Wrapping up of an existing business

An establishment exists by the legitimate procedure laid down by the laws of land and when it wants to end its life, it is just conceivable through the pre-established lawful mechanism. When a company is in torment, the management team undertakes many competing challenges hampering their ability to recognize what is usually a very stressful and complex transition. Winding is considered as the last stage of an organisation’s existence.

Winding up of any business refers to liquidation of its life and administrating its property for the benefit of its creditors and members. Dissolution of a business includes selling all assets, paying off creditors and distribution of remaining assets to the partners or shareholders. Ultimately, company has no legal existence in the eyes of law. Section 270 of the Companies Act, 2013 governs the procedure of winding up of a company in India which provides two ways of winding up i.e. voluntary winding up and winding up by the tribunal.

Classification of winding up strategies

1. Winding up by the court – Insolvency of a company into a compulsory liquidation when an organization is unable to pay off its debts. Upon the commencement of winding up, the company’s officers have no power to carry on the business of the company. The liquidator takes over reign of the company.
2. Voluntary winding up – A special resolution is initiated by the members or creditors of the company for voluntarily winding up the business.
3. Member’s voluntary wind up – In this case, organisation has to pay its debts in full within 12 months after commencement of winding up proceedings. Consequently, the Board of Director (“Board”) file a declaration of solvency.
4. Creditor’s voluntary wind up – When a company is unable to pay its debts off within 12 months and still wishes to wound up, it may proceed as creditor’s voluntary wind up.

Petition for winding up
According to section 272, a petition is presented by:

• The company;
• Any creditors or creditors including any contingent or prospective creditor or creditors;
• Any contributory (s);
• The registrar; or
• Any person authorised by the Central Government.

If a company is unable to pay its debts, the registrar shall not present a petition unless it appears to him, either from the financial condition of the company as it is divulged in its balance sheet or from the report of an inspector appointed under section 210 articulating the company is unable to pay off the debts. The registrar obtains the previous sanction of the Central Government to the presentation of a petition.

Methodology for winding up a company

1. A meeting of the Board is convened. The company would resolve that there are no debts remaining of the company by passing a resolution that suggests the same.
2. A notice of a general body meeting is issued proposing the resolution of the company.
3. Make sure that there is atleast 3/4th of the votes in favour of closing the company.
4. A meeting is conducted with the creditors of the company next day.
5. File a notice to registrar for appointing a liquidator within 10 days of passing of company’s winding up resolution.
6. Within 30 days of passing the winding up resolution, file certified copies of the special and the ordinary resolutions.
7. Complete the financial affairs of the company with the aid of the liquidator.
8. Summon a final general body meeting.
9. Pass a special resolution to dispose the records and accounts of the company.
10. Within 14 days of passing the special resolution, take the certified copies of the records and accounts to the National Company Law Tribunal (NCLT).
11. NCLT shall then order for company’s dissolution.
12. The liquidator then shall take the order and submit it to the registrar.
13. The registrar shall then publish a notice that the company is dissolved.

The various provisions have been collaterally working for settlement of winding up issues. Despite the progress of winding up of companies, there are several concerns coming in front of the judiciary trying to mitigate the friction in the process of winding up of companies.
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Discerning Insolvency and Bankruptcy Code, 2016

For consolidating the existing framework of bankruptcy and insolvency in India, a single bankruptcy law was created, known as the Insolvency and Bankruptcy Code, 2016 (“Code” or “IBC”). IBC was introduced in December 2015 and passed in May 2016 by Lok Sabha. Subsequently, it received the assent of the President of India and came into effect.

The Code provides 360 degree solution for settling insolvencies which is a lengthy and an economically exorbitant process these days. In India, robust insolvency structure where the time and cost dedicated is curtailed in achieving liquidation has been long overdue. The Code is empowered to protect the small investors and make business processes conducive.

Vision of current Code
IBC is applicable to companies as well as individuals and provides for a time-bound procedure for resolving insolvency issues. In case of default in repayment, creditors secure access and control over debtor’s property and are required to take actions for resolving insolvency within 180 days. To ensure steady resolution process, IBC shields debtors from resolution claims of creditors during this procedure. Also, the Code integrates provisions of contemporary legislative structure, thus establishing a common forum for creditors as well as debtors of all categories to resolve insolvency.

Facilitators of insolvency resolutions
Following are various institutions created by the Code that facilitate insolvency resolution:

• Professional agencies: Exams are conducted by these agencies to test and certify insolvency professionals. A code of conduct is also enforced by these agencies to administer the performance of the professionals. Insolvency professionals are required to be registered with such agencies.
  
• Professionals: The Code proposes creation of a specialized core of licensed professionals. Their role includes administration of resolution process, managing the property belonging to the debtors as well as providing information for creditors to abet them in decision making process.
  
