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Understanding the Voluntary Liquidation Process

Learn about the removal of company names and the voluntary liquidation process as per Companies Act, 2013. Guidelines, restrictions, and steps explained in detail.

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Understanding the Voluntary Liquidation Process

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  1. REMOVAL OF NAMES OF COMPANIES&VOLUNTARY LIQUIDATION PROCESS PRESENTED BY: ASHOK TYAGI, FCS E-130, GREATER KAILASH–1 NEW DELHI 110048 E-mail:atyagi53@gmail.com Mob: 9810070575

  2. Removal of Name of Companies MCA has notified the Sections 248 to 252 of the Companies Act, 2013 (the Act) and Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016  on 26th December, 2016. • Registrar of Companies (ROC) shall issue a notice for strike off of name of a company on the following reasons: • if a company has failed to commence its business within one year of its incorporation, or • if a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under Section 455 of the Act. • A Company may, after extinguishing all its liabilities, by a special resolution or consent of 75% members in terms of paid-up share capital, file an application to the Registrar of Companies on all or any of grounds stated above for removing the name of the company from the register of companies.

  3. The following companies shall not be removed from Register of Companies under Rule 3 and Rule 4 of the Companies (Removal of Names of Companies from Register of Companies) Rules, 2016: • Listed companies; • Delisted companies due to non-compliance of listing regulations; • Vanishing companies; • Companies under inspection or investigation; • Companies against which any prosecution is pending or an application for compounding of offences is pending; • Companies which have defaulted in repayment of public deposit etc.; • Companies having charges pending for satisfaction; • Companies registered under Section 8 of the Companies Act, 2013 or Section 25 of the Companies Act, 1956.

  4. Restrictions On Making Application Under Section 248 • A company shall not make an application for removal of name, if at any time in previous three months, it has: • Changed its Name or Shifted its Registered Office from one state to another; • Disposed of any property or rights held before cesser of trade or otherwise carrying on business; • Changed its activity except the one which is necessary or expedient for the purpose of making an application under Section 248, or deciding whether to do so or concluding the affairs of the company, or complying with any statutory requirement; • Made an application to the Tribunal for sanctioning the scheme of compromise or arrangement and the same is pending before the Tribunal. • Companies under winding up process. • Note:- If a company files an application under Section 248(2) in violation of these restrictions, it shall be punishable with fine which may extend to one lakh rupees.

  5. The Process… The ROC shall send a notice in Form STK-1 to all the directors of the company containing reasons for removal of name of the company and seeking representations along with copies of the relevant documents, if any, against the proposed action within a period of 30 days from the date of notice; OR A company may file an application in E-Form STK-2 along with the fee of Rs. 5000 to the ROC for removing the name of the company from the register of companies on all or any of the ground specified in Section 248(1) and the Registrar shall, on receipt of such application, cause a public notice to be issued. (Section 248(1) read with Rule 4). Every application under Rule 4(1) shall be accompanied with a No Objection Certificate (NOC) from appropriate Regulatory Authority, as applicable. Form STK-2 shall be certified by a Chartered Accountant or a Company Secretary or a Cost Accountant in whole time practice.

  6. ROC shall publish the notice in Form STK 5 or STK 6, as the case may be, which should be placed on MCA website, published in the Official Gazette and also in an English and vernacular newspaper as prescribed. • ROC shall, simultaneously intimate the concerned regulatory authorities having jurisdiction, seeking their objections, if any within 30 days from the date of issue of letter of intimation. • ROC thereafter shall strike-off/remove the name of the company from the register of companies and publish a notice of dissolution of company in the Official Gazette in Form STK-7. • If a company files an Application with an intention to deceive or defraud any creditor or other person or evade its liabilities, then the person in charge of the management shall be liable to such person or creditor who incurred loss or damage and such person shall be punishable for fraud in the manner provided in Section 447 of the Act.

