The Covid-19 pandemic has severely impacted Singapore’s economy. According to the Monetary Authority of Singapore, the economy will enter into recession this year. During the first quarter, Singapore’s economy contracted by 2.2 per cent year-on-year, its worst contraction since the 2009 global financial crisis.
Job losses and bankruptcy rates have skyrocketed. In March, four hundred sixty two (462) entities have filed for bankruptcy applications. In April, about three thousand eight hundred (3,800) companies already closed down. Considering the economic upheavals amid the Covid-19 health crisis, Senior Minister of State for Trade and Industry Chee Hong Tat has predicted an uptick in business cessation in the coming months.
Two Modes of Business Cessation: Striking Off or Liquidation
Companies on the brink of bankruptcy often choose to shut down their operations as an exit strategy. There are two ways to close down a business in Singapore: striking off or liquidation.
One of the main distinctions between striking off and liquidation is that striking off is relatively simpler, efficient and less costly unlike liquidation which is a lengthy, formal procedure. Striking off is ideal for dormant financially solvent companies whereas liquidation is more suitable for insolvent entities.
- Striking Off Requirements
Before filing an application to strike off company name from the register, the following criteria must be satisfied:
- Since incorporation, your company has not commenced business or has ceased trading.
- Your company owes no debts to government agencies such as Inland Revenue Authority of Singapore (IRAS) or the Central Provident Fund (CPF) Board.
- Your company has no unpaid dues in the Register of Charges.
- Your company is not impleaded in any legal proceeding, locally or abroad.
- No pending disciplinary or regulatory actions pending against your company.
- As of application date, your company has no existing or even contingent assets and liabilities.
- Requisite authority to submit the online application for striking off on company’s behalf.
- Procedure for Striking Off Application
- Submit an online application for striking off via BizFile+ using CorpPass or SingPass.
- If strikes off requirements are met, ACRA will send a striking off notice to your company officers at your company’s registered office address.
- An objection may be lodged against the strike off application. In which case, ACRA will notify your company of the objection and will give the company two (2) months to settle the dispute.
- If there is no objection within thirty days (30) from approval, ACRA will publish your company name in the Government Gazette. Sixty (60) days from the First Gazette Notification, ACRA will again publish the company name in the Government Gazette. Thereafter, ACRA will give final notice to your company that it has been struck from the company register. The entire process takes at least four to six months.
In liquidation, company assets are seized and sold so that the proceeds can be used to pay existing debts and liabilities. Once obligations are paid off, the surplus can be distributed to the shareholders. Winding up corporate affairs may be done voluntarily or compulsory by Court Order.
- Voluntary Winding Up
Voluntary winding up may be done by the company contributories (members/shareholders) or creditors.
- In voluntary liquidation by shareholders, the shareholders pass a resolution authorising liquidation and appointing a liquidator. Directors are also required to file a notarised Declaration of Solvency. The appointed liquidator then files notification requirements with ACRA and oversees the winding up of corporate affairs.
- If a company is insolvent, its officers and shareholders may convene a meeting with its creditors to consider the possibility of winding up the company.
If creditors agree to liquidate, a resolution shall be passed by the shareholders authorising the winding up and the appointment of a liquidator, subject to the creditors’ preference.
- Compulsory Winding Up
A common ground for compulsory winding up is a company’s inability to pay debts.
Under Section 254(1) of the Companies Act, a company is deemed unable to pay debts if it owes more than SGD 10,000 to a creditor and fails to pay this debt within 3 weeks after receipt of a demand to pay from the creditor.
However, in a bid to provide relief to financially distressed businesses, the Singaporean Government enacted the Temporary Measures Act. Proving insolvency is more difficult, as the money threshold before a company is deemed unable to pay its debts has increased from SGD 10,000 to SGD 100,000. The statutory period to pay a demand has a longer duration now, as it was increased from three (3) weeks to six (6) months. In essence, the Temporary Measures Act superseded Section 254(1) of the Companies Act.
After the issuance of a Winding up Order, a court-appointed liquidator oversees the corporate affairs. The liquidator adjudicates creditors’ claims and ensures the equitable distribution of corporate assets amongst them, as mandated in the Companies Act.
The Advantage of Hiring a Professional Corporate Services Provider
Closing a company requires strict compliance with statutory requirements and submission of legal paper-works. A corporate services specialist can help to ease the difficult process of business cessation by providing sound advice and assistance on how to liquidate assets and dissolve corporate existence through striking off or liquidation.