You might have heard of a Company Strike Off and wondered how it works. Closing the operations of the company can be achieved by striking off the name of the company from the Register of Companies. This could happen on account of various reasons.
It could also take place if a company applies to the Registrar of Companies to remove its name from the ROC. Dissolution of a company by strike-off is the easiest way of closing a defunct company. This process is laid out in Section 248-252 of the Companies Act, 2013.
How do you process a voluntary application to strike off a company?
- The first step is to process a special resolution.
- This is necessary to obtain the consent of 75% of members (based on paid-up capital).
- Once this is obtained an application can be filed with the ROC to strike off its name from the Register of Companies.
- Before this is done, the company will need to extinguish all its liabilities.
What are the situations where a voluntary filing for a strike-off cannot be done?
The company cannot apply for getting the company’s name removed if the following have taken place in the previous three months:
- If the company has disposed of rights or property held by it before the end of trade for the purpose of gain in the normal course of business.
- If the company has moved its registered office from one state to another or changed its name.
- If the company has applied to the National Company Law Tribunal for sanctioning an arrangement and the matter has not been finalised.
- If the company has indulged in other activities except for the one that is necessary for applying or meeting a statutory requirement or concluding the company affairs.
- If the winding-up of the company under Section XX of the Act is taking place either by the tribunal or through the voluntary application.
Penalties for violation
Any company that applies for removal of its name in violation of the above-mentioned conditions can be punished with a fine that may extend to Rs 1 lakh.
What are the conditions under which the ROC can strike off the Company Name?
If certain conditions are fulfilled, the Registrar of Companies can issue a notice to the company of the intention to remove the company name from the Registrar of Companies. These include –
- If the company has not started operations within one year of incorporation.
- If the company has remained inactive in the previous two years and has not filed an application to be declared a dormant company under Section 455 of the Companies Act.
- Once this application is received, the ROC shall issue a public notice as defined in the Companies Act.
The company can send its representation along with copies of necessary documents within 30 days of the issue of notice.
The notice issued by the ROC for removing the company name from the Register is required to be published in the Official Gazette for informing the general public. Once the notice is published in the Gazette, the company will stand dissolved.
The ROC will remove the company name from the Register after the expiry of the allotted time from the date of notice unless the company provides valid reasons within the specified time.
The Registrar of Companies will confirm that sufficient provision has been made for payment of existing company liabilities and realisation of receivables within a reasonable period of time before passing the final order of company dissolution and striking off the name from the register.
Mandatory undertaking from the Board of Directors will be obtained for this purpose and the company assets will remain available to fulfil the obligations after the date of dissolution. No liability of the company management will be extinguished till all the obligations are met.
What is the impact of the dissolution of a company?
Once a company is dissolved under Section 248 of the Act after the issue of notice in the Official Gazette it will stop operations from the date of the notice. The Certificate of Incorporation remains cancelled from the date of dissolution.
Can you appeal to the Tribunal against the dissolution of the Company?
If any person is upset by the ROC order notifying the company dissolution an appeal can be filed to the Tribunal within three years from the date of the ROC order.
The Tribunal will consider the reasons for reinstatement and give a reasonable opportunity to both parties to make representations and present their arguments. Based on the strength of the arguments, the Tribunal may pass an order restoring the company name in the Register of Companies.
Once the order is received the company should file a copy of the restoration order passed by the Tribunal with the Registrar of Companies within 30 days from the order date. Once the order is received the ROC will restore the company name in the ROC and issue a fresh Certificate of Incorporation.
If the Registrar of Companies feels that the company name was struck off based on wrong information provided by the directors or the company or as a result of an error then the ROC can apply to the Tribunal to seek restoration. This application can be filed within three years from the date of the dissolution order.
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