Closing a business is not something to be ashamed of. Sometimes, things just do not work out, despite our best efforts. However, it is crucial to know how to close your business down properly, in order to avoid any trouble with authorities. In this article, we will give a brief overview of how to close your business, specifically exploring winding up your business.
Striking Off A Business
There are two ways to close a business: striking it off, and winding up/liquidating it. To strike off your company is to remove it from ACRA’s register. In order to do so, the company director or secretary has to submit an online application via BizFile+ to strike off the company. However, this method is not always favoured, as there are many conditions you have to fulfil to be able to strike your business off.
To strike off your business, your company:
- Must have stopped all operations
- Not be involved in any court proceedings
- Must have no outstanding charges
- Should be able to satisfy its debts and owes no liabilities with IRAS, CPF or any other government agencies
- Should have no existing assets and liabilities as at the date of application, and no contingent assets and liabilities that may arise in the future
For more information, go to ACRA’s website. As these conditions can be hard to fulfil, not all companies use this method of closing down their business. Instead, they wind up/liquidate their companies.
Winding Up A Business
When you wind up a company, the company’s assets are seized and converted into cash, with the proceeds being used to pay off the company’s debts. There are different ways this can be done, depending on whether your company is solvent or insolvent.
For solvent companies:
- Can be voluntarily wound up through a Members’ Voluntary Winding Up
For insolvent companies:
- Can be voluntarily wound up through a Members’ Voluntary Winding Up or a Creditors’ Voluntary Winding Up
- Can be involuntarily wound up by an order of court through a Compulsory Winding Up
- If the company is micro or small, can be simply and quickly wound up through the Simplified Insolvency Programme
Winding Up A Solvent Company
Solvent companies are wound up through a Members’ Voluntary Winding Up. This involves several steps, which are listed below.
- Directors must file a Declaration of Solvency with ACRA via the BizFile+ website
- A Statement of Affairs should be attached to the Declaration of Solvency, in accordance with Form VWU-9
- A special resolution for the purpose of winding up the company has to be passed within 5 weeks, and should be passed in an Extraordinary General Meeting (EGM) of the company’s members
- Within 7 days of passing the resolution, you need to lodge a copy of the resolution with ACRA
- Within 10 days, give notice of resolution in the Gazette and at least one English local daily newspaper
In addition, the company must appoint a liquidator to wind up affairs and distribute the company’s assets. The entire process must be in line with the Insolvency, Restructuring and Dissolution Act 2018.
Winding Up An Insolvent Company
A company is considered insolvent if it has more liabilities than assets and are hence unable to pay off their debts.
Creditors’ Voluntary Winding Up
Despite the name, this process is not initiated by creditors themselves. Just like a Members’ Voluntary Winding Up, the company starts the winding up process. However, creditors play a role in the process: they decide the appointment of the liquidator, and also determine whether the company should be wound up.
Before the creditors appoint the provisional liquidator, the directors of the company have to lodge a statutory declaration with the Official Receiver. In addition, they have to lodge a declaration with ACRA in Form VWU-1, stating that the company cannot continue its business due to its liabilities, and that they will hold a meeting with their creditors within 30 days of the declaration.
The processes of the Members’ Voluntary Winding Up and Creditors’ Voluntary Winding Up are very similar. However, there are still differences in the forms, declarations submitted, and regulations. Hence, you should still do your due diligence and read up on the required steps.
Compulsory Winding Up
This is when a company has obtained a court order ordering them to wind up. Creditors, liquidators or even members of the company can make a Compulsory Winding Up application to the Courts.
You can do so by filing Form CIR-12 together with a supporting affidavit, a signed statement of fact made under oath. You will need to pay a total deposit fee of S$10,400 to the Official Receiver mentioned earlier in order to make the winding up application.
The court will then appoint either a liquidator or an Official Receiver to file the necessary documents required. As this can be a rather complicated process, do check on all available information to ensure that you are following the instructions provided by the Ministry of Law.
Simplified Insolvency Programme (SIP)
This is specifically for small and micro businesses, who should have an annual revenue of less than S$10M and S$1M respectively. The SIP provides companies that are insolvent and want to cease their business with a simple, fast and easy winding up process.
If you still want to continue operations and do not want to wind up your business, you can apply for the Simplified Debt Restructuring Programme under SIP, for help with clearing your debts.
The Process Of Winding Up
There are multiple steps you need to take to properly wind up your business. You need to cease your operations, pay your debts to your creditors, and realise the assets before final payments are made to members of your company. Do remember to:
- Retrench your employees
- Terminate any contracts with business partners
- Terminate any subscriptions
- Inform customers that the business will cease operations
As One Door Closes, Another Opens
While it is definitely not ideal to think about having to close your business, it is still important to ensure that you close it properly. Do maintain an optimistic outlook, and make sure you’ve not left any gaps when closing that chapter of your life. Do check out SingaporeLegalAdvice and ACRA for more in-depth information.
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