Extension of Easy exit scheme by MCA? This was the question every one has in their mind looking at the technical issue MCA site had on last week of August 31 2010. But there is no such good news. We always wait till last day or last minute and face such problem.
Promoters are making good use of the amnesty scheme.The easy exit scheme cuts a lot of legal tangles which is otherwise prevalent in times of regular winding up, said Arun Bhattar,a Mumbai-based company law advisor.
According to Mr Bhattar,by opting for easy liquidation,promoters will also save on effort and costs towards annual compliance.Corporate houses having unused investment arms or idle SPVs (special purpose vehicles) have also benefited from the amnesty scheme.
Finance and investment companies account for about 12% of the overall easy liquidation pie. According to corporate lawyers,a good number of these firms are shell companies floated by large corporates to source their investments.The list also includes several private finance companies (chit funds and the like) that have been barred from collecting public deposits.Investment or security broking firms that have gone bust or are finding it difficult to do business are also in the line to shut shop.
Regular liquidation is a tedious and longdrawn procedure.It may take a couple of years and a series of court sessions before a company could shut shop.Promoters have made good use of the easy exit scheme;it has allowed promoters to wind up their shell companies at lower cost and lesser time, said Siddharth Shah,who heads the corporate & securities practice group at Nishith Desai Associates.
The closure of such finance companies and shell companies will not have any significant impact on debt or equity market inflows or investments,Mr Shah added.
According to Pranay Bhatia,associate partner at Economic Laws Practice,a multi-layer corporate structure leads to tax leakage in form of dividend distribution tax (DDT).As a result,companies are trying to mitigate this (DDT) cost by moving from corporate structure to Limited Liability Partnership (LLP) structure.