Limited liability company´s liquidation
A Limited liability company is possible to dissolve in accordance with the rules set forth in the Limited Liability Companies Act , chapter 20 regarding dissolution. In addition, a company may also dissolve as a result of a merger or a demerger. A bankrupt company shall be deemed to have dissolved if, at the termination of the bankruptcy, there are no more assets or a determination on the use of the assets has been made in the context of the bankruptcy.
Purpose of the liquidation procedure
The purpose of liquidation is to ascertain the financial position of the company, to convert the requisite amount of assets into cash, to repay the company’s debts and to return the surplus to the shareholders or others, as provided in the Articles of Association. When enough assets have been managed to convert into cash and the possible debts have been covered, it is possible to distribute the remaining surplus to the shareholders.
Besides serving the purpose as an interim stage, liquidation has an independent purpose in liquidation as well. For example, it can be used in a situation where partners wish to solve a problematic accounting issue and collect or pay their debts.
What if the assets are insufficient?
If the assets of a company in liquidation are not adequate for the repayment of the company’s debts, the liquidators shall apply for the bankruptcy of the company. The business operations of the company may be continued only to a degree called for by an appropriate liquidation process.
Beginning of liquidation and process
The limited liability company may be applied for liquidation with a decision made by a Board, the registration authority or a court.
If the General Meeting shall decide on the placing of the company into liquidation, the decision shall be made by qualified majority; the liquidator may be the company board or a board member or a person outside the company.
The liquidators shall manage the affairs of the company during the liquidation. They shall as soon as possible convert enough of the assets of the company into cash so that the liquidation can proceed, as well as repay the debts of the company. Usually the company addressed is changed to the address of a liquidator when applying for a registration for liquidation and liquidators. The company assets are overseen and controlled by the liquidators during the process.
During the liquidation process, the main purpose is to summon the creditors so that all the debts could be covered in the process. According to the Limited Liability Companies Act, The liquidators shall apply for a public summons to the creditors of the company. The public summons shall be applied for from the registration authority, which shall register the summons on its own motion. For all the known creditors of the company, liquidators shall send a letter no later than one month before the deadline of the summons.
After having completed their tasks, the liquidators shall without undue delay present a final settlement of their administration by drawing up a report of the entirety of the liquidation process. Upon completion of the measures referred to in paragraph (1), the liquidators shall without delay call the shareholders to a General Meeting to inspect the final settlement.
The company shall be deemed to have dissolved once the liquidators have presented the final accounts to the General Meeting. The liquidators shall without delay notify the dissolution for registration. However, the liquidation shall be continued, if new assets appear after the dissolution of the company, an action is brought against the company or liquidation measures are otherwise necessary. The liquidators shall without delay notify the continuation of the liquidation for registration.
Once dissolved, the company cannot acquire rights nor give undertakings. Measures taken on the behalf of the company that has dissolved shall be at the joint responsibility of those who decided on the measures and those who carried them out.
Possible problems regarding the liquidation
There are number of relevant problems regarding the liquidation process which will be addressed next briefly.
First, the long term contracts and the liabilities arising from them, needs to be addressed. It is possible that the contract may expire during the liquidation process. However, contracts which are fixed term or possible to terminate should be terminated before liquidation summons deadline.
Second, the bigger problem is definitely are fixed term contracts which are meant to be valid for many years. In this kind of situation, it is possible to negotiate with the contracting parties for a third party who would be liable for fulfilling the obligations for the remaining contract period. Transferring the rights and obligations to the third party is always subject to approval from the contacting party.
Third, an employment contract is better to organize in harmony with the lowering capacity and term of contract. It is worth noting that; the resignation period of six month may be applicable instead of shorter period.