Government tightens screws on assets owned by deregistered companies

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According to the minister, since the country-wide land records have been computerised, it would not take much time for the states to provide the requisite information to the district authorities and the central government.

The corporate affairs ministry today asked states to complete identification of properties owned by deregistered companies at the earliest and ensure district administrations prevent transactions in those assets.

Amid intensifying efforts to fight the black money menace, the ministry has also urged the states to initiate disciplinary action against the officials concerned in case such transactions go through.

The names of around 2.25 lakh companies which have not been carrying out business activities for long have been struck off the official records and a number of directors associated with such firms have been disqualified.

Against this backdrop, Minister of State for Corporate Affairs P P Chaudhary today held a review meeting with representatives from various states on action taken with respect to properties belonging to around 2.09 lakh deregistered companies.

During the meeting, Chaudhary asked the states’ representatives to complete the process of identification and tracking of properties belonging to such companies at the earliest, according to an official release.

In this regard, the states have been requested to share information with the ministry in a time-bound manner.

On September 12, the ministry had sent a letter to states for identification and tracking of properties belonging to around 2.09 lakh companies that were deregistered. Now, the number of such firms is about 2.25 lakh.

Additional state-wise information pertaining to such companies was also shared with the state representatives.

According to the minister, since the country-wide land records have been computerised, it would not take much time for the states to provide the requisite information to the district authorities and the central government.

Since the names of the companies have been struck off, any transaction pertaining to properties owned by them, their directors or authorised signatories would be “void ab initio and a nullity till such companies are restored by an order of the National Company Law Tribunal (NCLT), the release said.

“In fact, by virtue of the company’s name having been struck off from the Register of Companies under the Companies Act, 2013, its identity as a legal person had been lost and hence, the legal ownership of properties belonging to such a company was non-existent,” it added.

Chaudhary advised the representatives to ensure that requisite directions are urgently issued to all the district authorities dealing with registration of properties to put in place appropriate mechanism to prevent transactions in properties belonging to the deregistered companies.

Officials allowing registration of transactions in such properties by ignoring the requisite directions may be subjected to disciplinary action, he told the representatives.

Emphasising that tackling of shell companies is an imperative element in the fight against black money, Chaudhary said such a drive would help unearth benami properties and discourage illegal practices, which would create a healthy economic environment for honest businessmen.

Individual businesses to soon be under ambit of bankruptcy code

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Insolvency and Bankruptcy Board of India has published draft rules dealing with insolvency resolution process of individuals and firms on its website
Insolvency and Bankruptcy Board of India has published draft rules dealing with insolvency resolution process of individuals and firms on its website .                                    The existing insolvency and bankruptcy code, at present, applies only to corporate defaulters

The government on Tuesday expanded the scope of the new insolvency rules to bring individual businesses under its purview.

On Tuesday, the Insolvency and Bankruptcy Board of India (IBBI) published the draft rules dealing with insolvency resolution process of individuals and firms on its website (www.ibbi.gov.in) ; public comments can be submitted till 31 October.

Once notified, even individual businesses such as proprietorships will come under the bankruptcy regime. This will enable an orderly bankruptcy resolution within the purview of a transparent rules-based regime. The existing insolvency and bankruptcy code, at present, applies only to corporate defaulters.

“These rules shall apply to matters relating to the insolvency resolution process for individuals and firms under Part III of the code,” said the draft rules issued by IBBI.

Part III of the Insolvency and Bankruptcy Code, 2016, deals with insolvency and bankruptcy of individuals and partnership firms.

According to a statement issued by IBBI on Tuesday, the draft rules and regulations have been submitted by a working group which was formed to recommend the strategy and approach for implementation of the provisions of the Insolvency and Bankruptcy Code, 2016, dealing with insolvency and bankruptcy in respect of guarantors to corporate debtors, i.e., personal guarantors, and individuals having businesses.

“So far, the rules were only in respect of the Corporate Insolvency Resolution Process (CIRP) and the rules concerning individuals and partnership firms were yet to come,” said Satwinder Singh, partner at Vaish Associates, a law firm. “The jurisdiction for corporate, companies, limited liability partnership (LLP) lies before the National Company Law Tribunal (NCLT) and with the Debt Recovery Tribunal (DRT) for individuals and firms. The provisions relating to insolvency and bankruptcy of individuals and firms had not been notified earlier, so now the IBBI has come out with the draft rules.”

Harsh Pais, partner at law firm Trilegal, said, “It is a positive step towards consolidating the bankruptcy regime for individuals, for whom there was no systematic approach previously. For companies, at least there was recourse to the Companies Act, whereas for individuals there were only some archaic laws from the early 1900s, which were hardly relied upon in practice.”

