Conversion of Public company into Private Company

on

Introduction:

Before the notification issued by the Ministry of Corporate Affairs dated 18th December, 2018 to amend the businesses (Incorporation) Rules, 2014, NCLT was handling the cases of Conversion of Public Companies into Private Companies and it had been a time consuming process under NCLT Bench.
Due to many Insolvency Cases, it had been necessary to scale back some burden of NCLT in order that the main target are often made on Insolvency cases for the speedy resolution.

 Therefore, to scale back the Burden of NCLT, Government has taken following steps to shift the facility of approval of conversion of Public Companies into Private Companies:

 *1. the businesses (Amendment) Ordinance, 2018: By inserting second proviso to sub section 1 of section 14 through Ordinance the govt has transfer the facility of tribunal regarding approval of conversion of public company into private company to the central gov.

 *2. Company Fourth Amendment, in Rules 2018: On MCA on the date 18th December, 2018 by amendment inserted in the rule Rule 41 under Company Rules, 2014 for conversion of public Company into Private Company.

                By Rule 41 on MCA has assign its power to Regional Director for approval of a conversion of public company into private company.

WHY CONVERSION?

Through the businesses Act, 2013, the Compliances of Public Companies are increasing day by day, which has put tons of restrictions on doing business. On the opposite hand MCA has exempted the private companies from the compliances of varied provisions of Companies Act, 2013 vide notification No. G.S.R. 464(E) dated: 5th June, 2015 and G.S.R. 583(E) dated 13th June 2017.

 Keeping in sight the relief given to non-public Companies, tons of public companies have converted into private companies and lots of are under process.

APPLICABLE PROVISIONS:

*1. Section 13: For alteration in Memorandum of Association of the corporate 

 *2. Section 14: For alteration in Article of Association of the corporate .

 *3. Rule 41 of Companies (Incorporation) Rules, 2014 (inserted by Companies (Incorporation) Fourth Amendment, Rules 2018 on 18.12.2018): Approval of Regional Director for conversion of Public Companies into Private Companies.

E-FORMS INCLUDED:

*1. Form MGT 14: To file Special Resolution.

 *2. Form RD-1: Application of Conversion

 *3. Form RD-GNL-5: To file re-submissions

 *4. Form INC-28: To file copy of Order

 PROCEDURE TO CONVERT PUBLIC COMPANY INTO PRIVATE COMPANY:

*1. HOLD THE committee meeting as per the provisions of Section 173, applicable Secretarial Standards and other applicable provisions of Companies Act, 2013
  • To debate and approve the agenda of conversion and to recommend an equivalent for approval of Shareholders.
  • To approve the alteration of Memorandum and Articles and to recommend an equivalent for approval of Shareholders.
  • To repair the date, time and place of general meeting of Shareholder.
  • To approve the draft notice along side Explanatory Statement of the overall meeting and to authorise Company Secretary or the other person to issue the Notice of General Meeting as per provisions of Companies Act and Secretarial Standards.

2. ISSUE THE NOTICE OF GENERAL MEETING a minimum of 21 clear days before the overall Meeting.

 3. HOLD GENERAL MEETING and PASS THE SPECIAL RESOLUTIONS under Section 13 & 14 to:
  • Approve the conversion of Public Company into Private Company
  • Approve the Alteration of Memorandum of Company to suits the provisions of Section 2 (68).
  • c. Approve the Alteration of Articles of the corporate to suits the provisions of Section 2 (68).

4. File Form MGT-14in compliance with the provisions of Section 117 (3) within 30 days of passing of Special Resolutions within the General Meeting and fasten the subsequent Documents with MGT-14.

 Attachments of Form MGT-14
  • Certified true copy of the Resolution that has been passed with Explanatory Statement.
  • A Signed Copy of Notice of the overall Meeting with all annexures
  • Signed and Stamped Altered copy of Memorandum and Articles of the corporate .
5. DRAFT AN APPLICATION for Conversion of Public Company into Private Company to be filed to Regional Director. Following Particulars shall be began within the Application:
  • The date of the committee meeting at which the proposal for alteration of Memorandum and Articles was approved;
  • The date of the overall meeting at which the proposed alteration was approved;
  • Reason for conversion into a personal company;
  • Effect of such conversion on creditors, shareholders, deposit holders, debenture holders and other related parties;
  • Details of any conversion made within last five years and outcome thereof along side copy of order;

6. a minimum of TWENTY ONE DAYS before the date of filing of the appliance advertise within the Form No. INC-25A, in a vernacular newspaper within the vernacular language in same district and same in English language in an English newspaper, which is widely circulated with in the State during which registered office of corporate is situated.

 7. a minimum of TWENTY ONE DAYS before the date of filing of the appliance serve, by registered mail with acknowledgement due, individual notice on each debenture holder and creditor of the corporate and a notice to the Regional Director and Registrar and to the regulatory body, if the corporate is regulated under any law for the nonce effective .

 8. File Form RD-1 within 60 days of passing of Resolution with Regional Director along side the fee as provided within the Companies (Registration Offices and Fees) Rules, 2014 with following attachments:

 Attachment of RD-1
A. Signed Copy of Application

 B. draft of Altered Memorandum of Association and Articles of Association.

 C. Copy of the MINUTES of the overall meeting with details of votes cast in favour and or against with names of dissenters.

