What is the process of shutting down a Private Limited Company?

·         A private company can cease its operations through four distinct methods. The decision to terminate or conclude the business can be made by the company's owners or directors. It is essential that the directors take a solemn pledge, confirming their role as the leaders of the company aiming to shut down.

·         A private limited company seeks closure or windup, while remaining unchanged in terms of business operations and its Directors' status. The company displays no inclination to carry on with its activities. Voluntary and compulsory methods are available for windup in any private limited company.

The process of closing down a private limited company involves extensive negotiations regarding all properties and assets, settling all outstanding loans and obligations, compensating all lenders, and ultimately distributing any remaining properties or assets among the shareholders. Yet, establishing a business or company always poses significant difficulties.

Significance of company closure as per MCA guidelines

·         The Ministry of Corporate Affairs has recently introduced the 2020 rules, offering small businesses an opportunity to shut down without resorting to legal proceedings. These rules, in accordance with the Companies Act and India's bankruptcy code, present an alternative approach to the conventional liquidation process.

·         In India, the reach of Company Law is vast and boundless. It encompasses the comprehensive process of winding up a company and disposing of its assets. If the members of a company fail to adhere to the prescribed regulations and guidelines during the closure phase, they may face criminal or civil consequences.

·        Under the provisions of Section 361 from the 2013 Companies Act, the closure process for a private limited company is conducted in a concise manner. The liquidation process is executed by an official liquidator appointed by the central government.

Who will declare an appointed liquidator by official authorities?

The central government appoints the Official Liquidator for the purpose of implementing the summary procedure for liquidation with the objective of closing down the company.

What are the requirements for closing up a business operations or company?

A company that desires to liquidate or wind up, in accordance with Section 361, must satisfy the following requirements:

The total value of the company's properties should not exceed 1 crore. Additionally, one of the conditions outlined in the most recent audited balance sheet should apply:

1. If the company holds deposits, the combined outstanding deposits should not exceed Rs 25 lakh.

 2. The company's annual turnover should not exceed Rs 50 crore.

3. The entity's paid-up share capital should not exceed Rs 1 crore.

What is the process of liquidating the company's properties and assets through a Summary Liquidation Sale?

Once the federal government gives its approval, the Official Liquidator responsible for overseeing the closure of a privately held company will proceed with the liquidation of all the company's assets and properties. Any sales that take place thereafter must obtain the consent of the federal government. The liquidator will receive remuneration based on the gross proceeds from these sales.

The liquidator is responsible for covering all costs and payments associated with the sale from the total revenue generated. The funds acquired by the authorized liquidator shall promptly be deposited into India's public account at the Reserve Bank of India (RBI), in accordance with section 349.

How to compensate investors and creditors?

·         Within 30 days of their appointment, investors or creditors of a company are required to appear before the Official Liquidator, who will address and assist with any claims or payment requests. The claims must be submitted in a specified format within 30 days from the moment the official liquidator contacts them.

·         The liquidator has the responsibility to thoroughly analyze and inspect the evidence of debt or loan provided by investors or creditors. Furthermore, it is vital for the liquidator to furnish the Central Government with a detailed roster of creditors no later than 30 days prior to the deadline for submitting claims. Following approval, the liquidator shall proceed to settle the outstanding debts or loans owed to the creditors.

What are the duties and responsibilities of the appointed liquidator?

·         The Liquidator, who has been officially designated, shall assume authority over or take possession of every possession, asset, and financial claim vested or potentially vested in the company. This encompasses all the company's resources, including both its tangible and intangible properties, as well as any unsettled financial obligations.

·         Upon obtaining approval from the central government, the official liquidator possesses the power to appoint a representative or auctioneer for the execution of the company's asset and property sale.

·         The thorough examination and investigation of the company's operations will be carried out by the Official Liquidator, who will then prepare and deliver a comprehensive report to the Central Government using the designated format. It is crucial for any occurrences of fraud or deception during the company's establishment, promotion, advertising, or administration to be explicitly disclosed within the report.

·         In the event that the report submitted by the liquidator exposes any fraudulent or deceitful activities carried out by the promoters, shareholders, directors, or any other corporate official, the Central Government holds the authority to request a more comprehensive investigation into the company's affairs and operations.

Who will initiate closure-up process?

The Closure-up process can be initiated by the Central Government similar to how a tribunal winds up a firm or organization, following a thorough investigation and submission of a comprehensive report by the Official Liquidator regarding all the steps taken for verification.

Benefits of closing down a company

·         Once the liquidation process is finalized, the directors and administrators of the company are freed from any debts, responsibilities, loan accounts, or burdens.

·         The liquidation process expects only minimal costs and obligations as the company's assets are sold at reduced rates.

·         If the tribunal or court's suggestion or consideration is approved cautiously, the company directors will refrain from pursuing any legal action and instead focus their attention on exploring alternative business opportunities.

·       The liquidation process ensures the safeguarding of either investors or creditors, granting them benefits due to their involvement in the ongoing dispute. A missed payment will be compensated by utilizing the credits stated in the investors' or creditors' official records.