  7. . • Attachments to E-Form STK-2 • Indemnity bond duly notarized by every director in Form STK 3; • A statement of accounts containing assets and liabilities of the company made up to a day, not more than 30 days before the date of application and certified by a Chartered Accountant; • An affidavit in Form STK 4 by every director of the company; • A copy of the special resolution duly certified by each of the directors of the company or consent of 75 per cent of the members as on the date of application; • A statement regarding pending litigations, if any, involving the company (it should be given in affidavit format).

  8. Appeal to Tribunal • Any person aggrieved by an order of the Registrar, notifying a company as dissolved under Section 248, may file an appeal to the Tribunal (NCLT) within a period of 3 years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the name of the company from the register of companies is not justified in view of the absence of any of the grounds on which the order was passed by the Registrar, it may order restoration of the name of the company in the register of companies. • ROC may also make an appeal to the Tribunal within a period of 3 years from the date of the order under Section 248 if he is satisfied that name has been struck off either inadvertently or on the basis of incorrect information. • The Tribunal may also order the restoration of name of the company on the application made by any member or creditor or workman before the expiry of 20 years from the publication in Official Gazette.

  9. REMOVAL OF NAMES UNDER COMPANIES ACT, 2013 vs REMOVAL OF NAMES UNDER COMPANIES ACT, 1956 A COMPARATIVE ANALYSIS…..

  10. Voluntary Liquidation of Companies under Companies Act, 2013 Any corporate person who intends to liquidate itself voluntarily may initiate voluntary liquidation proceedings under the provisions of Section 59 of Chapter V of Part II of the Insolvency and Bankruptcy Code, 2016. A ‘corporate person’ as defined in Section 3 of Part I of the said Code means: A Company; A Limited Liability Partnership; Any other person incorporated with limited liability under any law A corporate person does not include a financial service provider.

  11. The Process… The conditions and procedural requirements for the voluntary winding up are as follows: • The corporate person should not have committed any default • A declaration along with affidavit from the majority of the directors is required stating that a full inquiry has been made into the affairs of the company, the company will be able to pay its debts in full and the liquidation is not to defraud any person (The declaration shall be accompanies with the audited financial statements for the previous two years and a valuation report of the assets of the company, if any prepared by the registered valuer.) • A special resolution/ resolution for the voluntary liquidation of the company and appointment of insolvency professional as liquidator to be passed by the company within four weeks of giving the above declaration

  12. Where the company owns any debt to any person, such resolution should be approved by creditors being 2/3rd in value within seven days of passing such resolution • The resolution so passed should be notified to the Registrar of Companies and the Insolvency and Bankruptcy Board within seven days. The voluntary liquidation process shall be deemed to have been commenced from the date of passing such resolution. • Where the affairs of the corporate person have been completely wound up and its assets are completely liquidated, the liquidator shall make an application to the Adjudicating Authority for dissolution and the Adjudicating Authority shall pass an order for dissolution of such corporate person. ‘Adjudicating Authority’, defined under Section 5 of Chapter I of Part II of the Code shall mean National Company Law Tribunal. • The order of the NCLT shall be forwarded to the authority with which the corporate person is registered within 14 days of date of such order.

  13. Who Should Be Appointed As a Liquidator? An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director is independent of the corporate person. An ‘insolvency professional’ means a person enrolled under Section 206 with an insolvency professional agency as its member and registered with the Board as an insolvency professional under Section 207. A person shall be considered independent of the corporate person, if he: • is eligible to be appointed as an independent director, where the corporate person is a company; • is not a related party of the corporate person; • has not been an employee or proprietor or partner of a firm of auditors/ company secretaries/ cost auditors of the corporate person or of a legal or a consulting firm having transactions with the corporate person contributing 10% or more of the gross turnover of such firm at any time in the last three years. An insolvency professional shall not be appointed as a liquidator if he is under a restraint order of the Board or represents any other stakeholder in the same liquidation.

