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Takeaways from Budget 2022-23 – Fast Track Exit for Companies

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By Shaivi Bhamaria – Associate, [shaivi@vinodkothari.com]

Introduction

Over the past few years the Government of India has been increasingly focusing on ‘ease of doing business’ by corporates, and has taken several initiatives towards the same, such as exemption to private companies from the requirement of minimum paid up capital by way of the Companies (Amendment) Act, 2015; establishment to the Central Registration Centre (‘CRC’) under section 396 of the Companies Act, 2013 (‘CA, 2013’) for providing speedy incorporation related services; launch of the integrated web form SPICe+ and integration of the MCA21 system with the CBDT for issue of PAN and TAN to a company incorporated using SPICe+; launch of  web based service R.U.N. (Reserve Unique Name) for reserving a name for a new company, etc..

However, the term ‘ease of doing business’ includes not only a seamless start to a business or making the journey less cumbersome, but also involves the ease of exit. While there are various modes of exit available to corporates,  such as winding up, summary liquidation, mergers and amalgamations etc[1], given that in voluntary modes of exit like striking off or voluntary liquidation under IBC, the company is either solvent enough to meet its liabilities or holds nil assets and liabilities, ideally, the closure processes is expected to be fast and simple, However, it has been observed that these voluntary modes have not been essentially ‘easy’ given the significant delays associated with them.

It is in the backdrop of such delays, the Union Budget, 2022-23[2] has proposed certain reforms, specifically for speeding up the striking off process under section 248 (2) of the Companies Act. Further, the Insolvency and Bankruptcy Board of India (‘IBBI’) has issued a Discussion Paper dated 1st February, 2022[3] proposing amendments in the IBBI (Voluntary Liquidation) Regulations, 2016, for ensuring a faster closure of voluntary liquidation processes.

In this write up, the author discusses the two sets of proposed reforms as mentioned above, and attempts to gauge their effectiveness at present and post implementation of the proposed amendments. Read more →