Background
During the first half of 2020, the Myanmar government passed a new Insolvency Law and Insolvency Rules to deal with the restructuring and liquidating of insolvent companies and businesses. The Insolvency Law and Rules also provide for solvent companies to be liquidated by way of a voluntary winding up with the approval of the shareholders of the company. The Insolvency Law states that, once it has been passed by the Myanmar government, all windings up must be conducted under the Insolvency Law rather than under the Myanmar Companies Law 2017 (MCL), which also contains provisions for windings up of companies. However, the Insolvency Law and Rules have not yet been implemented in practice. Instead, the Myanmar Directorate of Investment and Company Administration (DICA) is currently still allowing company windings up to be conducted under the MCL (notwithstanding that windings up should now be conducted under the Insolvency Law).
It is possible that the Insolvency Law and Rules will be more fully implemented in the near future and that DICA will commence administering windings up under the Insolvency Law. As the winding up process under the Insolvency Law is relatively similar to that under the MCL, there will hopefully be little practical impact on voluntary windings up from any changeover in the governing legislation.
Summary of the Voluntary Winding Up Process
Officially dissolving and de-registering a company in Myanmar requires that the company be liquidated. The most common method of liquidation is by way of a members (i.e. shareholders) voluntary winding up. The main steps in a members’ voluntary winding up are:
A Myanmar Certificate Practising Accountant (CPA) is engaged to prepare a financial report on the solvency of the company. The CPA will usually be the same one who is appointed as liquidator.
The directors make a declaration and swear an affidavit confirming the solvency of the company.
The financial report and directors declaration and affidavit regarding solvency are filed with DICA (the company regulator).
A liquidator – who is a Myanmar CPA – is appointed via a special resolution of the shareholders of the company (i.e. a resolution approved by at least 75% of the shareholders present at the shareholders meeting). The appointment of the liquidator is advertised in the Myanmar Government Gazette and in a national newspaper.
Notification of the appointment of the liquidator is filed with DICA.
The liquidator then deals with the remaining assets and liabilities of the company, including obtaining a tax clearance notice/letter from the Myanmar Internal Revenue Department (IRD) confirming that the company has no outstanding tax liabilities.
Once the liquidator has fully finalised the affairs of company, s/he prepares a final report on the conduct and results of the winding up.
A final general meeting of the shareholders is called and the holding of the final meeting is advertised in the Myanmar Government Gazette and in a national newspaper.
The shareholders approve the liquidator’s final report at the final general meeting.
The liquidator’s final report on the winding up, confirmation that a final general meeting has been held and a copy of the IRD tax clearance notice/letter is filed with DICA.
Three months after the filing of the final documents with DICA, the company will be deemed to be dissolved and DICA will remove the company from its registry. DICA will issue a written confirmation of the dissolution and deregistration.
The liquidator provides the written confirmation of dissolution/deregistration from DICA to the company’s bank and requests that the bank closes the company’s accounts and transfers any remaining funds to the shareholders based on the company having been liquidated.
Some Points Regarding the Role and Activities of the Liquidator
Once the liquidator is appointed, the directors no longer have any authority to manage the affairs of the company. This authority will instead pass to the liquidator for the purposes of finalising the company’s remaining affairs.
There are very few formal requirements for the conduct of a voluntary winding up under the MCL. Essentially, the liquidator must undertake an orderly liquidation of the company and its assets to dispose of and finalise all remaining assets and liabilities of the company, and then report to the shareholders on the results of the liquidation. One of the key steps in this process is obtaining a tax clearance notice/letter for the company from the IRD confirming that the company has no outstanding tax liabilities. The liquidator will take over the processing of any outstanding tax filings and affairs of the company. However, due to inefficiencies within the IRD, even where a company’s tax affairs are largely finalized and in order it generally takes at least several months to obtain a tax clearance notice/letter.
If the affairs and assets of the company have been largely finalised and disposed of by the company’s management prior to commencement a voluntary winding up (e.g. by dismissing employees, selling assets, closing the office, etc.) the amount of activity required of the liquidator will be much reduced. The same applies regarding liquidation of a dormant company that has not had any activities as yet and does not have any financial records to analyse regarding solvency nor any assets/liabilities to deal with.
Conclusion
In general, it should always be preferable for the shareholders of a company to institute a members voluntary winding up, rather than the company being subject to a creditors winding up or court-ordered winding up. This is the case because with a members voluntary winding up the company’s management can undertake much of the closing down of the company’s affairs prior to commencing the formal winding up process, and the company is able to select its own liquidator and ensure that it chooses someone who is well-qualified and with whom the shareholders are comfortable.