Cognizant Technology Solutions Corporation, a global IT major with a turnover of over $13 billion in 2016, approached Appleby in October 2010 to set up a company, CTS Isle of Man (CTS IoM), to provide service to Lloyds TSB, a British bank with branches across England and Wales, in the Isle of Man and implement a new platform. However, within two years of its registration, the company initiated the process of winding up this firm in June 2012 before dissolving it in May 2014.
While the stated reason for setting up the company was to bring a team of up to five people to the Isle of Man to deliver a project for Lloyds TSB, the group decide to wind up the company in Isle of Man stating that it has not been generating revenues. “We are intending to wind up Cognizant Technology Solutions Isle of Man Limited.
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This entity has not been generating revenues and has only incurred some minor expenses in 2011. Having this in regard, could you please advise us as to the best possible mode of closing down this entity and the procedure as well as the approximate timelines involved?” said a legal official with CTS in India while placing the request for the wind-up.
For setting up the company in Isle of Man, the group decided to go via an intermediate subsidiary CTS Luxembourg — the ultimate parent company is CTS Corp, Delaware in United States.
While the winding up of the company requires it to clear all its liabilities, in the case of CTS IoM, it was noticed that that there were insufficient assets to satisfy the company’s liabilities and so the shareholder’s loan would have to be required to be waived / written-off.
According to records, intercompany balances were settled for all entities except CTS Luxembourg and as of September 30, 2013 there is a balance due to CTS Luxembourg of GBP29,252.39 (Rs 24.57 lakh) which, the company said, would need to be waived.
The Appleby consultant advised, “The loans from group undertakings need to be written off/back as the company cannot repay them. Ostensibly this is a journal to debit creditors/credit the P&L. That will leave a ·2 balance sheet and a solvent company.”
In the winding-up process, the company effectively did not manage to pay its dues of GBP29,000, which had to be written off by its intermediate parent CTS Luxembourg in order to complete the winding up of CTS Isle of Man.
A Cognizant spokesperson said: “As a multinational firm, we establish appropriate legal structures in countries where we service our clients, in compliance with local laws and regulations. These structures are liquidated when they are no longer required. For business and competitive reasons, we are not able to discuss details about specific client engagements.”