When can associations be wound up?
Winding up refers to the order which is given by a court, shutting down the business of a company, and liquidating its assets to pay for its debts. Based on a recent Singapore case, Siti Hasmah binte Adam v Majlis Pusat Singapura [2024] SGHC 158, associations which are in debt, could be wound up.
According to the Straits Times, the Majlis Pusat Singapura was formed in 1969, shortly after Singapore became independent in 1965. It represented the Malay community and was a voice for Malay language and Malay culture.
Between 2015 to 2020, Majlis Pusat Singapura engaged Three Aces, a company owned by Siti Hasmah binte Adam, to operate its childcare center. Over time, its debts to Siti Hasmah increased, and eventually, Siti Hasmah decided to demand payment of SGD393,207.91. A statutory notice was served on Majlis Pusat Singapura. After that, a winding up petition was filed.
Unfortunately, counsel for Majlis Pusat Singapura did not oppose the winding up petition. The court found that there was no grounds to disallow the winding up petition.
But on what grounds can an association be wound up?
In Singapore, the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) makes the following provisions:
- Section 245(1) IRDA: “Unregistered company” includes, inter alia, an association;
- Section 246(1)(c)(ii) IRDA:“any unregistered company” may be wound up if it is unable to pay its debts
- Section 246(1)(c)(iii) the “unregistered company” may be wound up if the Court is of opinion that it is just and equitable to do so
- Section 246(2)(a) of IRDA, an unregistered company is deemed to be unable to pay its debts if for three weeks after the service of a statutory demand, it neglected to pay the sum demanded or to secure or compound for it to the satisfaction of the creditor.
There is also Singaporean case law that supports the assertion that an association is to be regarded as an unregistered company: Public Prosecutor v Wong Hong Toy and anor [1985–1986] SLR(R) 126 at [66]–[69].
Winding up associations under Malaysia’s Companies Act
Upon inspection of the Malaysian Companies Act 2016 (CA 2016), it appears that similar provisions exist. These include:
- Section 544, CA 2016: “Unregistered company” includes an association;
- Section 545(1)(c)(ii): An unregistered company can be wound up if it cannot pay its debts;
- Section 545(1)(c)(iii): An unregistered company can be wound up if a court is of the opinion that it is just and equitable to wind it up;
- Section 546(2)(a): An unregistered company is deemed unable to pay its debts, for three weeks, after a notice has been served upon it by a creditor to demand payment.
Other grounds to wind up associations
It is also apparent that unregistered companies, i.e. associations, may be wound up on the following grounds.
- Section 545(1)(c)(i) CA 2016: If it has ceased to carry on business, become dissolved, or ceased to have a place of business;
- Section 545(1)(c)(iv) CA 2016: If it is being used for unlawful purposes, or any purpose prejudicial to, or incompatible with, peace, welfare, security, public interest, good order, morality.
What happens after an association is wound up?
This case is probably quite a unique one, and I am sure that it will be a good case for reference in the future. Unfortunately, for better or for worse, an association, or unregistered company, which is wound up, can expect the following:
- Appointment of liquidator: A liquidator will be appointed by the court to liquidate the assets of the unregistered company (which could include its trademarks), to pay for its debts;
- Closing down of business: All business activities will be closed down eventually, as liquidation takes place;
- Its contributories will be called upon to pay, or provide payment, for all debts due to the unregistered company.
The relevant provisions in Malaysian law do mirror that of Singaporean law. We hope to see some cases use these provisions in the future.
Even if it sometimes appears to be unfair, there are legitimate reasons to wind up a company. Since an association can be regarded as an unregistered company, an association can be wound up.
If your association faces this kind of problem, maybe we can help. Maybe.
That’s all for this time. Thanks for reading.
Disclaimer
Please do not treat this article as a substitute for legal advice from a qualified professional. Please consult with a legally qualified professional before making any decision based on its content.