Most of the small and medium enterprises (SMEs) take the legal form of either partnership or proprietorship firms. Though the loans are smaller in value, SME borrowers far outnumber companies, resulting in their borrowings exerting a significant influence in the financial sector’s stability.

Bankruptcy resolution is high on the agenda of the central government, which is keen to improve the ease of doing business in India and attract more private investments from domestic and overseas sources. An efficient exit route from failed projects is an essential factor that lenders consider before participating in projects.

 

Source: Live Mint

200,000 more directors disqualified for holding posts in defaulting companies

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The govt has struck off more than 200,000 firms that have not complied with the provision of the law from the list maintained by the RoC and frozen their bank accounts to check any siphoning off of funds.

The corporate affairs ministry has disqualified another 200,000 directors for holding posts in defaulting companies that have not filed their financial returns for the last three years or more, taking the total number to over 300,000, while cancelling the registration of another 10,000 companies.

These directors won’t be able to hold board seats in other companies as well and may have to resign soon from them, potentially impacting other firms as well.

While the current law does not provide for any appeal, the government is thinking of exercising “the review power to take any such plea into consideration,” PP Chaudhary, minister of state for corporate affairs, told ET. “By operation of law, these directors are disqualified but we have to see under what provision of law we can examine this. If we need to frame a rule we will do it.”

According to Section 167 of the Companies Act, a director is disqualified automatically from all other posts of director once barred under Section 164, said Chaudhary, a lawyer by profession.

200,000 more directors disqualified for holding posts in defaulting companies

The government has struck off more than 200,000 firms that have not complied with the provision of the law from the list maintained by the Registrar of Companies and frozen their bank accounts to check any siphoning off of funds.

“This exercise is part of demonetisation. No one had the guts to stop all this till now. It will prove a catalyst for the Indian economy,” said the minister of state, who took over this responsibility after the recent reshuffle. He said the money trail will be traced after data mining of these companies.

 

The government will prioritise those cases where there is evidence of a large movement of cash. He rejected the criticism that the action was retrospective in nature.

“Law has not been retrospective. Companies had two years to file returns… there was healing time,” the minister of state said. So far the shell firm chase has been limited to defaulting firms that have not filed their financial returns for the last three years or more but the government will soon go after compliant firms as well to check their holding companies structures and fund flows.

Chaudhary said the intent is to restore trust in the corporate structure and also improve ease of doing business in the country.

“We do not want to create any terror. Trust in the corporate structure is gone and we want to increase the investor confidence, not interfere in the corporate structure,” Chaudhary said.The government wants to promote ease of doing business to ensure investors that their money is safe in India, he added.

“This exercise has been triggered due to governance. We have shown scale and speed in an unparalleled way in the way we have acted against these companies and directors,” Chaudhary said.

Last week, the government made public the names of 55,000 directors who were disqualified under Section 164 (2) (A) of the Companies Act. The list included the names of prominent politicians including former Jammu and Kashmir chief minister Omar Abdullah and Malayalam filmstar Mohanlal among others.While the government will not impose any penalty on the directors of government-owned companies that figured in the list of defaulters, those in private firms will have to resign from other board seats and won’t be eligible for reappointment for up to five years.

The corporate affairs ministry will also look into these companies to identify shell companies to see if they have been used for money laundering or any other illegal activity. “We need to find who the shell company’s real beneficiary is… It could be in the name of the cook or a driver. We are taking stock of the money in these companies pre and post demonetisation,” Chaudhary said.

While spotting defaulting companies is an ongoing process, Chaudhary said that, using artificial intelligence, the government will sift out the shell companies from among those that are compliant with regulations and also create an early warning system. “The system will trigger alerts every time we see unusual activity taking place in a company. It will also help us find out the beneficial owner of the shell companies,” he said.

Directors of Shell firms can’t join other companies’ boards

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Directors of shell companies which have not filed tax returns for three or more years will be barred from taking similar positions elsewhere or getting reappointed, the government said, as it intensified the crackdown on firms that exist only on paper.

The government has struck more than 2 lakh shell companies off the Register of Companies and put restrictions on their bank accounts as part of its clampdown on black money.

Directors of the companies that were struck off the RoC could face up to 10 years in jail if they were found siphoning off funds, the government said on Wednesday.

The government said it is compiling the profiles of the directors at such companies in collaboration with enforcement agencies and expects the move to cover 2-3 lakh people.

 Professionals such as chartered accountants, company secretaries and cost accountants associated with shell companies and involved in illegal activities have also been identified, according to a statement.

The decisions were made at a review meeting chaired by the minister of state for corporate affairs, PP Chaudhary, to strengthen the rules and procedures of corporate governance, it said.

