Streamlined processes help companies speed up voluntary closures

The working paper by PMEAC highlighted that process or nuts-and-bolts reforms are not systematically researched, documented or taught, but are an important part of a policymaker's toolkit

The time taken to close down a company in accordance with the Companies Act has seen a dramatic reduction from an average of 499 days to only 60 days over the past three years. And the timeline to submit final reports under the Insolvency and Bankruptcy Code (IBC) has come down to 200 days, according to a working paper by the Prime Minister’s Economic Advisory Council (PM-EAC).

 

Until 2021-22, voluntary liquidation, under the Companies Act, would take an average of 499 days. The main obstacles included the time taken by the registrar of companies (RoC) to publish notices of closure in newspapers. Further, there were no fixed timelines for each step and there would be multiple demands for document resubmissions. The government resolved the key issue by publishing weekly or fortnightly notices which itself brought the timeline to 195 days.

 

In the IBC process, the paper highlighted, the delays were due to the time taken to obtain no-objection certificates (NoCs) from various departments, including the Income-Tax (I-T) department and a lack of standard operating procedure.

 

In November 2021, the Insolvency and Bankruptcy Board of India (IBBI) brought out a clarification stating there is no NoC requirement from the I-T department. In April 2022, the timelines were reduced and IBBI also brought in a compliance certificate for voluntary liquidations with a checklist for faster processing of cases. 

 

The working paper by PM-EAC highlighted that the nuts-and-bolts reforms are not systematically researched, documented, or taught, but are an important part of a policymaker’s toolkit. Before the IBBI amendments, the average time for submission of final reports took 499 days for cases with creditors and 461 days for cases without creditors, the paper said.

 

“One thing that can be improved further is faster processing at the National Company Law Tribunal (NCLT)-level, so that the time taken for final closing of companies can be reduced after submission of the final report,” the working paper said.

 

IBBI data showed that till December 2021, final reports for voluntary liquidations were submitted for 49 per cent cases and final orders for dissolution passes for only 25 per cent. But as of December 2024, of the 2,133 cases initiated for voluntary liquidation, final reports have been submitted for 75 per cent cases and 54 per cent cases have been closed by dissolution. The remaining 21 per cent are at the NCLT-level.

 

The working paper highlighted that the setting up of the faceless Centralised Processing for Accelerated Corporate Exit (C-PACE) on May 1, 2023 fixed timelines for each step, identified nodal departments from each department and limited the number of resubmission requests by RoCs.

 

The average time taken to strike off cases filed under this system reduced to only 90 days in 2023-24 and further to 60 days in 2024-25 until January. “This is even better than what was envisaged when C-PACE was announced, which was getting the processing time to under six months,” the working paper said.