The business world is dynamic, and not all ventures succeed. Inevitably, there are cases where companies face insurmountable challenges, leading to their closure. The closure of a defunct company marks the end of a journey. In this blog post, we will explore the key aspects associated with closure of a defunct company.
What is a Defunct Company?
A company with zero assets and liabilities and has failed to commence its business under the time period of one year since its incorporation are considered as defunct companies. The following circumstances as per Companies Act 2013 categories companies in a Defunct Company criteria.
- Within the time period of an year the company has not started its business
- Companies in which subscription by the subscribers to the memorandum is not yet paid within the duration of 180 days since the incorporation date.
- Companies that do not indulge in any business operation or activities for 2 immediately preceding years come under the defunct category.
Registrar of Companies (ROC) has the authority to consider such companies defunct and strike off them from the register after the due notice is provided, also he has the power to defunct the director of that particular company.
Closure of Defunct Company
Once the company is registered as per the Companies Act 2013, it becomes mandatory for them to file the return with the same registrar of the companies on time. In case the company is not operating, it must file an application to ROC in order to get the dormant status, if the directors of such company are willing to keep the company alive and registered.
In case such promoters are not willing to continue the business anymore, they can file an application for its closure and remove their respective companies name from the register.
But in case a company is found to default in filing such an application or returns regularly with ROC, the company and its directors might have to face some serious consequences and penalties as per Companies Act 2013 by following on to the prosecution process.
Exceptions to Winding Up of Company as Defunct Company
Following types of companies cannot be closed as Defunct Company as per the Companies Act 2013
- A company which is listed
- Due to any of the statutory laws the company has been delisted such as non-compliance with the regulations of listed companies or agreements of listed companies.
- The companies which are listed but are found at default to file their regular returns with ROC for two consecutive years or to SEBI and is also not maintaining its regular updates with registered office or its director are not traceable could not be declared as Defunct company rather known as vanishing companies.
- Companies on which some kind of investigation or inspection is pending or prosecutions arising out of such investigation or inspection in court are pending.
- The ROC or any other authority has issued a notice of the inspection of books of such companies and the report, reply, or proceeding etc. is pending.
- Non-profit organisations that are registered under Companies Act 2013 or any other earlier Act.
- Before any competent authority the compounding application of company is pending
- Companies against which any prosecution for an offence has been pending in any court.
- Companies which have accepted public deposits and which are either outstanding or are in default of repayment of the same.
- Company having charges which is not satisfied
Other Restrictions/ Exceptions to Winding Off the Company
At any of the time in the previous three month the company has not indulge in any of the activity or action such as –
- Name of the company is changed by its promoters
- The registered office is shifted from one place to another
- Value of the rights or property held by it is disposed of immediately before carrying on of the business or before cessation of trade otherwise. The purpose behind such disposal is for gain in the normal course of trading or otherwise carrying on of business;
- Company has engaged itself in some other necessary activity or expedient for the purpose of making application for closure of the same or deciding whether to do so or concluding the affairs of the company, or complying with any statutory requirement;
- Company for the purpose of sanctioning the compromise has made an application to the tribunal and such matter is not sorted till the date or no conclusion is provided.
What is the procedure for closure of Defunct Company?
In order promoters wish to winding up of company an application is to be made by them for the purpose of removal of their name from the register of ROC, which is to be filed under the form STK 2 along with a fee of Rs.10000/-. In case the company is regulated by another authority, a no objection letter from that particular authority is required to be provided or submitted along with the closure application.
The documents to be submitted along with closure application for the purpose of Closure of Defunct Company are
- A statement of account certified by a Chartered Accountant stating the assets and liabilities of the company not older than 30 days prior to the date of filing the application and a statement in relation with pending litigations if any.
- Duly notarised Indemnity bond
- An affidavit
- Special Resolution duly attested by directors
- On the date of application- consent Letter from the members of the company
How to file the application
As mentioned above such an application is required to be filed under the form STK 2 either physically or digitally which is duly signed by all the directors of that company. Furthermore the application for the Closure of a defunct company is required to be certified by the CS or CA or Cost Accountant in practice.
What action are taken by the Registrar after filing of the application
The registrar verifies the application and documents attachment with the same, then proceeds to publish a notice in official gazetted. Additionally-
- Sends a notice of intimation to other regulatory authorities such as Income Tax, Sales Tax, Service tax etc.
Final Closure of Defunct Company
In nutshell, when all the procedures mentioned above are completed, the ROC publishes a notice in prescribed format to dissolve the company and announce the closure of the defunct company or winding up of the company.
The company which is out of practice/ activity/ or business operations for two consecutive years or the company has not yet started its business operations since a year from its incorporation date are eligible for such strike off or closure or wind up from the register of companies.
Yes. It is required that the filled applications are digitally signed by the promoter/ directors of the company for such strike off or closure of a defunct company.
The certificate provided by the CA, CS in practice is must.
In case the directors of the struck off company or any of the members of such dissolved company or any other exercising officer associated with that company or the management person in power during practising time have any liability shall continue and may be enforced as if the company had not been dissolved.