Overview

The closure of a company is a legal process through which a company ceases to exist as a legal entity. The Companies Act, 2013 provides a structured framework for the closure of a company. It defines the various procedures through which a company can be dissolved or liquidated, either voluntarily or compulsorily. The closure process ensures that the company's affairs are settled, debts are paid, assets are liquidated, and the company is officially removed from the register of companies.

The closure of a company could occur for various reasons, such as financial distress, non-compliance with legal requirements, or simply the desire of the shareholders to wind up operations. The Companies Act, 2013 offers different methods for closure, each having distinct procedures and requirements. These methods include voluntary closure (winding-up), compulsory closure by the Tribunal (NCLT), striking off, and dissolution.

What is the Strike Off of a Company?

Strike off simply means close, Strike off a company simply means removal of name of the company from Register of Company. By the process of Strike off, business operation of a company comes to an end. Under Companies Act, 2013, there are provisions for strike off of a company

1. Legal Framework

Provisions regarding strike off a company are prescribed under section 248 to 252 of Companies Act, 2013 (this Act) & Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 as amended time to time. 

On April 17, 2023 MCA has amended the rules, inserted a new concept/authority Registrar, Centre for Processing Accelerated Corporate Exit (C-PACE) having territorial jurisdiction all over India, for processing application of striking off a company. (C-PACE) shall be the RoC for the purpose of exercising functional jurisdiction related to processing & disposal of application made in E-form STK-2 and all related matters thereto under section 248.  

2. Ways of striking off a company

• By Registrar of Companies (RoC) /(C-PACE) suo-moto.
• By Company itself.

3. Strike off of companies by RoC (C-PACE)

  If the RoC has reason to believe that–

• a company has failed to commence its business within 1 year from incorporation.
• a company is not carrying on any business or operation for a period of 2 last financial years and has not made any application within such period for obtaining the status of a Dormant company (Inactive Company).
• the subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within 180 days from its incorporation.
• the company is not carrying on any business or operations, as revealed after the physical verification carried out.
• RoC shall send the notice in E-form STK-1 to the company for strike off, and informed them to send representation along with required documents within 30 days.
• If company doesn’t give any defense within 30 days, RoC shall give public notice for objection of public, in E-form STK-5.
• Further, If RoC does not receive any objection; ROC will release a notification in the Official Gazette in E-form STK-7 about the Company’s strike-off and Dissolution.

4. Procedure for Strike off by company itself –

• Convene a board meeting where board of directors will approve following items:

1. Approval for strike off a company. 

2. Authorization for applying to Registrar, Centre for Processing Accelerated Corporate Exit (C-PACE). 

3. To issue notice for extra ordinary general meeting.

• After passing board resolution company will extinguish all its liabilities, if any liabilities exist.
• Convene extra ordinary general meeting for passing of special resolution.
• If any other authority regulates such company then approval of such authority is required.
• Application to ROC: File an E-form MGT-14 within 30 days of passing of the resolution with normal fees. Further, make an application in E- form STK-2 with (CPACE).
• Attachments required for STK-2 are as follows:

1. Indemnity bond in STK-3 duly notarized (Collectively given by directors). 

2. Affidavit in STK 4 duly notarized (Individually).

3. Copy of statement of account duly certified by chartered account in form STK 8 (not earlier than 30 days from the date of making application). 

4. A no objection certificate (NOC). 

5. Copy of Board resolution

6. Copy of Special resolution

7. Any other optional attachment

What is the Winding up of a Company?

The winding up of a company is dealt under section 270 to 365 the Companies Act, 2013, refers to the process of closing down or terminating the existence of a company. It involves the sale or distribution of the company's assets, the settlement of debts, and the final distribution of remaining assets to the shareholders. The company is legally dissolved once the process is completed.

Winding up of a company by Tribunal

This type of winding up is done under the order of the National Company Law Tribunal (NCLT). This may occur in situations such as:

• The company has passed a special resolution for winding up.

• The company is unable to pay its debts.

• The company is conducting fraudulent activities.

• The company has exceeded the power provided in its memorandum of association.

