Closure of a Company under Companies

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1 Closure of a Company under Companies Act,2013 IQBAL KAUR & ASSOCIATES COMPANY SECRETARIES 12/40, First Floor, Subhash Nagar, New Delhi , Website : Mobile: ,

2 Winding Up Winding up of a company may be required due to a number of reasons including closure of business, loss, bankruptcy, passing away of promoters, etc. Winding up of a company is the stage, whereby the company takes its last breath. It is a process by which business of the company is wound up, and the company ceases to exist anymore. All the assets of the company are sold, and the proceedings collected are used to discharge the liabilities on a priority basis. It is a proceeding by means of which a company is dissolved and in the course of such dissolution its assets are collected, its debts are paid off out of the assets of the company or from contributions by its members, if necessary. If any surplus is left, it is distributed among the members in accordance with their right. A company can be closed by adopting the following ways:- Strike off a company under Section 560 : Section 560, of the Companies Act, 1956, deals with strike off provisions of a 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 issued vide General Circular No. 36/2011 dated Similarly, ROC has also power to strike off any defunct company after satisfying himself of the need to strike off a defunct company and has reasonable cause. But before passing any order in this regard, an opportunity of being heard must be provided to the defunct company by following the due procedure u/s 560. WINDING UP There are 3 types of winding up of companies:- Members voluntary winding up; o Creditor s voluntary winding up; By the Court i.e. compulsory winding up;

3 Who may File Petition Who may file Petition for the Winding up? An application for the winding up of a company has to be made by way of petition to the Court. A petition may be presented under Section 439 by any of the following persons: the company; or any creditor or creditors, including any contingent or prospective creditor or creditors; or any contributory or contributories; or all or any of the parties specified above in clauses whether together or separately; or The Registrar; or any person authorised by the Central Government in the case falling under Section 243, i.e., following upon a report of inspectors; or in case falling under clause (h) of Section 433, by the Central Government or State Government i.e. Company acing against the interest of the sovereignty and integrity of India.

4 Fast Track Exit under Companies Act, 2013 There are a number of companies, which are registered under the Companies Act, 1956, but due to various reasons they are inoperative since incorporation or commenced business but became inoperative or defunct later on. Such companies may be desirous of getting their names strike off from the Register of Companies maintained by Registrar of Companies FORM FTE: Application for striking off the name of company under the Fast Track Exit Mode Attachments: A duly certified statement of account by a chartered accountant in whole-time practice or statutory auditor of the company. Copy of Board resolution showing authorization given for filing this application. Affidavit (to be given individually by director(s). Indemnity bond (to be given individually or collectively by director(s). In case application is not digitally signed by the company representative, physical copy of application duly signed by the director, Managing g Director, manager or secretary authorised by the Board of Directors. Copy of no objection certificate (NOC) from concerned administrative Ministry/Department/ State Government. Any other information can be provided as an optional attachment. Note: For filing Form FTE fixed filling fees is Rs.5000/-.

5 Fast Track Exit under Companies Act, 2013 Continued 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 (has failed to file its returns with ROC and Stock Exchange for a consecutive period of two years, and is not maintaining its registered office; 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 duestowardsincometaxor sales tax or central excise or banks and financial institutions or any other Central Government or State Government Departments or authorities.

6 Voluntary Winding Up The companies are usually wound up voluntarily as it is an easier process of winding up. The Conditions in which a company may be wound up voluntarily are: When the period fixed for the duration of the company as mentioned in its articles has expired; or The event, on the happening of which the articles provide that the company is to be dissolved has occurred; The company passes a special resolution that the company be wound up voluntarily [Section 484 (1)]. Kinds of Voluntary Winding Up Section 488(5) divides voluntary winding up into two kinds: Members voluntary winding up; and Creditors voluntary winding up. Members Voluntary Winding Up A winding up in the case of which where a declaration of solvency has been made and delivered in accordance with Section 488 is referred to as a member s voluntary winding up. Requirements for voluntary Winding up Directors of the company shall call for a Board of Directors Meeting, and make a declaration of winding up, accompanied by an Affidavit, stating that; The company has no debts to pay, or The company will repay it's debts; if any, within 3 years from the commencement of winding up, as specified in declaration (488)

7 Voluntary Winding Up Continued Creditor s Voluntary Winding Up A winding up petition is a perfectly proper remedy for enforcing payment of a just debt. It is the mode of execution which the Court gives to a creditor against a company unable to pay its debts. Requirements for Creditor s voluntary Winding 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, they may call a meeting of creditors, for the purpose of winding up. (500) It is the duty of Board of Directors, to present a full statement of company s affairs, and list of creditors along with their dues, before the meeting of creditors. [500 (3)] Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar within ten days ofitspassing. (501) Key Note :-Shareholders must pass an ordinary or special resolution for winding up of the company