• Adjudicating authorities: For companies, National Company Law Tribunal (NCLT) will arbitrate the proceedings of resolution process whereas Debt Recovery Tribunal (DRT) will adjudicate the proceedings for individuals. Approval for initiating the process of resolution, appointment of insolvency professionals and approval of final decision of the creditors are some of the duties performed by the above mentioned authorities.
  
• Information utilities: Creditors are mandatorily required to report and communicate financial information of the debt owed to them by the debtors. All the records pertaining to liabilities, defaults and debts shall form part of such information.
• Insolvency and Bankruptcy Board (“Board”): The Board is responsible for regulating insolvency professional agencies, professionals and information utilities established under the Code. Representatives of Reserve Bank of India (RBI), Ministries of finance, corporate affairs and law constitute the Board.
  

Any business requires institution of faith and fulfilment of obligations by the transacting parties for best business practices. Many a time’s circumstances hinder the proper discharge of duties undertaken by the parties due to uncertain changes in the environment. Insolvency or bankruptcy conditions obstruct the desired performance of the agreed promises between the parties. Also, the other party to the transaction is left helpless for the losses it may suffer. Since its inception many alterations have been suggested for fabricating the already existing Code, the same are in motion. Successful execution of insolvency and bankruptcy proceedings are a product of favorable steady amendments in the Code.

If you have any questions or would like to discuss more about any of the above provisions our team of experts can guide you.

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Challenges faced in e-assessment

With the advent of e-assessment concept in the domain of tax evaluation, things have taken a toll on the conventional tax assessment practices. With day-by-day advancing technology and a cooperative audience, the success of e-assessment does not seem far-fetched. While the progress has been commendable, in order to drive this concept, challenges thrown by the set procedures need to be addressed simultaneously. Some of the challenges are stated as under:

• Perceiving the right technology: Government’s information technology (IT) infrastructure will determine the accomplishment of e-assessment idea. Specifically, the ability to handle data traffic in terms of size as well as volume would be critical. If we look at the past experiences, government servers have often crashed when they experienced high volumes of data traffic, especially closer to filing deadlines. The government cannot afford such similar crashes considering the sensitive nature of assessment operation. Hence, the requirement of a robust IT infrastructure cannot be undervalued.
• Eliminating legal loopholes: From a legal outlook, a bona-fide service of notice is a prerequisite in constituting a valid assessment proceeding. Despite necessary amendments being inculcated in the income-tax law to credit e-mail communication as a valid mode of service, there are times where notices are uploaded on the portal but a parallel e-mail is not directed to the taxpayer. Oddities like these could pave the way to litigation and potentially render the proceedings void. For mitigating such situations, either IT systems must be streamlined to ensure that emails are automatically sent, without exception, as and when notices get uploaded or the law must be amended to emphatically state that uploading a notice on the online portal includes a valid communication service.
• Attaining procedural perfections: While practice leads to perfection, revolutionary plans do not generally provide a large incubation cushion. Therefore, from a methodological perspective, government needs an ‘ace’ before the bets are called. For instance, the current system does not have any provision for granting adjournments. In case of submission taxpayer seeking more time, the portal neither accepts nor rejects the request, leading to uncertainty in the mind of the taxpayer regarding the next date for filing of submission.
• A genuine collaboration: Though not a major threat at the initial stages, this could be a crucial lever in determining the success or failure of this initiative. On-boarding the appropriate abilities with a viable sector, domain proficiency as well as ensuring mechanisms to expedite collaborative working conscientiously would be the segment for the government to concentrate on as it moves into the progressive stages of implementation.

Over the past few years, IT department has taken a lot of steps to go digital. E-filing of income tax returns (ITR), payment of taxes online, processing of tax deduction at source (TDS) electronically, provision of facilities for filing forms electronically, submitting online grievances, online tracking of refunds and matching of credits are a few measures amongst numerous others undertaken to eminently establish a technologically driven IT department. The initiatives taken by the government aim to ensure ease in compliance of IT rules and effective management of the data. The initiatives taken by the government project their intentions loud and clear that India is all set for improving its tax administration services by making the tax system as simple and tech-enabled.
For detailed information on introduction, impact and latest changes in e-assessment, kindly visit Introduction of e-assessment

Our team can assist you in various other services including bookkeeping, auditing, internal audit, trademark registration, tax audit, payroll compliances, management audit, STPI registration, statutory audit, income tax, tax planning, setting up of virtual office, direct taxes, service tax, delhi value added tax, sales tax, company formation, business consultation, company registration / incorporation in India, corporate compliance, foreign branch / liaison office registration. In case of any assistance required in relation to e-assessment filings or other compliance issues, kindly click here