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11.2.3 Winding-up
Liquidation is a common remedy sought by creditors when the company is insolvent.
There are two types of liquidation: voluntary and involuntary. 38 There are various
grounds on which application for liquidation can be made to the court; but the most
usual reason is insolvency.
Creditors of an insolvent company choose this remedy because once liquidation
commences, all actions against the company are frozen. The effect of this is assets of
the company, except those covered by charges, cannot be taken out of the company
and will form a pool of assets available for distribution. Once a winding-up order has
been granted by the court or a resolution is passed by a company, a liquidator will be
appointed to manage the affairs of the company.
One of the liquidator‘s main duties after being appointed is to accumulate assets of
the company to realize and later distribute them among creditors in accordance with
the law. In addition to assets belonging to the company, the law empowers a
liquidator to recover those which have been disposed of or transferred to another
person in certain circumstances. A liquidator has the right under the law to apply to
the court for a declaration that the transaction is void or voidable on the basis it
confers unfair or improper advantage on one creditor at the expense of the general
body of creditors. 39 In winding up, any disposition of the property, transfers of shares
or any alteration in the status of company‘s members after the commencement of
winding up is void unless the court otherwise orders. 40 The power of the court to
make a validation order is absent in Australia and New Zealand. The liquidator is
also allowed to apply for an order that the charge over property or undertakings of
38 A voluntary liquidation takes in two forms: members‘ and creditors‘. A winding-up by court order
is initiated by an application to the court by a person, normally a creditor as listed in the statute.
39 See section 239 of the UK Insolvency Act 1986; section 293 of the New Zealand Companies Act
1993; section 588FA-FD of the Australian Corporations Act 2001; and section 293 of the
Malaysian Companies Act 1965.
40 See section 127 of the UK Insolvency Act 1986 and section 223 of the Malaysian Companies Act
1965.
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