Striking off is one of the processes available under the Companies Act 2016 for the dissolution of a company. When a company becomes dormant, and directors do not wish to continue incurring costs for its upkeep, striking off can be fast, straightforward and cost-effective. This article will set out the requirements and procedures by the Companies Act 2016, as well as the Companies Commission of Malaysia, for the striking off of a company which is not carrying on business or is not in operation 1.
Who can initiate the striking off process under section 549(a)?
The Registrar of Companies may strike off a company either on his own motion or through the application by a director, member or liquidator of a company to the Companies Commission of Malaysia.
In paragraph 3 of the "Guidelines on Application by Directors or Members to Strike Off the Name of a Company under Section 550 of the Companies Act 2016" 2 ("Guidelines") published by the Companies Commission of Malaysia, the Registrar may form his own opinion by looking into the company's records in the register.
However, it is more common for a director, member or liquidator of a company to request the Registrar to form his opinion based upon their application.
For a successful application, the applicant must ensure that the company fulfils the following requirements prior to the application 3:
- Shareholders pass a resolution approving the application to strike off the company on the basis that the company is no longer operational
- If a majority cannot be obtained due to untraceable shareholders, the application can still be submitted provided that attempts have been made to trace the whereabouts of the shareholder(s). These attempts must be made by way of registered post. Proof of other modes of attempt must also be attached to the application.
- To what extent would a company be rendered "operational"? In the reported case of RDS Bina Sdn Bhd v Ong Chin Hoe & Anor 2014 11 MLJ 606, the Court held that an operational company would be one which was engaged in negotiations and correspondence even if there were no business transactions.
- The company has no assets or liabilities
- If the company's last audited financial statement shows that the company has assets and liabilities, the applicant must submit documentary evidence to show that such assets have been disposed of and that such liabilities have been settled.
- If the company has not commenced operation at all, the applicant must declare that there has been no transaction since the company was incorporated, and there is no active bank account.
- The company has no outstanding charges in the Register of Charges kept with the Registrar
- The company has no outstanding penalties or offer of compounds under the Companies Act 2016
- The company has no outstanding tax or other liabilities with any Government department or agency
- The information of the company with the Registrar is updated
- If there are any differences or changes in respect of the information of the directors of the company, the company must first ensure that the Registrar's records are updated before an application for striking off is made.
- The company is not involved in any legal proceedings within or outside of Malaysia
- The company has not made any return of capital to the shareholders
- If a company still has its capital, the company should proceed with the voluntary winding up process instead, to formally cease its existence.
- The company is not a holding company
- The company is not a "Guarantor Corporation"
Other than the ten items above, an applicant may obtain further guidance on the application by a subsidiary company 4 or a company limited by guarantee 5, from the Guidelines.
Upon ensuring that the company has met all the requirements, the applicant will have to complete a declaration for the striking off of the company 6 and the checklist 7, together with a fee of RM100 to the Registrar. The applicant will have to lodge the documents at any of the offices of the Companies Commission of Malaysia.
After the lodgment of documents, the Registrar may serve on a company or the liquidator a notice 8. This notice will state that there will be a public notification of the intended striking off if there is no objection lodged with the Registrar within 30 days of the notice. Upon the expiry of the public notification (30 days), the Registrar shall then publish the name of the company, which has been struck off, in the Federal Gazette.
Any person may lodge with the Registrar an objection 9 to the application to strike off the company on the following grounds:
- The company is still carrying on business or there is other reason for it to continue in existence;
- The company is a party to legal proceedings;
- The company is in receivership or liquidation;
- The person is a creditor or a member or a person who has an undischarged claim against the company;
- The person believes that there exists, and intends to pursue, a right of action on behalf of the company;
- For any other reason, it would not be just and equitable to remove the company from the register.
What happens after a company is struck off?
After a company is struck off the Register, the company will dissolve and cease to exist. The company will no longer be able to conduct any form of business or transactions.
However, the liability of every director, officer or member of the company will continue and may be enforced as if the company has not been dissolved. In other words, even if a company is struck off, any past misconduct or breaches of law that relates to a director, officer or member of the company will still be enforceable against them. 10
Can a company which is struck off be reinstated?
A company which is struck off can be reinstated by the Court. Any person or business owner who is not satisfied with the decision of the Registrar to strike off the company may apply to the court to reinstate the company's name into the Register within seven years from the date it was struck off 11.
An example of a reinstatement can be seen in the case of Greenlinx Sdn Bhd & Anor v Suruhanjaya Syarikat Malaysia 2012 MLJU 464 12, where the name of the 1st Petitioner's company was struck off the register by the Respondent for its failure to file annual returns since 1999. The Petitioners argued that it was just that the company's name be restored to the register, as they were pursuing an ongoing counterclaim against another company at the time of the striking off. The Court held that it was just and equitable for the 1st Petitioner to be restored to the register so that it could proceed with its counterclaim against the other company. In short, the Courts are vested with the discretion to order the restoration of company names which have been struck off, provided that it is equitable to do so.
To strike off or to wind up?
Although striking off and winding up of a company achieve similar outcomes, i.e. the dissolution of a company, stakeholders are to consider the company's ability to fulfil the requirements set out above when making a decision.
If the company is fully compliant with the requirements, striking off would be more appropriate considering the efficiency, simplicity and lesser cost involved.
The striking off mechanism provides many advantages to business owners who do not wish to go through the more lengthy and tedious process of winding up a company. As such, business owners are encouraged to consider the viability of this avenue when planning for a business closure.
1 Section 549(a) of Companies Act 2016
3 Paragraph 5 of the Guidelines
4 Paragraph 6 of the Guidelines
5 Paragraph 7 of the Guidelines
6 Appendix 1 of the Guidelines
7 Appendix 2 of the Guidelines
8 Section 551(1), (2) and (3) of the Companies Act 2016
9 Section 552(1) of the Companies Act 2016
10 Section 554(1)(a) of the Companies Act 2016
11 Section 555(1) of the Companies Act 2016
12 Greenlinx's case is also reported here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.