Closing a Company

 A company may wind up its affairs in two ways:-

i. Fast Track Exit  

ii. Voluntary Winding Up

Who can apply under this mode?

(i) has not commenced any business activity or operation since incorporation; or

(ii) is not carrying over any business activity or operation for last one year before making application under FTE.

Who can’t apply under this mode?

The fast track exit mode is not being extended to the following companies namely:-

· Listed companies;

· Companies that have been de-listed due to non-compliance of Listing Agreement or any other statutory Laws,

· Companies registered under section 25 of the Companies Act, 1956;

· Vanishing companies;

Listed with Stock Exchange which, has failed to file its returns with Registrar of Companies and Stock Exchange for a consecutive period of two years, and is not maintaining its registered office at the address notified with the Registrar of Companies or Stock Exchange and  none of its directors are traceable.

· Companies where inspection or investigation is ordered and being carried out or yet to be taken up or where completed prosecutions arising out of such inspection or investigation are pending in the court;

· Companies where order under section 234 of the Companies Act, 1956 has been issued by the Registrar and reply thereto is pending or where prosecution if any, is pending in the court;

· Companies against which prosecution for a non compoundable offence is pending in court;

· Companies accepted public deposits which are either outstanding or the company is in default in repayment of the same;

· Company having secured loan ;

· Company having management dispute;

· Company in respect of which filing of documents have been stayed by court or Company Law Board (CLB) or Central Government or any other competent authority;

· Company having dues towards income tax or sales tax or central excise or banks and financial institutions or any other Central Government or State Government Departments or authorities or any local authorities.

Process:

1) Application to the ROC under FTE form attaching the specified documents,

2)  Approval of ROC (if no dispute found).

After the approval of the Company will stand struck off in the Register of the Companies.

Documents required for submission:

For making application under FTE the following documents will be required:

1) Affidavit (as per specified format) by the existing directors that which should be sworn  before a First Class Judicial Magistrate or Executive Magistrate or Oath Commissioner or Notary, to the effect

·  that the company has not carried on any business since incorporation or

· that the company did some business for a period up to a date (which should be specified) and then discontinued its operations, as the case may be

2)  an Indemnity Bond, duly notarized, by every director individually or collectively, to the effect that

· any losses, claim and liabilities on the company, will be met in full by every director individually or collectively, even after the name of the company is struck off the register of Companies

3) DSC of existing director or Authorization to a professional to affix his DSC

4) A Statement of Accounts duly certified by a professional.

5) Resolution.

Time Taken: 30 to 40 days.

Cost Involved:

1) Rs. 5000/- for ROC Filing

2) Professional Charges

3)  Cost of preparation of documents and other miscellaneous charges.

A company may, voluntary wind up its affairs, if:

a. it is unable to carry on its business, or

b. if it was formed only for a limited purpose, or

c. if it is unable to meet its financial obligation, and etc.

Any company may voluntarily wind up itself, either by passing:

· An ordinary resolution in General Meeting, where the purpose for which the company was formed has completed, or the time limit for which the company was formed, has expired. Or      

· By way of special resolution in general meeting.    

Modes of Voluntary Winding Up:

1) Members’ Winding Up

2) Creditors’ Winding Up

Process of Winding Up

1) BOD meeting before winding up:

I. Where it is proposed to wind up a company voluntarily, its directors, or in case the company has more than two directors, the majority of the directors, may at a meeting of the board, make a declaration verified by an affidavit, to the effect that:

a. they have made a full enquiry into the affairs of the company and that having done so, they have formed the opinion that the company has no debts, or

b. that it will be able to pay its debts in full within such period not exceeding 3 (three) years from the commencement of the winding up as may be specified in the declaration.

The above declaration will accompanied by:

- Audited accounts ( from the financial year to the date of declaration)

- Statement of copy of assets or liabilities as at that date,

- Report of auditor for the above

II) Approve the draft resolution for the following on behalf of the board:

- Voluntary winding up

- Appointment of Liquidator

- Fixing the remuneration of Liquidator

- Date, time ,place etc. for the General Meeting.

III) Declaration (mentioned in pt. I, to be effective, must be made at least 5 weeks before the passing of the ordinary/special resolution in the general meeting commencing the voluntary winding and has to be delivered to the Registrar of Companies (“ROC”) within the said period.

