Improving the ease of exit for businesses

economictimes.indiatimes.com:

The issue of ease of exit in India is not new. The Insolvency and Bankruptcy Code (IBC) overhauled the involuntary liquidation process of companies. However, companies not only close because of bankruptcy or a court order.

It is routine for owners to shut down a solvent company due to personal reasons, changes in technology or consumer behaviour, restructuring of group companies or regulatory changes. The Economic Survey for two years (2020-21 and 2021-22) pointed out that the voluntary liquidation of companies takes an inordinate amount of time in India. There are two main methods of voluntary liquidation: Via IBC.

Through Registrars of Companies (RoCs) under Section 248 of the Companies Act 2013. This is the more important route. Section 248 is used by companies that have exhausted their assets and liabilities and have no outstanding litigation.

This is a faster route. However, when the issue was first identified, the process was time-consuming. In June 2021, of the 28,536 pending cases, nearly 10% were pending for more than 1,000 days, and 54% were pending for more than one year.

Some of the key issues identified were: Lack of a strict timeline for RoCs to follow. Inordinate time taken by RoCs to publish the final notice of strike-off in newspapers. Once the issues were identified, efforts were made to clear the backlog of applications and fast-track this process by making simple administrative changes.

For instance, publishing the note of winding up of companies by RoCs in a newspaper quickly. This did not need any legislative change and was achieved by smoothening the administrative process. As a result, the processing of applications has become much faster.