five weeks before the winding-up resolution is passed, and lodged with the Registrar before the notices are sent to the shareholders.

"I do not want to close the company, I just want out"

Now the other situation, and the more common one — the company carries on, but you personally want out. Resigning as a director: the provision is actually simple. You deliver a written notice to the company's registered address, and it takes effect the moment it is delivered, unless you have stated a later date in the notice. But there are two provisos, and stepping on either makes the resignation worthless. First, you cannot resign below the statutory minimum. A private limited company must have at least one director whose principal place of residence is in Malaysia. If you resign and nobody replaces you, that resignation is legally ineffective. Second, if you are the only director, or the last one — you have to convene a meeting of members first, so that the shareholders receive your notice of resignation and appoint a new director, and only then can you leave. Even if you happen also to be the sole shareholder, it still has to be done this way. After a resignation, the company has to notify the Registrar within fourteen days.

Three things resignation does not solve

This is the last section of the episode, and where most people lose out. Resigning and transferring shares do not solve these three things. First, personal guarantees. The personal guarantee you signed for the company to the bank all those years ago is a contract between you and the bank. It has nothing whatsoever to do with whether you are still a director. There is only one way to be released from it: talk to the bank and get a written release. Second, authorised signatories. The company changes directors, and the bank's signing authority does not change automatically. That takes a separate trip through the bank's own procedure. If you do not make it — you are still signing for a company you have already left. Third, what happened while you were in office. The logic is the same as with striking off: a person leaving does not mean the things that happened did not happen. As for tax — before you leave, confirm the company's tax position with your tax agent. Please do that one without fail. Transferring shares also means checking the constitution first — many private companies' constitutions restrict transfers, and you have to get past the directors or the other shareholders first.

To close

One line to close: the cheapest time to close a company is while it is still clean. Drag it out until there are debts, lawsuits and a pile of unfiled things, and by then the cheapest road is already closed to you. Want to know which road the company you have stopped running should take now? Grab a coffee first and talk about your business. For the accounting, come to LTT. I am LTT, helping SME bosses get their accounts straight. Follow us, and see you next time.