8 Members Voluntary Winding Up Checkpoint On Voluntary Winding Up The Company shall appoint one or more liquidators, in a general meeting, who shall look after the affair of winding up procedure, and distribution of assets. [490 (1)] The liquidator so appointed, shall be paid remuneration for his services, which shall also be fixed in general meeting [490 (2)] The Company shall also give notice of appointment of liquidator to the registrar within ten days of appointment (493) Once the company has appointed liquidator, the powers of Board of Directors, Managing Director, and Manager, shall cease to exist. (491) The liquidator is generally given a free hand, to carry out the winding up procedure, in such a manner, as he thinks best in the interest of creditors, and company. 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, and he shall present, a complete account of the procedure, and position of liquidator (496) Creditors Voluntary Winding Up Company in the general meeting [in which resolution for winding up is passed], and the creditors in their meeting, appoint liquidator. They may either agree on one liquidator, or if two names are suggested, then liquidator appointed by creditor shall act. (502) Any director, member or creditor may approach the court, for direction that: Liquidator appointed in general meeting shall act, He shall act jointly with liquidator appointed by creditor, or Appointing official liquidator, or Some other person to be appointed as liquidator. [502 (2)] The remuneration of liquidator shall be fixed by the creditors, or by the court. (504) On appointment of liquidator, all the power of Board of Directors shall cease. (505) In case, the winding up procedure, takes more than one year, then he will have to call a general meeting, and meeting of creditors, at the end of each year, and he shall present, a complete account of the procedure, and the status / position of liquidation (505).

9 Procedure for Winding up of the Company The following are the steps for initiating a voluntary winding up of a Company: Step 1: Convene a Board Meeting with two Director or by a majority of Directors. Pass a resolution that it will be able to pay its debts in full from the proceeds of the assets sold in voluntary winding up of the company. Also, fix a date, place, time agenda for a General Meeting of the Company after five weeks of this Board Meeting. Step 2: Issue notices in writing calling for the General Meeting of the Company proposing the resolutions, with suitable explanatory statement. Step 3: In the General Meeting, pass the ordinary resolution for winding up of the company by ordinary majority or special resolution by 3/4 majority. Step 4: On the same day or the next day of passing of resolution of winding up of the Company, conduct a meeting of the Creditors. If two thirds in value of creditors of the company are of the opinion that it is in the interest of all parties to wind up the company, then the company can be wound up voluntarily. If the company cannot meet all its liabilities on winding up, then the Company must be wound up by a Tribunal. Step 5: Within 10 days of passing of resolution for winding up of company, file a notice with the Registrar for appointment of liquidator. Step 6: Within 14 days of passing of resolution for winding up of company, give a notice of the resolution in the Official Gazette and also advertise in a newspaper with circulation in the district where the registered office is present. Step 7: Within 30 days of General Meeting for winding up of company, file certified copies of the ordinary or special resolution passed in the General Meeting for winding up of the company. Step 8: Wind up affairs of the company and prepare the liquidators account of the winding up of the company and get the same audited. Step 9: Call for final General Meeting of the Company. Step 10: Pass a special resolution for disposal of the books and papers of the company when the affairs of the company are completely wound up and it is about to be dissolved. Step 11: Within two weeks of final General Meeting of the Company, file a copy of the accounts and file and application to the Tribunal for passing an order for dissolution of the company. Step 12: If the Tribunal is satisfied, the Tribunal shall pass an order dissolving the company within 60 days of receiving the application. Step 13: The company liquidator would then file a copy of the order with the Registrar. Step 14: The Registrar, on receiving the copy of the order passed by the Tribunal then publish a notice in the Official Gazette that the company is dissolved.

10 By the Court Compulsory Winding Up Grounds on which a Company may be wound up by the Court:- A company under Section 433 may be wound up by the Court if: The company has passed a special resolution of its being wound up by the Court; or Default is made in delivering the statutory report to the Registrar or in holding the statutory meeting; or It does not commence business within a year from its incorporation or suspends business for a whole year; The number of its members in the case of a public company is reduced below seven and in the case of private company, below two; or It is unable to pay its debts; or The Court is of the opinion i thatt it is just and equitable thatt it should be wound up. The company has made a default in filing with the registrar its balance sheet and profit and loss account or annual returns for any five consecutive financial years. The company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality, or The court is of the opinion that the company should be wound up under the circumstances specified in Section 424G. Key Notes :- Provided that the tribunal shall make order for winding up of a company under clause (h) on application made by the Central Government or a State Government. The winding up petition is not a legitimate means of seeking to enforce payment of debt, which is bonafide disputed by the company.

11 Various Forms to be Filed for Winding Up of the Company Form GNL-2 to be filed with Registrar OF Companies with the Following Attachment as mention below :- SH9-Declaration of solvency Form 149 -Board resolution for winding up of the company Form 152-Appointment of liquidator Form 154-commencement of winding up Form 156-closure of winding up. Form 157-final winding up meeting. Form 158-final winding up meeting. Form 159- completion of winding up. Return of deposits or circular for inviting deposits or circular in the form of advertisement for inviting deposits. INC-28 Notice of Order of the Court or any other competent authority. MGT-14-Filing of Regulation & Agreement

12 THANK YOU For More Details and Suggestions you can contact us at: IQBAL KAUR & ASSOCIATES COMPANY SECRETARIES 12/40, First Floor, Subhash Nagar, New Delhi Website: Mobile: ,

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