In this section you can find the following information:
- What is termination by liquidation?
- How are the liquidators appointed?
- How is the liquidation accomplished?
Most often companies are terminated under the following circumstances:
- By decision of the shareholders;
- In case of accomplishment of the objectives, specified in the articles of incorporation/articles of association, if any;
- Upon the expiration of the period, for which the company was established, if such a period is specified in the articles of incorporation/articles of association;
- In case of bankruptcy;
- In case of termination of the company by Decision of the regional court, due to the performance of unlawful activity, etc.;
- In case of a change in the legal form of the company;
- In case of consolidation, merger, division and spin-off (Transformation of the company).
|Important to know|
No liquidation is carried out in case of a change in the legal form of the company, Transformation of the company and in case of a bankruptcy procedure.
In all other cases, a liquidation procedure is necessary.
What is termination by liquidation?
Termination of a company by liquidation – this is a situation, where the terminated company still has property, which is not transferred to another company and which should be allocated between the shareholders after the company fulfils all its obligations/liabilities.
It should be noted that the termination by liquidation is not always voluntary– e.g., when the company is terminated by decision of the regional court due to the performance of unlawful activity and if there is remaining property, a compulsory liquidation procedure is carried out.
Insolvency procedure is different from liquidation procedure. A insolvency procedure is a judicial procedure, carried out, when a company is overindebted or insolvent. In this case the court appoints a receiver, who manages and represents the company during this procedure. Among the key obligations of the receiver are the preservation and management of Company’s property, so that company’s creditors1 are satisfied. In this respect, the receiver is provided with extensive powers (art. 658 of the Commerce Act (CA)). A liquidation, on the other hand, is an out-of-court procedure, conducted by a liquidator(s). The key objectives of the liquidators are to finish the contracts, to which the company is a party, “to cash“ Company’s property (i.e. to transform it into money), using this cash, to repay all debts of the company and finally – to distribute any remaining money among the shareholders. Liquidators’ powers are more limited than those of the receiver.
How are the liquidators appointed?
Liquidators are appointed:
- By the general assembly of the shareholders, of the articles of association/articles of incorporation of the company do not specify liquidators;
- By the court – at the request of shareholders, owning at least 1/20 of company’s capital (1/10 in the case of a limited liability company (LTD);
- By an official from the Registry Agency – when the company is declared invalid by a court decision.
The fees of the liquidator are established by the party who appoints him. Liquidators are registered with the Commercial Register, as the application for registration has to be accompanied by notarized consents with signature specimens. The application may also be submitted online with qualified electronic signature, as in this case the payable fees are lower.
In the liquidation procedure, liquidators represent the company and have the rights and obligations of the management body.
The term for completion of the liquidation procedure is determined:
If necessary, the specified term can be extended.
How is the liquidation performed?
Announcement of the termination of the company
Liquidators are obliged to announce the termination of the company in the Commercial Register. As a result, the name of the company is complemented with “in liquidation“ – so that the persons, who are in certain relations with the company, may find out that the company’s business is terminated and it is in a liquidation procedure (art. 9 of the CA). Liquidators are obliged to notify the National Revenue Agency (NRA) of the initiated liquidation. The notice template, sent to the NRA, is available at the following address.
Sending invitations to the creditors
Liquidators must invite company’s creditors to claim their receivables. The invitation is sent in writing to the creditors (e.g., by means of a registered letter with receipt of delivery or notarial invitation) and is announced in the Commercial Register. The invitation is announced in the Commercial Register through the submission of an application, based on a Template, to the Registry Agency. The application template is available at at the following address in section D in the drop-down menu. The application may also be submitted online using a qualified electronic signature, as in this case the payable fees are lower.
Liquidators must complete the currently existing contracts of the company, to collect company’s receivables and after that transform the rest of the property in money. The money is used to fulfil all the obligations and repay all debts of the company, if any.
Preparation of a balance sheet and a report to the balance sheet
Liquidators prepare the balance sheet as of the moment of termination of the company and a report, clarifying the balance sheet. In the end of each year, they carry out the annual year-end closing and submit an annual financial statement and annual report on his activities, to the management body. The management bodies issue a statement on the acceptance of the initial, the annual year-end closing balance sheet and for the release of the liquidators from responsibility (art. 270 of the CA).
Distribution of the remaining property
The property, remaining after the fulfilment of all the obligations of the company, is distributed among the shareholders (art. 271 of the CA). Company’s property is distributed, only after the expiration of six months after the date, when the invitation to the creditors is announced in the Commercial Register (item 2). The method of distribution of the property may be settled in the articles of association/articles of incorporation of the company through liquidation shares2.
Erasure of the company
When all the obligations and debts have been settled, and the remaining property has been distributed, the liquidators request the erasure the company from the Commercial Register. Тhe company ceases to exist from the moment it is erased from the Commercial Register (art. 273 of the CA).
|Important to know|
The liquidation procedure is suspended in case of issuance of a court decision for the commencement of an insolvency procedure. If the court declares the company insolvent or overindebted, the liquidation is terminated (art. 272а of the CA).
|For more information|
For more information on the liquidation procedure and the related regulatory framework, please refer to the websites of the:
1Persons, to whom the company is indebted or liable
2Within the meaning of the CA the liquidation share is the part of Company’s property, which the owner of the share receives in case of liquidation of the company. The term liquidation share is also used for the purposes of taxation, as in these cases the law also determines the scope of the term – For example §1, item 6 of the additional provisions of the Income Taxation of Natural Persons Act, §1, item 6 of the additional provisions of the Corporate Income Taxation Act).