askST: What happens when a company files to wind up?

A Insolvency - being unable to pay debts when these are due - is a common reason to wind up a company. When this happens, its affairs and assets are entrusted to a liquidator.

The latter will aim to realise a company's assets and pay dividends to creditors, said Mr Gary Loh and Mr Leow Quek Shiong from BDO Singapore's restructuring and forensic department.

Typically, when a company is wound up, its operations will cease, although a liquidator may carry on the business if it is beneficial for the winding up.

It appears that the appointed provisional liquidators for Dream Cruises are reviewing affairs and may not have made any decision to stop operations, Mr Loh and Mr Leow said.

A winding-up application does not mean a company is bankrupt. It is an application to the court to decide if the company should be wound up, said Mr Victor Goh, partner and practice leader of restructuring and recovery at Baker Tilly Singapore.

The court can dismiss the application, or order the company to wind up and appoint provisional liquidators or liquidators.

Generally, provisional liquidators can help to safeguard the assets of a company before the court appoints a liquidator.

For example, it prevents proceedings against the company from starting, such as creditor action.

For Genting Hong Kong, this gives the company space, so that its provisional liquidators can determine if restructuring is possible, Mr Goh said.

A In Singapore, liquidation would mean a liquidator taking over the business and winding it down with the aim of paying off creditors, said Mr Paresh Jotangia, a restructuring and insolvency partner at Grant Thornton Singapore. One option is selling the company's assets.

Restructuring is like resuscitating the company through operational or financial changes, such as rescheduling debts.

A successful restructuring, which tends to bring about better returns to creditors than liquidation, depends on several factors such as creditor support, available cash and whether new investors can be found.

If a restructuring fails, it is likely the firm will liquidate, he said.

Q Will a winding-up application for one company affect its subsidiaries?

A It would apply only to the specific entity, said Mr Tan Wei Cheong, executive director of financial advisory at Deloitte Singapore.

However, related companies within a group would typically have intertwined business relationships and flows of funds, such as a subsidiary relying on financial support from the parent company.

A default by any entity may trigger cross defaults across the entire group.

In other situations, different groups may have a common controlling shareholder but may not have intertwined banking relationships that could cause cross defaults.

Q How will consumers be affected?

A In a liquidation, net funds will be distributed to creditors based on their priorities under the relevant laws.

Certain claims of creditors will be accorded a higher priority, such as those who had been pledged assets of the company.

Consumers with claims against insolvent companies are typically unsecured creditors and likely will recover just a fraction of their claims, said Mr Tan.

Examples of unsecured creditors would be people who had paid for cruises, or other day-to-day suppliers or contractors, said Mr Jotangia.