Success is liked by everyone and all work to achieve that. But success cannot be headline of your business forever. While running a business one shall hope for the best and shall be prepared for the worst. In India, many companies and startups faces shutdown situation. For many shutdown does not mean getting buried in soil but for them it means coming back with a spark from those broken pieces. For businesses to do a comeback they need to first close down the running business. Such companies get stuck between the verge of in-operation and getting close. The way of closing a business in India goes through a twisted process thus, becoming a challenge. The process of incorporating a company is easier as compared to closing the same. Few expressed their views as you have many options to get in but there is no way to opt out. To understand the issue let us find out shutdown processes in brief. A company can be closed by adopting the following ways: (A) Strike off a company under Section 560: Defunct Company: Any defunct company desirous to strike off its name from the register of Registrar of company can apply in Form FTE for strike off its name from the register maintained by ROC as per Guidelines for ‘FAST TRACK EXIT MODE’ Conditions to be fulfilled for Sec. 560:
- There must be nil assets and liabilities in the company
- The company should not have done any business since incorporation or the business is closed for the last one year.
The company will be struck off by paying specified fees to the Ministry of Corporate Affairs.
Procedure:
- Apply to Registrar of Companies in Form FTE
- Form FTE, should be filed electronically on the Ministry of Corporate Affairs portal with required fees
- Form FTE, shall be certified by a Chartered Accountant in whole time practice or Company Secretary in whole time practice or Cost Accountant in whole time practice
- If the applicant’s name doesn’t match with the database of directors maintained by the Ministry, the application shall be accompanied by the certificate from the practicing CA/CS/CWA certifying that the applicants are present directors of the Company
- Any pending litigations involving the company should be disclosed while applying under this Scheme
- Many attachments to be attached like an affidavit, indemnity bond, statements of accounts and many more
- The Registrar of Companies shall examine the same and if found in order, shall give a notice to the Company stating its name be struck off from the Register within 30days if no cause is shown
- The Registrar of companies shall put the name of applicant(s) and date of making the application(s) under Fast Track Exit mode
- In case of company(s) like Non-Banking Financial Company(s), Collective Investment Management Company(s) which are regulated by other Regulator(s) namely RBI, SEBI, the Registrar of Companies, at the end of every week, after the Scheme commences, shall send intimation of such Companies availing Fast Track Exit mode, during that period to the concerned Regulator(s)
- The Registrar of Companies immediately after passing of time given in above sub-paras and on being satisfied that the case is otherwise in order, shall strike its name off the Register and shall send notice and shall stand dissolved from the date mentioned.
(B) WINDING UP Section 425, of Companies Act, 1956, deals with modes of winding up. The winding up of a company may be either – (a) By the Court/ Tribunal (also known as compulsory winding up) (b) Voluntary winding up (c) subject to the supervision of the Court Conditions to be fulfilled for winding up by the Tribunal:
- The company by special resolution has resolved that it shall be wound up by the Tribunal
- Number of members reduced below the specific limit
- Company is unable to pay its debt
Procedure:
- Petition for winding up shall be made
- Statement of Affair to be filed
- The petition for winding up shall be made in Form 45, 46 or 47 prescribed under Rule 95 of the Companies (Court) Rules, 1959.
- A copy of the petition is to be furnished to the creditor within 24 hours
- The Petition is be advertised in Form No. 48 of within time prescribed
- Apply to the concerned High Court with an affidavit to appoint liquidator
- Obtain order of the concerned High court appointing the same
- advertised in Form No. 5 within time prescribed
- File with the ROC, a certified copy of the order in Form No. 21 within 30 days
- A statement of Affairs of the Company in Form No. 57 must be submitted to the Official Liquidator
- The winding up of a Company by order of the concerned High Court shall be deemed to be concluded
Overview of Winding up You can get a general picture from the following steps of winding up which are summarized below (except Voluntary winding up)
- Issuing a written demand for debt payments to the target company.
- Present a winding up petition to the court and the company
- Court hearing for the petition
- Granting of winding up order by the court
- Meeting of creditors and other relevant parties
- Appointment of liquidator.
- Realization and distribution of company’s assets to the creditors
- Realize of duties for liquidator
- Lastly, dissolution of the company.
Voluntary Winding up Voluntary winding up which may be: i) Member’s Voluntary winding up. ii) Creditor’s Voluntary winding up. In case of voluntary winding up, the entire process is done without court supervision. When the winding up is complete, relevant documents are filed before the court for obtaining the order of dissolution. Members’ Voluntary wind up
- The company has no debts to pay
- The company will repay it’s debts; if any, within 3 years from the commencement of winding up, as specified in declaration (488)
Creditors’ Voluntary Wind Up
- Where the resolution for winding up has been passed, but the Board of Directors are not in a position to give a declaration on the liability of company
- Board of Directors shall present a full statement of company’s affairs, and list of creditors along with their dues, before the meeting of creditors
- Whatever resolution, the company passes in creditor’s meeting, shall be given to the Registrar within ten days of its passing
Procedures:
- Appoint liquidator
- Pay remuneration to liquidator
- Intimate registrar within 10 days
- After appointment power of Board of Directors, Managing Director, manager cease to exist
- In case, the winding up procedure, takes more than one year, then liquidator will have to call a general meeting, at the end of each year
Difficulties:
- Time taken too long
- Recovery is low (12-13%)
- Costly
Thus, while going through above procedures in brief, we shall be able to conclude that tough we have many ways but those ways are very long and costly to follow. The Acts in India have stringent rules which shall be abide. If any contravention made then winding up process shall stand nullified. Though while incorporating a company we do not think of shutting down the same but as we said earlier hope for the best and be prepared for the worst. When start-ups want to restart, they find themselves stuck in net of wind up process which results in backing off. The wind up process generally, ends with high cost and various litigations which ultimately harasses the business owners. So, Startups, think twice before you start a closure.. Starting is an ease but closure is difficult.
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