Centre for corporate exits being set up

The ministry of corporate affairs is setting up the national centre for accelerated corporate exit, which will be backed by an IT infrastructure for decision-making at the national level without discretion by individual field officers, said a person familiar with the discussions in the government.

Once set up, businesses downing shutters need not go to the Registrars of Companies (RoCs) —but only file an online request showing they have no liabilities or have enough assets to match or exceed liabilities.

The government believes that ease of exit for businesses that have either failed to take off or want to close operations for various economic reasons will be a key consideration that investors will take into account while making investment decisions.

“Some companies with no liabilities may want to move on. Ease of doing business entails not only ease of entry and of doing business but also of ease of exit,” said the person who spoke on condition of anonymity.

“The effort is to reduce voluntary closure time from about one to two years to less than six months. That is the time needed to follow some statutory timelines for getting response to communications and to analyse replies. We have to see if anyone has any objections and if assets will meet liabilities,” said the person quoted above.

“Voluntary closure of companies is a routine procedure, where if all requirements are met, it should not take a long time. A system for transparent and expeditious processing of applications will be helpful,” said Pavan Kumar Vijay, founder of consulting firm Corporate Professionals.

The proposed national centre will assign requests from businesses across the country randomly to various officers. It will no longer be the RoC in a particular region where the company is incorporated that will handle such requests. This is expected to reduce human discretion and could also help in preventing any irregularity in winding up of companies, the person said.

“The new system of voluntary closure will streamline the process, ensure predictability of action and reduce the cost of issuing advertisements regarding such closure of business as it will be done at the national level,” added the person quoted above.

Voluntary closure of companies is different from winding up of companies by the government for default on filing annual reports for two consecutive years. In such cases of removal of the name of a company from records too, businesses having liabilities are excluded. The idea is that before a legal entity is extinguished, all its liabilities should be met.

Queries emailed to the spokesperson for the ministry on 12 August and on Sunday seeking comments for the story remained unanswered at the time of publishing.

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