The move “would not only help in checking the menace of black money but also would promote an ecosystem of ‘ease of doing business’ and enhancing investors’ confidence”, Chaudhary said.

Enforcement agencies are compiling profiles of directors, including their background, antecedents and role in the operations and functioning of these companies.

“All efforts are also being made to identify the actual beneficiaries and persons behind such shell companies,” the government statement said.
The government is also monitoring action being taken by professional institutes such as the Institute of Chartered Accountants of India and Institute of Company Secretaries of India.

Over 2.09 lakh firms struck off, bank accounts frozen: Govt

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In a major clampdown against black money, the government on Tuesday directed freezing bank accounts of more than 2.09 lakh companies whose names have been struck off from the records and said action would be taken against more such firms.

Banks have also been asked to step up their vigil against those companies that are non-compliant with various regulations and not carrying out business activities for long, a senior finance ministry official said as authorities continue their crackdown against shell entities The official said banks have been directed to freeze the bank accounts of these deregistered companies.

While warning that action would be taken against erring firms, the official said the efforts would help in enhancing corporate governance standards as well as clean up the system that otherwise is prone to be misused.

The names of over 2.09 lakh firms have been struck off from register of companies for failing to comply with regulatory requirements

“The names of 2,09,032 companies have been struck off from the register of companies under Section 248 (5) of the Act. The existing directors and authorised signatories of such struck-off companies will now become ex-directors or ex- authorised signatories,” an official release said

Section 248 of the Companies Act – which is implemented by the corporate affairs ministry – provides powers to strike off names of companies from the register on various grounds including for being inactive for long.

According to the official, since these companies had ceased to be legal entities, there was no reason having active bank accounts which could be prone to misuse.

Once these companies become compliant, banks would activate their accounts, the official added. “Furthering our war against #BlackMoney, banks have been advised to immediately restrict bank accounts of struck-off companies,” Minister of State for Corporate Affairs P P Chaudhary said in a tweet.

The official said a detailed analysis has been initiated to check whether these deregistered companies were used as conduits for channelising unaccounted money into the system, especially during demonetisation.

Amid efforts against shell companies which are allegedly used as conduits for illicit fund flows and tax evasion, the government said the directors of deregistered firms would not be able to operate the bank accounts till these entities are legally restored

About the directors and signatories of the over 2.09 lakh firms, the government said they would not be able to operate bank accounts of such companies till these entities are legally restored. The restoration, as and when it happens, would be reflected in the official records by way of change in the status from ‘struck off’ to ‘active’. “Since such ‘struck off’ companies have ceased to exist, action has been initiated to restrict the operation of bank accounts of such companies,” the release said.

The Department of Financial Services, through the Indian Banks Association, has advised banks that they should take immediate steps to put restrictions on bank accounts of such struck-off companies. “In addition to such struck-off companies, banks have also been advised to go in for enhanced diligence while dealing with companies in general,” the release said.

A company even having an active status on the corporate affairs ministry website but defaulting in filing of its due financial statements or annual returns, among others, “should be seen with suspicion as, prima facie, the company is not complying with its mandatory statutory obligations”. In another tweet, Chaudhary said the ministry is committed “in attaining @narendramodi ji’s vision of eliminating black money”.

Source:DD News

SEBI plans stricter norms for Independent Directors

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Markets watchdog Securities and Exchange Board of India (SEBI) plans to overhaul the regulatory framework for corporate governance, including appointment and removal of independent directors, people familiar with the matter said.

Besides, a high level panel is looking at corporate governance issues such as those pertaining to related party transactions, auditing and effectiveness of board evaluation practices, the people added.

Against the backdrop of recent instances of boardroom battles involving large corporates, the SEBI is looking to revamp the norms and the matter is expected to be discussed at its board meeting later this month.

Strengthening corporate governance practice is a focus area for the regulator, with SEBI chairman Ajay Tyagi recently saying, “independent directors are not independent”.

The regulator is keen on stricter norms for independent directors, including with respect to their appointment, removal and larger responsibility as part of a company’s board, the people said.

Currently, an independent director can be removed by way of an ordinary resolution — which requires the approval of at least 50 percent shareholders of a particular company.

However, when it comes to re-appointment of independent directors, the firm concerned has to move a special resolution under which nod from 75 percent or more shareholders is required.

According to sources, SEBI wants to make it special resolution mandatory for removal of an independent director as such a provision will reduce the arbitrariness of promoters in deciding upon the ouster of such directors.

Besides, stringent disclosure requirements for independent directors, including at the time of their appointments, are being looked at, sources said.

Corporate governance issues will be among the slew of developments that are to be discussed during the SEBI board meeting scheduled for June 21.

