22 November 2013
Dear Sir, Can we close a company having redeemable Preference share capital without redemption of preference shares. IF YES / NO Please provide me the procedure for the same. Company bearing losses from last two years & Doesn't have sufficient profit.
23 November 2013
no...a redeemable preference share will have to be redeemed. Maximum life of a preference share is 20 years. So anyways at the end of it shares have to be redeemed.
where the company is not in position to redeem preference shares out of profits, it may convince preference share holders to restructure the shareholding by way of subscribing to a new issue of preference shares. the proceeds of new issue can be used to redeem the old issue.
10 August 2024
Closing a company that has redeemable preference shares without redeeming those shares involves specific procedures and considerations. Here’s a detailed guide to help you navigate this situation:
### **1. Legal Requirements for Closure**
**Closure of a Company with Redeemable Preference Shares**
1. **Redemption Requirement:** - **General Rule:** Under the Companies Act, 2013, redeemable preference shares must be redeemed as per the terms of their issuance before a company can be closed. - **Procedure for Non-Redemption:** - If a company cannot redeem its preference shares due to financial constraints or other reasons, it must address this issue in the process of closure. Simply closing the company without redeeming these shares is not straightforward and typically requires specific steps.
2. **Options Available:**
**a. Reduction of Share Capital:** - **Procedure:** You can reduce the share capital of the company, which includes the redeemable preference shares, by following the procedures under Section 66 of the Companies Act, 2013. This involves passing a special resolution, obtaining the approval of the National Company Law Tribunal (NCLT), and other statutory compliances. - **Steps:** 1. **Special Resolution:** Pass a special resolution to reduce the share capital. 2. **Approval from NCLT:** File an application with the NCLT seeking approval for the reduction. 3. **Filing with Registrar:** Once approved, file the relevant forms with the Registrar of Companies (ROC). 4. **Publication:** Publish the reduction in a newspaper as required.
**b. Company Voluntary Liquidation (CVL):** - **Procedure:** If the company is unable to redeem the preference shares and is insolvent or unable to continue its business, it may opt for voluntary liquidation. During this process, the company will liquidate its assets and settle liabilities, including the preference shares as far as possible. - **Steps:** 1. **Special Resolution for Liquidation:** Pass a special resolution to wind up the company. 2. **Appoint Liquidator:** Appoint a liquidator to manage the liquidation process. 3. **File with ROC:** File the resolution and appointment of the liquidator with the ROC. 4. **Settlement of Liabilities:** The liquidator will manage the settlement of liabilities, including redeemable preference shares, to the extent possible.
### **2. Procedure for Closing the Company**
1. **Financial Assessment:** - Ensure that the company’s financial statements are prepared, including a detailed statement of assets and liabilities.
2. **Special Resolution:** - Pass a special resolution for winding up the company in a general meeting.
3. **File with ROC:** - Submit the special resolution to the ROC along with the necessary documents.
4. **Liquidation (if applicable):** - If opting for liquidation, appoint a liquidator and follow the liquidation process as per the Companies Act, 2013.
5. **Settlement of Liabilities:** - During the liquidation process, settle all liabilities, including redeemable preference shares, to the extent possible from the assets of the company.
6. **Final Accounts:** - Prepare final accounts and submit them to the ROC.
7. **Dissolution:** - After completing the liquidation process, file for the dissolution of the company with the ROC.
### **3. Key Considerations**
1. **Legal and Financial Advice:** - Consult with legal and financial advisors to ensure compliance with all statutory requirements and to understand the implications of not redeeming preference shares.
2. **Stakeholder Communication:** - Communicate with preference shareholders and other stakeholders regarding the company’s financial situation and the steps being taken for closure.
3. **Tax Implications:** - Consider the tax implications of liquidation or reduction of share capital and ensure compliance with tax regulations.
### **Conclusion**
It is possible to close a company with redeemable preference shares without redeeming them through processes like reduction of share capital or liquidation. However, it involves specific legal and procedural steps to ensure compliance with the Companies Act, 2013. Consulting with legal and financial experts is crucial to navigate this process effectively.
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