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

Sunrise Pharma Private Limited converts itself into a public company under Chapter II of the Companies Act, 2013, and the Registrar closes its former registration and issues a fresh certificate of incorporation. What is the effect on contracts it entered into before the conversion?

Pre-conversion debts, liabilities, obligations and contracts remain unaffected. They can be enforced as if the new registration had never been made. The conversion changes only the class of company, not its existing legal commitments.

  1. AAll pre-conversion contracts lapse and must be renewed
  2. BDebts, liabilities, obligations and contracts are unaffected and can be enforced as if the registration had not been doneCorrect
  3. COnly debts to secured creditors survive the conversion
  4. DContracts survive only if the Central Government approves them

Explanation

Section 18(3) provides that registration of a company on conversion does not affect any debts, liabilities, obligations or contracts incurred or entered into before conversion, and they may be enforced as if the registration had not been done. Lapse of contracts or limiting survival to secured debts finds no support in the section.

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