Companies in Pakistan are far easier to start than to end. Most that stop trading are simply abandoned — the office closes, the accountant stops filing, and everyone assumes it has quietly ceased to exist.
It has not. It continues to exist, accruing penalties, with its directors on the record.
What happens if you walk away
- Filing penalties accrue against the company and its officers, and they compound
- Directors remain directors, with the exposures that carry — see directors' duties and personal liability
- Tax registrations stay open, generating notices and, eventually, best-judgement assessments. See FBR audit notices
- Employee dues, EOBI and SESSI obligations remain
- Creditors can still sue, and can petition to wind the company up
- The position surfaces later — when a director tries to incorporate again, obtain finance, or clear a tax matter
Closing properly is not expensive. Leaving it open is.
The routes out
1. Easy Exit / strike-off. For a company that has ceased operations, has no assets and no liabilities, and is up to date enough to satisfy the Commission. On application, SECP may strike the company off the register.
Suits: a dormant company that never really traded, or a small company wound down cleanly with everything settled.
Requirements in outline: application in the prescribed form, directors' declaration as to the absence of assets and liabilities, clearance of outstanding filings and dues, and publication as required. Note that the tax registrations must be dealt with separately — striking off does not close your FBR position.
The trap: declaring "no liabilities" when there are creditors. The declaration is made on oath. Do not make it if it is not true.
2. Members' voluntary winding up. For a solvent company whose members decide to end it — the company can pay its debts in full within the declared period.
The shape: a declaration of solvency by the directors, a members' resolution, the appointment of a liquidator, realisation of assets, payment of creditors in full, distribution of the surplus to members, and final accounts and dissolution.
Suits: a profitable business being wound up on retirement, on a sale of assets, or after the founders decide to stop.
3. Creditors' voluntary winding up. Where the company cannot pay its debts and the members resolve to wind it up. Creditors have a central role, including in the appointment of the liquidator and through a creditors' committee.
4. Winding up by the court. On petition — commonly by a creditor whose debt is undisputed and unpaid after statutory demand, or on the just and equitable ground, including deadlock between shareholders. The court appoints an official liquidator, and control passes entirely out of the directors' hands.
See shareholders' agreements and deadlock and, from the creditor's side, when a company owes you money and cannot pay.
Before you choose a route
Establish, honestly, three things:
Is the company solvent? This determines whether strike-off or members' voluntary winding up is available at all. Getting it wrong exposes the directors.
What has been guaranteed? Personal guarantees given to banks, landlords and suppliers survive the company. Closing the company does not close them, and directors are frequently shocked by this. See defending a bank recovery suit.
What is outstanding to employees and the authorities? Wages, gratuity, notice, EOBI and SESSI contributions, and withheld taxes are the liabilities most likely to follow individuals. See gratuity and final settlement and withholding tax obligations.
The order of work
A sequence that avoids the usual problems:
- Stop trading deliberately, and tell customers and suppliers
- Terminate employees lawfully and pay final settlements — do this before the money runs out, not after
- Collect receivables while you still have standing and records
- Realise assets and account for them
- Settle creditors, or engage them if you cannot
- Terminate leases and contracts on their terms, and deal with equipment and deposits. See commercial lease negotiation
- Close tax registrations — income tax, sales tax, provincial — properly, with final returns
- Close bank accounts and revoke mandates and authorities
- Deal with intellectual property — assign or allow to lapse deliberately. See trade mark registration
- Then apply for strike-off, or commence winding up
- Retain the books and records for the period the law requires — do not destroy them on closure
Preferences and antecedent transactions
Once insolvency is in view, what you do with assets matters.
Paying a related creditor ahead of others, transferring assets to a director or a family member, or selling below value shortly before a winding up can be examined and undone, and can found personal liability against those involved.
The instinct to "save what we can for the family" is exactly the conduct that turns a company failure into a personal one. Take advice before moving anything.
See benami and undisclosed ownership.
Partnerships, AOPs and sole proprietorships
Different exercise. A registered firm is dissolved and the dissolution notified; an AOP's tax registration is closed; a sole proprietorship simply ends, though NTN and sales tax registrations must still be dealt with and the proprietor's liability for the business's debts is personal and unlimited throughout.
See choosing a business structure and business partnership disputes.
For overseas owners
Overseas Pakistanis frequently hold a dormant Pakistani company from a venture that never started, unaware that filings continue to fall due. Check the SECP position, then close it properly — almost all of this can be done from abroad under a power of attorney. See powers of attorney from abroad.
How the firm can help
We advise on the right route out, prepare and pursue strike-off applications, conduct members' and creditors' voluntary winding up, act for creditors petitioning to wind up a company and for companies resisting such petitions, and manage the employee, tax and guarantee issues that decide whether a closure is clean.
See corporate and commercial, or contact the firm.