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| MCA works on new exit scheme for listed firms |
| Anindita Dey / Mumbai May 28, 2010, 00:50 IST |
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The Ministry of Corporate Affairs (MCA) proposes to facilitate the winding up of listed companies which wish to discontinue their business, with an exit scheme tailored for them.
It is in consultation with the Securities and Exchange Board of India (Sebi) on the details, since listed companies would have to complete various formalities before opting for an exit scheme.
Earlier, MCA had proposed a new exit scheme only for private unlisted companies which were defunct and had failed to maintain the minimum paid-up capital but still existed in the records of the registrar of companies (RoC).
Officials explained that listed companies had obligations to the public, by having offered equity and having public shareholders. Besides, they may have raised public deposits and have to return these before retiring.
“Similarly, the companies would have to comply with buyback norms to buy shares from the public shareholders before delisting from the market. This would require them to offer a certain buyback share price. Being loss-making companies, the buyback norms and open offer procedures could be relaxed,” officials explained.
However all these formalities would have to discussed and finalised with the market regulator.
Part of corporate reform
Sources said the move was part of the effort to clean up the corporate system, updating the records of functional companies and doing away with the others.
The present exit policy follows an elaborate procedure that requires diverse mundane details and no-objection certificates from various offices and regulators for dissolving a company.
Under the proposed system, the company will be asked to file an application to opt for the exit route, after which it could be deregistered within a specific time-frame. During the prescribed period between filing and closing shop, inquiries could be initiated if there were serious concerns, said sources. For listed companies, a no-objection will be sought from Sebi.
Till the proposed draft comes into effect, the ministry is set to create a separate portal for defunct companies, citing their names and the period when they have failed to furnish returns. According to Section 560 of the Companies Act, defunct companies are those that have ceased to exist according to the RoC’s records but may not have formally stopped working.
Out of a total of 7,00,000 companies, around 10 per cent were defunct, said officials. These companies do not even maintain the minimum paid-up capital of Rs 1,00,000 prescribed in the Companies Act.
Earlier problems noted
Earlier, two such schemes were announced, in 2003 and 2005. These initiatives did not materialise, as there were no records matching the details available with RoC to follow-up with such companies, officials said.
However, now that the MCA maintains records of director identification numbers (DINs) of companies in coordination with Sebi, the proposed scheme is expected to be a success.
ROC maintains DINs of even private companies that are not listed — like private placement of equity, etc — and also those who do not go for market operations. Therefore, under the new exit scheme, follow-up will be easier and such companies may be asked to deregister immediately.
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