Dissolution of companies

Topic: Dissolution of Companies

Introduction

• Dissolution is the last stage of liquidation, the process by which a company (or part of a company) is brought to an end, and the assets and property of the company redistributed.

• Dissolution may also refer to the termination of a contract or other legal relationship; for example, the dissolution of a marriage, or divorce.

Companies may be dissolved for any one of the following reasons:

• The term of operation prescribed by the company's articles of association has expired, or any other cause for dissolution prescribed by the company's articles of association has occurred.

• The shareholders meeting or the general meeting of shareholders has adopted a resolution for dissolution.

• Dissolution is required due to merger or division of the company.

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• The business license of the company is revoked by law, or the company is ordered to terminate or cancelled.

• The company is dissolved by the people’s court in accordance with the provisions of Article 183.

Winding Up of Companies

• Winding up is a process in which the existence of a company is brought to an end, where assets of a company are collected and realized.

• The proceeds collected are used to discharge the company’s debts and liabilities and the remaining balance (if any) will be is distributed amongst the contributories according to their entitlement. 

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There are 2 modes of winding up:

• Voluntary winding up

• Winding up by Court

Voluntary winding up

• Members’ voluntary winding up is the liquidation of a solvent company where the directors have formed an opinion that the company will be able to pay its debts in full within the period of 12 months after the commencement of winding up as stated  under section 257 of the CA 1965.

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• Creditors’ voluntary winding up is a liquidation of an insolvent company where the directors make a declaration stating that the company cannot, by reason of its debts and liabilities, continue its business. A meeting between the company and its creditors must be summoned within 1 month from the date of the declaration.

Company winding up by Court

• Winding up by Court is also known as a compulsory winding up. It begins with the presentation of a petition in Court. The petitioners include creditors, liquidator, the Registrar of companies or the Official Receiver under section 217(1) of Companies Act 1965.

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