 

 

 

 

Earlier this month, the watchdog set up a 21-member committee under the chairmanship of veteran banker Uday Kotak to suggest ways to further improve corporate governance standards of listed companies.

The panel will make recommendations on ensuring independence in spirit of independent directors and their active participation in functioning of the company.

Besides, measures to address issues faced by investors on participation in general meetings and ways for improving effectiveness of board evaluation practices will be suggested by the committee.

Apart from Kotak, who is the chairman of Kotak Mahindra Bank, other members include HDFC CEO Keki Mistry, Wipro chief strategic officer Rishad Premji, L&T Whole Time Director R Shankar Raman and BSE CEO Ashishkumar Chauhan.

In April, Tyagi had said there were too many lacunae with respect to the concept of independent directors with many having “no commitment to any cause”.

“I must admit I have no solutions on what should be done but it will be anyone’s case that existing system has lot of lacunae,” he had said.

Some independent directors are appointed at the mercy of promoters “(with) no prescribed qualifications or procedures, favouritism, (many are from) closed clubs (such as) only those people being in all boards, no commitment to any cause – Ajay Tyagi, Chairman, SEBI

 

 

 

 

Earlier this year, the regulator came out with detailed corporate governance norms for listed companies that provide for stricter disclosures and protection of investor rights, including equitable treatment for minority and foreign shareholders.

The new rules, which would be effective from October 1, require companies to get shareholders’ approval for related party transactions, establish whistle blower mechanism, elaborate disclosures on pay packages and have at least one woman director on their boards.

Source: https://www.bloombergquint.com/law-and-policy/2017/06/12/market-regulator-sebi-plans-stricter-norms-for-independent-directors

Bankruptcy and Insolvency Code will drive creation of a new debt market

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The Bankruptcy and Insolvency Code will drive growth of debt market in India, which hardly exists in corporate and business financing, Dr. MS Sahoo, Chairman, Bankruptcy Board of India

The Bankruptcy and Insolvency Code will drive growth of debt market in India, which hardly exists in corporate and business financing, Dr. MS Sahoo, Chairman, Bankruptcy Board of India told Fe. While the country has a matured and bullish equity market, the debt market in India was yet to develop. The board was not concerned with default in bank credits or about the rising NPAs. It would mainly look into private creditors interest if their money got locked.

“Banks have some protection in the areas of corporate financing but non banking debt is non existent. Bankruptcy and Insolvency Code would be instrumental in the growth of non bank debt financing, which would lead to reduce dominance of banks in areas of credit.

With a debt market created, debt supplies would ease out and lending rates both for the non banking creditors as well as for the banks would be market driven. “At present demand is chasing supplies but it will be other way round with supplies chasing demand,” Mamata Binani, chairperson, Institute of Company Secretaries of India (ICSI) said at an interactive session organised by the MCC Chamber of Commerce.

She said the code will enable to solve problems of many assets lying dead for years in dispute. Such assets could be quickly liquidated without the judiciary’s intervention and unsecured creditors will always have the first chance to realize its money from the business. The board has estimated that Rs 25,000 crore, which is locked in dead assets, is going to get unlocked in next five years.

While Sahoo made clear that the Bankruptcy and Insolvency Board would not deal with corporate frauds and inter managerial disputes, a creditor who has given unsecured loans should trigger the first available opportunity if he sees his credit at risk.

It will be a creditors committee, which will work on a strict time line, to resolve insolvency. The creditors will not be bound by any set rules to resolve insolvency or debtors problem. They will have flexibility to take their own decision and find a way out and that might come in the form debt restructuring or liquidation. However, if liquidation is unable to recover a debt, it may be a loss for both the creditor and the debtor, Alok Dhir, founder and and managing partner of Dhir & Dhir Associates said.

“But working with this code will gradually prove what is the right approach and there may be changes brought in the law,” Sahoo said adding that the board was also working on a framework for direct liquidation by passing insolvency resolution and the framework would be ready by February- March. But to begin the process on code a company has to address to the National Company Law Tribunal (NCLT), while for personal insolvency, a claimant will have to go to the Debt Recovery Tribunal (DRT). But the framework for personal insolvency was not yet ready and it would take some time before a party could move the DRT, Sahoo said.

However, the NCLT with 11 benches across the country was already functional with the code and there were chances that 93,000 pending BIFR cases could be referred to the board, many of which might not have to begin the process on code but through pre- pack solutions, Sahoo felt. He said the board has selected 974 insolvency professionals on a temporary basis and would begin certification through tests for inducting regular professionals.

Source: http://www.financialexpress.com/market/bankruptcy-and-insolvency-code-will-drive-creation-of-a-new-debt-market/506028/