 D. Copy of Board resolution dated not before THIRTY DAYS authorising to file application for such conversion

 E. Scanned, Signed and Stamped Copy of ADVERTISEMENTS as mentioned in Point No. 6.
F. DECLARATION by KMP (If no KMP within the Company by any of the Directors) that:
  1. The corporate limits the amount of its members to 2 HUNDRED.
  2. NO DEPOSIT has been accepted by the corporate in violation of the Act and rules made thereunder.
  3. There has been NO NON-COMPLIANCE of sections 73 to 76A, 177, 178, 185, 186 and 188 of the Act and rules made thereunder.
  4. NO RESOLUTION is pending to be filed in terms of sub-section (3) of section 179 and
  5. The corporate was never listed in any of the Regional Stock Exchanges and if was so listed, all necessary procedures were complied with fully for complete delisting of the shares in accordance with the applicable rules and regulations laid down by Securities Exchange Board of India.

Other Mandatory Attachments:
A. There shall be attached to the appliance , an inventory OF CREDITORS, DEBENTURE HOLDERS, of a date less THAN 30 DAYSbefore the filing of Application with Regional Director, SETTING FORTH the subsequent DETAILS:
  • Name and Address of each creditor and debenture holder.
  • Nature and amounts thanks to them in respect of debts, claims or liabilities.
  • In respect of any contingent or unascertained debt, the value, thus far as are often justly estimated of such debt or claim.
B. the corporate shall file AN AFFIDAVIT, signed by the corporate Secretary of the corporate , if any, and not but two directors of the corporate , one among whom shall be director , where there's one, to the effect that they need made a full enquiry into affairs of the corporate and, having done so, have formed an opinion that the list of creditors and debenture holders is correct, which the estimated value as given within the list of the debts or claims payable on contingency or not ascertained are proper estimates of the values of such debts and claims that there are not any other debts, or claims against, the corporate to their knowledge

 C. Proof of Serving the Notice to all or any Creditors, Debenture holders, Registrar and other Regulatory Bodies.

 9. If any objection is received from a person in response to the advertisement or notices mentioned above, the corporate shall submit the copy of Objection with the Regional Director.

 10. Where objection is received the regional director will call the one that raised objection and to the corporate (any Representative on behalf of the Both) for hearing and after giving proper opportunity to being heard, the regional director will take the choice .

 11. Where the Regional Director on examining the appliance finds it necessary to involve further information or finds such application to be defective or incomplete in any respect, he shall within thirty days from the date of receipt of the appliance , give intimation of such information involved or defects or incompleteness, directing the person or the corporate to furnish such info, to correct the problem or incomplete and to submit again such application within a period of FIFTEEN DAYS in e-Form No. RD-GNL-5.

 as long as maximum of two re-submissions shall be allowed.

 12. In cases where such further information involved has not been provided or the defects or incompleteness has not been rectified to the satisfaction of the Regional Director within the amount allowed i.e. FIFTEEN DAYS, the Regional Director shall reject the appliance with reasons within thirty days from the last date up to which resubmission was required to be made or from the date of last re-submission made because the case could also be .

 13. If No Objection is received or Objection received then after complying with the choice of Regional Director as given above in point 10, and therefore the application is complete altogether respects, an equivalent could also be put up for orders and therefore the concerned Regional Director shall pass an order approving the appliance within thirty days from the date of receipt of the appliance or the date of last resubmission made, because the case could also be .

 14. Take certified copies of order from Regional Director.

 15. File E-form INC-28with ROC within 30 days of confirmation of shifting by Regional Director along side certified copy of the order of Regional Director.

IMPORTANT NOTE

VALIDITY OF INC-27 in respect of Conversion of Public Company into Private Company:

 RULE 33 (2) of Companies (Incorporation) Rules, 2014 provides that a replica of order of the Tribunal approving the alteration, shall be crammed with the Registrar in Form No. INC -27 with fee along side the printed copy of altered articles within FIFTEEN DAYS from the date of receipt of the order from the Tribunal.

 But though Company Fourth Amendment Rules, 2018 has effective i.e. from 18th December, 2018, the Tribunal i.e. NCLT has no power regarding approval of conversion of Public Company into private company, so there's no doubt of filing of order of Tribunal. HENCE E-FORM INC-27 isn't required to be filed in respect of Conversion of Public Company into Private Company but an equivalent is required to be filed in the other way around case.

POST CONVERSION STEPS:

1. Use the copy of altered Memorandum and Articles of the corporate .

 2. Make all requisite changes within the signboards, Letter heads, Books Rubber Stamps, Bill Books, harbor seal , visiting cards and other documents and items.

 3. Make the changes in PAN, TAN, GST Portal, Bank Accounts.

 4. Intimate the changes to Banks, tax Department, PF Department, ESI Department and every one other departments.

IMPORTANT NOTE:

USE “FORMALLY referred to as _________________” for two YEARS ATLEAST ON EVERY DOCUMENT OF the corporate WITH this NAME.

Comments

Post a Comment