Finance Minister Nirmala Sitharaman during Budget speech said “Center for accelerated corporate exit to be set up. The process is to be digitized and aims to bring the corporate exit time within 6 months, she said. Added that “re-engineering of the wind-up process” is required to fasten the process.
“This is a major move if really implemented well. A big relief for companies stuck with long timelines for voluntary winding up. If incorporation and exit is expedited then it makes India a favourable jurisdiction for investment, said Lalit Kumar, partner-JSA.
Experts believe that the government should also provide indemnity to corporations for at least 20 years to avoid disputes. “This is very good. But you need to give indemnity for 20 years, so not very favourable for foreign investors. But it’s cheaper than regular winding up.” said Amit Maheshwari, tax partner, AKM Global said.
Meanwhile, FM also stressed upon the need for robust global cooperation to facilitate cross-border insolvency. The Ministry of Corporate Affairs (MCA) learnt to be already working on the framework on Cross-border insolvency which enables the creditors to claim assets of defaulters lying overseas and vice-a-versa.
On Monday, the Economic Survey suggested the government create a single window to facilitate the “ease of exits” for companies, in a bid to simplify the winding-up process for business facing backlogs. MCA is working on a single portal that should consolidate all the steps of the liquidation process, starting from application by companies to processing by all government departments, the Economic Survey said on Monday.
“The voluntary exits were considered to be a faster winding process, however, it was observed that there were huge pendencies. As of June 13, 2021, out of the 28,536 pending cases, nearly 10% were pending from more than 1000 days and 54% cases (15,310) were pending for more than one year, Survey had said.
The move will also curtail delays in certain cases by the National Company Law Tribunal bench, creating lags in the processes as the company has to contact various departments to take the specified clearances as required by NCLT.
Currently, there are two main methods of voluntary liquidation, one is through the Registrar of Companies (RoC) under section 248 of the Companies Act, 2013 and other is under the IBC. The former is currently the more popular route by far.
