Small firms such as those with paid-up capital of up to Rs 1 crore can soon be wound up without the approval of the National Company Law Tribunal (NCLT) as the government has amended norms for the procedure. The new rules for winding up of small firms will be effective April 1, 2020.
Through this move, the Ministry of Corporate Affairs (MCA) not only intends to reduce the burden on NCLT but also make the norms simplified.
Till the advent of the Insolvency and Bankruptcy Code, 2016, (IBC), winding up a company was under the purview of Companies Act, 1956, and later Companies Act, 2013. At present, a firm can be wound up either under the Insolvency and Bankruptcy Code (IBC) or under the Act. However, winding up under the Companies Act is possible only for reasons other than inability to pay off debts.
There are more than 9.18 lakh companies (till FY15), which have a paid-up capital of up to Rs 1 crore. Of this majority have a paid-up capital of up to Rs 5 lakh. An official source said the notification not only simplifies the procedure and reduces the NCLT’s burden, but also reduces
the compliance cost for small companies.
The firms, however, would still have to comply with the procedures applicable to other companies. It is still not clear whether this would help fast-track the overall liquidation process.
AMRG & Associates chief executive Gaurav Mohan said the summary procedure is applicable to companies which have not taken deposits beyond Rs 25 lakh or have no secured loans beyond Rs 50 lakh or turnover beyond Rs 50 crore or paid-up capital beyond Rs 1 crore.
He said through the rules, the MCA has notified 95 different forms applicable in case of dissolving a company — Form WIN-1 to WIN 95. “This move will bring a sigh of relief to the small companies who will now be able to wind up their business without knocking the door of NCLT,” Mohan added.
Vishwas Panjiar, partner at Nangia Andersen, said most importantly, the rules elaborate and provide procedures of summary winding up as an option for liquidating small companies.
“However, a large part of the procedure is still applicable to such summary winding up process and it is difficult to comment at this moment whether delegating powers will fasten the winding up process,” he added.
Source- Financial Express.