  14. Powers And Functions of the Liquidator • To verify the claims of all the creditors; • To take into his custody or control all the assets, property, effects and actionable claims of the corporate debtor and to take such measures to protect and preserve the assets and properties of the corporate debtor; • To obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligations and responsibilities; • To invite and settle claims of creditors and claimants and distribute proceeds in accordance with the provisions of the Code; • To take such actions, steps, or to sign, execute and verify any paper, deed, application, affidavit or instrument for liquidation, distribution of assets and in discharge of his duties as liquidator; • To make an application before the NCLT for such orders for liquidation of the corporate debtor and to report the progress of the liquidation process; • To perform such other functions as may be specified by the Board

  15. Reporting By the Liquidator The liquidator shall prepare and submit Preliminary Report, Annual Status Report, Minutes of consultations with Stakeholders and Final Report in such manner as specified under the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017. • Preliminary Report To be submitted to the corporate person within 45 days from the liquidation commencement date detailing the capital structure of the corporate person and the estimates of its assets and liabilities as on the liquidation commencement date. • Final Report To be submitted to NCLT along with the application under Section 59(7) and also to be sent to the Registrar and the Board on completion of the liquidation process. The Final Report shall consist of: • audited accounts of the liquidation; • a statement demonstrating that the assets has been disposed of, the debt has been discharged and no litigation is pending against the corporate person; • a sale statement in respect of all assets containing the realized value, cost of realization, manner and mode of sale, the person to whom the sale is made, any other relevant details of the sale.

  16. Public Announcement By the Liquidator The liquidator shall make a public announcement in Form A of Schedule I to the aforesaid Regulations, within five days from his appointment in one English and one regional language newspaper and on the website of the corporate person, if any. The public announcement shall call upon stakeholders to submit their claims as on liquidation commencement date and provide for last date for submission of claims which shall be thirty days from the liquidation commencement date.

  17. Claims By the Stakeholders CLAIMS BY OPERATIONAL CREDITORS A person claiming to be an operational creditor of the corporate person shall submit proof of claim to the liquidator in Form B of Schedule I. CLAIMS BY FINANCIAL CREDITORS A person claiming to be a financial creditor of the corporate person shall submit proof of claim to the liquidator in Form C of Schedule I.

  18. CLAIMS BY WORKMEN AND EMPLOYEES A person claiming to be a workman or an employee of the corporate person shall submit proof of claim to the liquidator in Form D (for individual claimant)/E (for a group of claimants) of Schedule I. CLAIMS BY OTHER STAKEHOLDERS A person claiming to be a stakeholder other than those mentioned above, of the corporate person shall submit proof of claim to the liquidator in Form F of Schedule I. The liquidator shall verify the claims submitted within 30 days from the last date for receipt of claims and may either admit or reject the claim, in whole or in part, as the case may be. The liquidator shall prepare the list of stakeholders on the basis of claims submitted within 45 days from the last date for receipt of claims.

  19. Distribution of Proceeds and Unclaimed Proceeds of Liquidation • The liquidator shall open a bank account in the name of the corporate person followed by the words ‘ in voluntary liquidation’ in a scheduled bank for receipts and payments of all monies. • The liquidator shall distribute the proceeds from realization within six months from the receipt of amount to other claimants and the stakeholders. • If there are any unclaimed proceeds of liquidation or undistributed assets, the liquidator shall make an application before the NCLT for an order to pay such proceeds into the Companies Liquidation Account in the Public Account of India before the order of dissolution is passed under Section 59(8) and necessary intimation of such payment has to be given to the Registrar.

  20. Completion of Liquidation The liquidator shall complete the liquidation process within 12 months from the liquidation commencement date. If the liquidation process continues for more than 12 months, the liquidator shall hold a meeting of the contributories within 15 days from the end of 12 months from the liquidation commencement date and at the end of every succeeding twelve months till the dissolution of corporate person. The liquidator shall present the Annual Status Report indicating the progress in liquidation including the settlement of list of stakeholders, details of assets remaining to be sold and realized, distribution made to the stakeholders etc. Preservation of Records The liquidator shall preserve a physical or an electronic copy of the reports, registers and books of account for at least 8 years after the dissolution of the corporate person either with himself or with an information utility.

  21. ThankYou FCS, ASHOK TYAGI

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