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CS Executive · Setting Up of Business, Industrial and Labour Laws · Conversion of Business Entities

Banyan Exports Private Limited converts into a public company and the Registrar closes its former registration and issues a fresh certificate of incorporation. Lenders had advanced loans to the company before conversion. What is the position of those debts?

The debts are unaffected. Under Section 18(3), conversion to another class of company does not affect debts, liabilities, obligations or contracts incurred before conversion, and they remain enforceable as though no new registration had occurred.

  1. AThey lapse because the former registration is closed
  2. BThey are unaffected and can be enforced as if the registration had not been doneCorrect
  3. CThey can be enforced only after the lenders obtain the Registrar's consent
  4. DThey pass to the shareholders personally

Explanation

Section 18(3) states that registration of a company under that section does not affect any debts, liabilities, obligations or contracts incurred before conversion, and they may be enforced as if the registration had not been done. Closing the former registration therefore does not extinguish them.

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