2) General Meeting in order to approve the following resolutions:

-  Voluntary winding up

-  Appointment of Liquidator

-  Fixing the remuneration of Liquidator

3) File notice of appointment of liquidator within 10 days to ROC

4) Submit to the liquidator a statement of Company’s affairs duly verified by a affidavit within 21 days of commencement of winding up.

5) File form-23 for the special resolution.

6)Notice of the commencement of winding up has to be made in the Official Gazette (by applying to the Registrar of Companies) within 14 (fourteen) days of the commencement of the winding up. Further, the notice of the commencement of winding up has to be published in some newspaper circulating in the district, where the registered office of the company is situated.

7) Once the company has appointed liquidator, the powers of Board of Directors, Managing Director, and Manager, shall cease to exist;

8) Every liquidator of a company being wound up is to give notice of his appointment as liquidator to the income tax officer having jurisdiction to access the income of the company, within thirty days of such appointment as the liquidator will be held as the principal officer of the company for tax assessment.

9)In case, the winding up procedure, takes more than one year, then liquidator will have to call a general meeting within 3 months from the end of every year, at the end of each year, and he shall present, a complete account of the procedure, and position of liquidator; 

The liquidator shall take the following steps, when affairs of the company are fully wound up:

10) Make up an account of the winding up showing how the winding up has been conducted and the property of the company has been disposed of;

11) Call a General Meeting and a meeting of the creditors (in case of creditors winding up through advertisement.

-  At the meeting, place the accounts

-  pass a special resolution for disposal of the books and papers of the company

12) Liquidator will send report to Official Liquidator and ROC  within a week before the General Meeting.

13) File the Special Resolution with the ROC, within 30 days of passing in Form No. 23 after paying the requisite fee.

14) If the Official Liquidator is satisfied that the winding up is-

a) Prejudicial to interest of member or public-further investigation

b) Not prejudicial to interest of member or public- make a report to the concerned High Court. From the date of the submission of the report to the concerned High Court the company is deemed to be dissolved.  

Creditors’ Liquidation

The process of winding up by the creditors is almost the same keeping in view the following points:

(a) Where it is proposed by the creditors’ of the company to wind up the company voluntary, the meeting of the creditors of the company must be called on the day, or the day next the following day, on which the general meeting of the company at which the resolution for voluntary winding up is to be proposed and the notice of the meeting of the creditors is to be sent to all the creditors along with the notice of the general meeting of the company.

(b) The Board of Directors of the company shall present before the creditors full statement of the position of the company’s affair together with the list of creditors of the company and the estimated amount of their claims.

(c)Where at the meeting of the creditors any resolution is passed, the notice of such resolution shall be given to the Registrar within the 10 days of passing of such resolution.

(d) The creditors and the company at their respective meetings, may nominate a person to be the liquidator for undertaking the winding up process, however, where at the creditors meeting and the meeting of the company different persons are nominated as the liquidator then in that case the person nominated by the creditors shall be the liquidator of the company.

(e)  The creditors may at the meeting appoint a committee to inspect the whole procedure of winding up of the company.

(f) The committee of inspection, if any, or the creditors may fix the remuneration of the liquidator however where they fails to fix any remuneration in that case the remuneration of the liquidator is fixed by the Tribunal.

(g) The liquidator of the company shall exercise all the powers as are vested with the Board of Directors of the company further the provisions of Section 494 powers of liquidator in case of members’ voluntary wing up) shall equally apply in the case of creditors voluntary winding up with the modification that the powers of the liquidator shall not be exercised except with the sanction of either the Tribunal or the committee of inspection, if any appointed. 

(h)  The Liquidator shall call the general meeting of the company and the meeting of the creditors at the end of the each year where the winding up continues for more than one year within three months from the end of each year or such longer period as Central Government may allow and shall present before the meeting an accounts of his acts and dealings and of the conduct of the winding during the preceding year undertaken by him

(i) As soon as the affairs of the company are fully wound up, the liquidator shall,

(i) Make up an account of the winding up showing how the winding up has been conducted and the property of the company has been disposed of; and

(ii)Call a general meeting of the company and a meeting of the creditors for the purpose of laying the account before it, and giving any explanation thereof

Expenses Involved:

1) Charges for calling General Meetings notice issues, advertisements etc.

2) Remuneration of Liquidators.

3) Cost of filing forms to ROC and others,

4) Other chargers of professional if indulges.