Winding up of companies to seek approval of Central government instead of NCLT: MCA

The Central government has notified new rules that will make it easier for smaller companies to wind up under the Company Law. The move will ease the burden on the National Company Law Tribunal (NCLT) and improve ease of doing business for start-ups.

The Ministry of Corporate Affairs (MCA) has notified the Companies (Winding Up) Rules, 2020, according to which the winding up of companies falling within the specified thresholds will henceforth require the approval of the Central government instead of the National Company Law Tribunal (NCLT).

The rules are set to come into effect from April 1, 2020 and are expected to reduce the burden of the NCLT as summary procedure for liquidation can now be filed with the Central government.

Currently, the proceedings pertaining to voluntary winding up and winding up due to inability to pay debts are within the domain of the Insolvency and Bankruptcy Code 2016, which provides for time-bound speedy dissolution of a company. The new rules would however bypass the legal route that they have had to follow so far.

The specified companies that fall in this category and could avail themselves of the curtailed procedure for winding up include those accepting deposit, provided their total outstanding deposits do not exceed Rs. 25 lakhs; or companies having outstanding loan not exceeding Rs. 50 lakhs; or companies having a turnover not exceeding Rs. 50 crore; or companies with paid-up capital not exceeding Rs. 1 crore.

According to experts, the summary procedure for prescribed companies will accelerate the process and result in fast disposal of matters pertaining to liquidation and ultimate winding-up.