Cessation occurs when unproductive firms decide to conclude their corporate affairs. It may happen when venturing into a particular enterprise does not go according to plan. Some of the reasons for ceasing business activities are as follows:
- Economic slow down
- Unsuccessful business model
- Lack of Profitability, Financial difficulties or bankruptcy
- Costs of maintenance of business and continued operations have become unsustainable
- Internal restructuring voluntary agreed upon by the stakeholders
- Oppression or disputes amongst the members or shareholders which have become irresolvable pursuant to section 216 of the Companies Act
- Management deadlock
- Minimizing tax liabilities or maximizing tax advantages
Current Statistical Trends on Singapore’s Cessation Rate
In Singapore, the cessation growth of businesses and companies has escalated over the years.
From 2010 to 2016, the closing down of companies roughly doubled. In 2014, the escalation rate hit 7.3%. In 2015, it increased to 7.6% and went higher in 2016, reaching 7.8%. On the other hand, the number of business closures also rose in the last two years, with a 22% cessation rate.
In general, 2015 and 2016 witnessed a rise in business and company cessation rates across all sectors, with the transportation, retail trade and storage sectors having the most significant contributors to the increase.
Closing a company takes several forms, which may either be striking off or winding up:
Pursuant to Section 344 of the Companies Act, an application for striking off may be filed with the ACRA if a company is not carrying on its intended business, has ceased trading, and has complied with the requirements for striking off. Before approval, the applicant company must prove that, at the time of its application , it has no existing assets and liabilities, nor any contingent assets and liabilities in the future. A majority vote of shareholders and a unanimous vote of directors expressing their consent to the application are likewise needed. If the application, along with its attached documents, is found meritorious, the ACRA and IRAS will send a strike off letter to the applicant company.
Liquidation / Winding up
Winding up, as compared to striking off, is more formal. It entails appointing a liquidator vested with powers under the Companies Act to oversee the seizure and realisation of corporate assets, payment of corporate debts and distribution of surplus proceeds to shareholders or contributories in line with their rights and interests.
Liquidation may either be voluntary or compulsory. Voluntary winding up is initiated by members or creditors when, in their honest assessment, the company can no longer fully pay off its debt within 12 months or can no longer continue business. In compulsory winding up, a court order is necessary. It may be ordered when a company commits a breach of statutory provisions, amounting to a statutory offence or when it acts outside its scope of powers, otherwise known as ultra vires acts.
Engage Corporate Services to Help With Company Cessation
If you intend to wind up your corporate affairs and liquidate assets, consult with a reputable company with in depth knowledge on business cessation. Contact Corporate Services today and let our specialists guide you through the process and the necessary paperwork, in strict compliance with statutory mandate.