• The company is unable to pay its debts, and its creditors can apply for winding up.

Procedure for Winding Up by Tribunal:

1. A petition is filed with NCLT.

2. NCLT will issue an order for the winding up of the company.

3. The NCLT appoints a liquidator who will manage the affairs of the company.

4. The liquidator will identify the assets, sell them, and distribute the proceeds.

5. A report is made by the liquidator to NCLT regarding the final distribution.

6. NCLT passes an order for the dissolution of the company.

Process of voluntary winding up of a company 

The process for board of directors for voluntary winding up of a company is as follows:-

1. A special resolution must be passed in the general meeting of the company regarding winding up of a company.

2. Solvency of a company must be declared for all outstanding depts.

3. An audit report of financial statements of a company must be prepared by the auditor.

4. The auditor’s report and company’s solvency declaration must be submitted to the ROC.

5. The company must require a dedicate liquidator for winding up process.

6. The process for winding up starts when the resolution was passed.

7. After that the company must pass the resolution by the majority.

8. The liquidator prepares report and calls the general meeting to address the final accounts for the wind-up process.

9. The board of directors of the company pass the resolution.

10. The liquidator provides the copy of report to the Tribunal and copy of statement to the ROC.

11. The report is reviewed by the Tribunal and orders are issued for the winding up process.

12. Liquidator is required to provide the copy of Tribunal’s order within the 30 days of order passed to the ROC, in case if they fail to comply with this then liquidator will be subject to sanctions.

13. If the ROC is satisfied then it authorizes the company for winding up and also removes the applicant company’s name from ROC data base.

14. Roc also notifies the Indian Official Gazette to publish the notification

What is Liquidation of a Company?

Liquidation under the Companies Act, 2013 refers to the process of winding up the affairs of a company. It involves selling off the company’s assets, paying off its liabilities, and distributing the remaining assets (if any) to the shareholders. Liquidation ultimately results in the dissolution of the company, meaning it ceases to exist as a legal entity.

 Process of Liquidation under the Companies Act, 2013:

1. Voluntary Liquidation Process (Members’ Voluntary Winding-Up):

• Declaration of Solvency (Section 304(1)):

- Before initiating the voluntary liquidation process, the directors of the company must make a Declaration of Solvency, stating that the company is solvent and will be able to pay its debts in full within 12 months from the start of the liquidation process. This declaration should be made in the prescribed form and filed with the Registrar of Companies (RoC).

- The declaration must be accompanied by a balance sheet and a statement of assets and liabilities.

• Passing a Special Resolution (Section 305):

- The shareholders (members) of the company pass a special resolution in a general meeting for the winding-up of the company.

- The resolution will appoint a liquidator who will oversee the liquidation process. The liquidator is responsible for the sale of assets, payment of debts, and distribution of any remaining assets among shareholders.

• Appointment of Liquidator (Section 275):

- A qualified individual (typically a chartered accountant, company secretary, or legal professional) is appointed to handle the liquidation process.

- The liquidator’s powers and duties are defined in Section 275 and further specified in Section 275 to Section 281.

• Notice of Resolution (Section 305(1)):

- The company must publish a notice of the special resolution for winding up in the official Gazette and in one local newspaper.

• Filing with the RoC:

- A copy of the special resolution and the declaration of solvency must be filed with the Registrar of Companies.

• Realization of Assets:

- The liquidator takes control of the company’s assets and starts selling them off. The liquidator collects funds by realizing assets like property, inventory, receivables, etc.

• Payment of Liabilities:

- The liquidator uses the funds raised from asset sales to pay off creditors and liabilities in a prescribed order:

1. Preferential Creditors (e.g., employees, taxes).

2. Secured Creditors

3. Unsecured Creditors

- If the company is solvent, all creditors are paid in full, and any surplus funds are distributed to shareholders.

• Final Meeting and Dissolution (Section 304(3), Section 302):

- After realizing the assets, paying the debts, and distributing the surplus (if any), the liquidator calls a final general meeting of the members and submits the liquidation accounts.

- Once the meeting approves the accounts, the liquidator files the final report with the Registrar of Companies, and the company is formally dissolved.

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