Closure of Subsidiary Company

Closure of Subsidiary Company

BRIEF INTRODUCTION

• Since the last few decades, India has been termed as a hub and one of the most favorable & preferred nations in terms of investments by foreign companies.
• However, due to some commercial or other reasons, foreign companies tend to close down their business establishments situated in India. Accordingly, a specific process has been prescribed, which is required to comply by the foreign company for closing their subsidiaries established in India.

STRIKING OFF FROM ROC –CLOSURE OF SUBSIDIARY COMPANY

FORMS FOR CLOSURE

Where a subsidiary company is required to be closed, the same shall file the following forms with the Registrar of Companies, which related to the closure and striking off the name of said subsidiary from the registers –

1. E-Form MGT-14
2. E-Form STK-2

PROCEDURE FOR STRIKING OFF

The following procedures are followed for closure of subsidiary in India –

1. First, the company shall assign or authorize an officer, who can be a director, for making arrangements for the commencement of a board meeting.
2. A notice for the board meeting be provided to all the members of the board, at least seven days before the day of the meeting, and the notice shall state the agenda of the meeting.
3. The board meeting is conducted on the decided date, and the members shall pass the board resolution in respect of the closure of the subsidiary company.
4. The board shall also draft the notice for the Annual General Meeting (AGM) or the Extra-Ordinary General Meeting (EGM) of the shareholders for their approval.
5. Notice be placed to each shareholder and other members to whom such notice be placed.
6. Conduct the meeting of shareholders and other members and they shall pass a Special Resolution for the approval of the closure of the company.
7. After this, the company shall file the application for closure in Form MGT-14, and the same be filed with the Registrar along with the required documents.
8. Once the registrar verifies the documents, the applicant can file Form STK-2 along with the supporting documents for striking off the name of the company from the registers of companies maintained with the Registrar.
9. Registrar of Companies will verify all the documents provided with the forms and also the compliance towards the terms and conditions for the closing of the subsidiary company.
10. Once the verification is done, and no irregularity is found, the ROC shall commence the process of striking off the name of the company from the registers and shall publish a public notice as per the norms under Insolvency and Bankruptcy Code (IBC), 2016, prior to striking off.

DOCUMENTATION REQUIREMENT FOR STRIKING OFF

1. A bond is provided in the Form STK-3, duly notarized all the board of directors.
2. An indemnity bond in the Form STK-3.
3. Affidavit in the format prescribed in Form STK-4.
4. Certified copy of the Special Resolution, passed and attested by the directors.
5. A statement providing information regarding the litigation and cases (if any), pending in the name of the company in any court of law.
6. A statement providing detailed information, as to the liabilities and assets of the company, and the same be certified by a practicing Chartered Accountant.
7. Copy of the board resolution, authorizing the applicant to file the forms for closing of the said company.
8. The company shall also provide a No-Objection Certificate, issued by the concerned regulatory authority governing the company.
9. Copy of the order issued by the requisite stock exchange, ordering the delisting of the securities of the said company.

TIME PERIOD FOR STRIKING OFF

• Once the application for strike-off and closing of the subsidiary company is received by the Registrar of Company (ROC) in the prescribed E-Form STK-2, the documents supported with the application are duly verified by the ROC. Once the same is found to be in order,
• ROC provides for the publishment of public notice and such notice is sent to the company and its director.
• In case no objections are received within the time period prescribed in the notice, they strikes-off the company name from the registers. Thus, it takes approximately 3 to 4 months to complete the whole process of strike off and closure of the company.
• However any objection is received by the Registrar, the process will become lengthy since the same would involve the validity of the objection and the actions to be taken.

ELIGIBLE ENTITIES FOR STRIKING OFF

As per the provision of Section 59(1) of the IBC act, a company can apply for the closure of its subsidiary provided –

• The company is looking for the closure of the subsidiary voluntarily.
• The company is not charged to have committed any offense or default.

 

PROCESS OF VOLUNTARY LIQUIDATION:

• The liquidator appointed by the board of directors shall make a public announcement within 5 days from his/her appointment and he will invite the claims against the company.
• The time period for filing such claims is 30 days.
• Notice be published in one regional language or local daily newspaper & 1 daily English newspaper circulating in the area, where the registered office of the company is situated.
• The said notice shall also be uploaded on the website of the company as well.

CONTENTS OF PUBLIC ANNOUNCEMENT

1. 1. Date from which the process of liquidation will be initiated.
   2. Details of the liquidator include their name, complete address, contact details, and registration number.
   3. Last date by which the members or any other person, can submit their claim against the company.
   4. The mode through which such claims be submitted.

• It is to be noted that the liquidator is also required to open a new bank account, with a scheduled bank.
• The said account be opened in the company or the corporate person along with the words ‘in liquidation” at the end.
• Such account is used receiving the proceeds from the sale of the assets & claims of the members along with other persons be also paid from this account only.
• All the transactions relating to the company after the initiation of liquidation, be carried out from this newly opened bank account only.

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