RoC proposed strike off of LLPs: Read the remedies available

After steps of disqualification of directors of defaulting companies, the Registrar has now taken the actions for defaulting LLPs. A list of total 1171 LLPs are proposed to struck off by RoC Delhi and Haryana by issue of notice dated 30^th May, 2018. The notice states that the LLPs have not been filing any of the compliance forms i.e. Financial Statements in Form 8 or Annual Return in Form 11. Apart from the stakeholders of LLP affected by this notice, it is an alert to those LLPs and partners who are delaying the filing of Annual Compliance even after heavy penalty.

What the Notice says?

The notice states that the list of LLPs provided have not been carrying on any business or operation for a period of two immediately preceding financial years and said LLPs have failed to file their Financial Statements (Form — 8) and Annual Return (Form — 11) for the Financial Year 2015-16 and 2016-17. Owing to the said default, the Registrar has reasonable cause to believe that the LLPs are inoperative for the purpose of taking suo-moto action for striking off the name of these LLPs.

Hence, the RoC has proposed to remove the name of such LLPs from the Register and proceed for the strike off and dissolution unless any cause to the contrary is shown within one month of said notice. Any person or stakeholder can object the proposed removal or strike off by sending the object to the RoC within one month of the date of publication of this notice.

The background of Notice:

The notice is issued under Section 75 of LLP Act, 2018 read with Rule 37 of LLP Rules, 2009. The mentioned provisions grant the power to Registrar of Companies (LLPs) to strike off the name of LLPs from the register of LLP if he has reasonable cause to believe that an LLP is not carrying on business in accordance with the provisions of the Act.

The registrar has sent the notice under the purview of same to the LLP and its partners allowing any representation or objection to proposed strike-off within a period of one month from the notice.

Failure to file the compliance forms for a period of consecutive two years supports that the LLP is non-operational for a said period. Hence, empowered by the said provisions, RoC has processed for striking off the name of the LLPs that has not furnished their annual return or financial statements for two years as mentioned above. If the stakeholders do not file any objection or initiate actions within 30 days of the notice, the RoC may process the removal of name from the register resulting into non-existence of the LLP in eyes of law.

How to save LLP from strike off?

The status of the LLP enlisted in the said notice is changed to “Under Process of Strike Off”. To make the status active again, the LLP is required to make sure that appropriate actions are taken within 30 days of the notice. The partners or the LLP itself can make a representation as to the reason why they have failed to fulfill the provisions laid down for given period along with copies of the relevant documents. The fact of the LLP being operational should be supported by appropriate documents such as books of accounts. Further, if the LLP is non-operational for said period, the supporting reason as to why the existence of should be continued is to be disclosed. The partners must consult a professional as to initiate appropriate actions in this regards.

Here, not only the partners or LLP, but the creditors or any other stakeholders can also file the objection to action of strike-off representing their interest in said LLP. In simple words, if any person would be facing loss or want to continue the said LLP, he/she can make an objection to order by furnishing supportive documents to the satisfaction of the registrar to believe that LLP shall not cease to be in existence.

What if you fail to object?

If any person including partner fails to show cause to the contrary to the intention of removal of name from the register within given period of one month, the registrar shall issue a notice in the Official Gazette. On publication of said notice in Official Gazette, the LLP shall stand dissolved and the name of the LLP will be removed or struck off from the register of LLPs.

However, as per sub-rule 5 of Rule 37, the liability of LLP or its partners shall continue and may be enforced as if the Limited Liability Partnership has not been dissolved. For the discharge of the liabilities of the LLP, the registrar may ask the designated partners to furnish the undertaking before publishing the notice in the official Gazette. Further, the assets of the LLP shall be made available for the payment of discharge of liabilities and obligations even after issuing of order. (Rule 37(4))

Conclusion:

The bold step from RoC Delhi and Haryana give clear indication that the provisions laid are to be followed strictly to enjoy the perpetual succession. The partners not filing the forms under Annual Compliance are already charged with heavy penalties at the rate of INR 100 per day to make sure that the mechanism runs right and no stakeholder face any adverse effect from same. The LLPs now have to face huge expenses for reviving their active status after such steps. Therefore, rather than delaying LLP Annual Compliance, it is better made on time. The date of filing form 11 for FY 2017-18 is passed, however, can be field with additional fee. Also, form 8 is yet due in the month of October. These compliances shall be taken on priority by the concerned partners to avoid such kind of stringent measures.