Liquidation of a company is a process that results in the cessation of the existence of a solvent company. Before the cessation of the company, all obligations to the creditors of the company are settled, and the remaining assets of the company that is being liquidated are distributed among the members of the company. Liquidation occurs when the owners of the business entity no longer wish to operate through that legal entity (most often due to economic unprofitability or other business reasons), and the only prerequisite for initiating the liquidation process is that the business entity is not over-indebted, meaning it has sufficient assets to settle all its obligations (so-called voluntary liquidation).
The decision on liquidation is made by the company’s assembly with the prescribed majority, or in the case of partnerships, the decision is made unanimously by the partners or general partners. The adopted decision is obligatorily registered and published in the Business Entities Register, along with an announcement about the initiation of the liquidation process, thereby formally initiating the liquidation process. The liquidation initiation announcement is published on the Business Entities Register’s website for 90 days and includes, among other things, a call to all creditors to submit their claims against the company in liquidation within the given period, as well as a warning about the legal consequences of failing to submit claims. For “known creditors,” i.e., creditors with whom the liquidator is familiar, a special written notice about the initiated liquidation process is also sent.
The initiation of the liquidation process does not prevent the initiation of new judicial and enforcement proceedings against or for the benefit of the company in liquidation, which represents the main difference compared to the forced liquidation of a business entity. The limitation concerning payments is that a company in liquidation may only distribute dividends and other compensation to the members of the company after settling the creditors’ claims. Thus, creditors take priority, and whatever remains after settling the creditors can be distributed to the company’s members.
The key role in the liquidation process is held by the liquidator, who may be appointed in the decision to initiate the liquidation process. The liquidator can be a person who has no prior relationship with the company. However, in practice, it often happens that no liquidator is appointed, in which case the legal solution applies, according to which the person who previously held the position of the legal representative of the company (one or more of them) is considered the liquidator. In this regard, it should be noted that the powers of the liquidator are almost identical to the powers of the company’s legal representatives – representation, management, directing the operations of the company in liquidation, preparing necessary documentation in the liquidation process, such as the initial liquidation balance sheet, the initial liquidation report, annual liquidation reports, final liquidation balance sheet, and the report on the completed liquidation. If, based on the prepared documentation, the liquidator determines during the process that the company is over-indebted, the liquidator is obliged to submit a proposal for initiating bankruptcy proceedings to the competent court within 15 days.
Thus, the liquidation process includes the submission of claims by individuals who believe they have claims against the company in liquidation, which the company is obligated to receive, register, and either accept or dispute within 30 days of receiving the claim. On the other hand, a creditor whose claim is disputed has the right to initiate an appropriate procedure before the competent court within 15 days. These rules do not apply to claims arising during the liquidation process, as these claims are not submitted and must be settled before the liquidation process is concluded.
The initiation of the liquidation process does not necessarily mean the end of the business entity, as the company may, during the liquidation process, decide to suspend the liquidation and resume regular operations. The conditions for making such a decision are that all creditors’ claims are settled (whether they are recognized or disputed), that no employment contract has been terminated due to liquidation, and that no payments have been made to the members of the company. The decision to suspend liquidation must be registered and must include the appointment of the legal representative, as well as a statement from the liquidator that all creditors have been settled and that no payments have been made to the company’s members.
Liquidation ends with a decision to conclude the liquidation process, which must be registered and published. After the liquidation is completed, the business entity is removed from the Business Entities Register maintained by the Agency for Business Registers.