Three Different Processes Through Which Companies Can Be Struck Off
CS GOURAV SARAF
CS Gourav Saraf is an Associate Member of the Institute of Company Secretaries of India (ICSI) with over seven years of experience in corporate law and compliance. As a practicing Company Secretary based in Kolkata, India, he has successfully managed a wide range of compliance projects including FEMA, providing expert guidance to businesses on regulatory and corporate governance matters.
The process of striking off a company refers to the removal of its name from the official register maintained by the regulatory authority, effectively dissolving it. This process is generally undertaken when a company is no longer operational or fails to comply with statutory requirements. Companies can be struck off through different mechanisms, primarily Voluntary Strike Off, Compulsory Strike Off, and Administrative Strike Off. Each method follows distinct procedures and legal implications.
Additionally, depending on the status of the company’s financial and operational conditions, different conditions determine whether a company qualifies for an immediate strike-off or needs to fulfill certain requirements before dissolution.
Voluntary Strike Off
A voluntary strike-off occurs when the directors or shareholders of a company decide to dissolve it voluntarily. This method is typically chosen when the company is no longer operational, has settled all its liabilities, and is not involved in legal disputes.
Process of Voluntary Strike Off:
- Board Resolution: The directors must pass a resolution approving the strike-off process and ensure that all outstanding liabilities, including taxes and creditors, are settled.
- Application Submission: The company must submit a formal application to the relevant regulatory body (e.g., the Registrar of Companies) along with necessary documents, such as financial statements and a declaration of solvency.
- Public Notice: A public notice is issued to inform stakeholders, including creditors, employees, and other interested parties, allowing them to raise objections if any.
- Regulatory Approval: If no objections are raised within a stipulated time frame, the regulatory authority approves the application and strikes the company off the register.
Conditions for Voluntary Strike Off:
- No application money has been received, no bank account opened, and INC-20A has not been filed: If a company has not received any application money, has not opened a bank account, and has not filed Form INC-20A (Declaration of Commencement of Business), it can be directly struck off without additional formalities.
- Application money received, bank account opened, and INC-20A filed but the company ceased to operate: If the company has received application money, opened a bank account, and filed INC-20A but later ceased operations, it can directly apply for strike-off.
- Application money received, bank account opened, INC-20A filed, and the company is in operation: In this case, the company must first file all statutory returns before applying for strike-off to ensure compliance.
Compulsory Strike Off
A compulsory strike-off occurs when a regulatory authority initiates the dissolution of a company due to non-compliance with legal requirements. This process is typically enforced when a company fails to meet statutory obligations, such as filing annual returns, financial statements, or paying taxes.
Reasons for Compulsory Strike Off:
- Failure to file annual returns or financial statements for a prolonged period.
- Non-payment of statutory dues such as taxes or government fees.
- Non-compliance with corporate governance requirements.
- Dormancy for an extended period without informing the authorities.
Process of Compulsory Strike Off:
- Official Notice: The regulatory authority sends a warning notice to the company regarding non-compliance, requesting corrective action within a specified period.
- Public Announcement: If the company fails to respond, a public notice is issued, allowing stakeholders to object.
- Final Order: If no valid objections are raised, the authority proceeds to remove the company’s name from the register.
Consequences of Compulsory Strike Off:
- The company loses its legal status and is prohibited from carrying out business operations.
- Directors may face disqualification from managing other companies.
- Any remaining assets may be transferred to the government.
- Creditors can still take legal action against the directors for unpaid debts.
A compulsory strike-off is generally considered unfavorable, as it often results from non-compliance and may lead to legal consequences for the company’s directors.
Administrative Strike Off
An Administrative Strike Off is initiated by the regulatory authority due to clerical or procedural errors rather than deliberate non-compliance or voluntary dissolution. This occurs when a company is mistakenly believed to be inactive or non-compliant, even though it may still be operational.
Common Reasons for Administrative Strike-Off:
- Failure to update company details in official records.
- Miscommunication between the company and the regulatory body.
- Errors in record-keeping by the regulatory authority.
Process of Administrative Strike-Off:
- Initial Notification: The regulatory body issues a notice informing the company of its intention to strike it off.
- Company Response: The company must respond with proof of compliance, such as financial reports or evidence of operations.
- Final Decision: If the company fails to respond within the given time frame, it is struck off from the register.
Consequences of Administrative Strike-Off:
- The company is officially removed from the register, even if still active.
- If struck off by mistake, the company may need a lengthy and costly restoration process.
- Directors may have to appeal the decision in court to reinstate the company.
Unlike voluntary and compulsory strike-offs, administrative strike-offs often happen due to bureaucratic inefficiencies rather than deliberate action by the company or regulatory authority.
Conclusion
The process of striking off a company can occur in different ways, depending on the circumstances surrounding its dissolution. Voluntary Strike Off is a proactive choice made by a company to close its operations legally, whereas Compulsory Strike Off is an enforcement action due to non-compliance. Administrative Strikes, on the other hand, can happen due to errors or miscommunication.
Furthermore, the eligibility for a voluntary strike-off depends on specific conditions related to the company’s financial status and compliance history. Companies that never commenced operations can be struck off directly, whereas those that received application money and started operations must first ensure statutory compliance before dissolution. Compliance with statutory regulations and proper record-keeping can help businesses avoid unfavorable strike-offs.
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