Winding-Up Dormant Companies

Very common is the “joint venture vehicle”, (the shelf company purchased hurriedly by the investors) lost in its purpose, when such joint venture fails to take off. Sometimes, companies are formed for other motive (best known to its founding fathers) but later losing directions and purpose. The common mistake which its directors and shareholders do is to fail to wind up the company. The company is just left in abeyance.

If the company is dormant from the start, an application can be made to strike the company from the register (of companies). The basis of filing such an application is vide resolution by all its directors to wind up its affairs.

If the company is not dormant, then such winding up can be made vide voluntarily winding pursuant to the companies act, also vide resolution. However, in this event, a provisional liquidator and then liquidator has to be appointed to wind up the company’s affairs.

The provisional liquidator/liquidator would call for a creditors meeting and inform the creditors of the company of the status of the winding up from time to time. In the genuine cases, where the company has lost its directions and purpose, this exercise is merely a formality as there are no “creditors” to answer to.

The rational to close the chapter of the company comes from the basis that its directors have statutory requirements to adhere to. Failure to observe such statutory requirements can result in penalty against the Directors personally. Furthermore, to leave such companies without being "steered" can have its adversities.