Managers’ summary on the dissolution / liquidation of a private company
introduction:
The process of liquidating a company ends the legal existence of the company.
When a company dissolves or goes bankrupt, there are a number of actions that need to be performed, depending on the manner and conditions under which the decision to dissolve / cease operations was made.
When there is a distinction between three types of company dissolution procedures:
1. Voluntary liquidation.
2. Dissolution by a court.
3. Dissolution under the supervision of a court.
First, files must be closed in all the different tax authorities, regardless of the type of liquidation that is about to be carried out.
The VAT, Income Tax and National Insurance must be informed about the cessation of activity as well as the cessation of employment of workers, if necessary a hearing and dismissal procedure must be carried out according to law.
In closing a company or business, the reference is as a business that is sold, therefore all the fixed assets, business inventory and the company’s issued share capital constitute as far as the owners of the company are concerned as income for everything, therefore there are quite a few tax events during the liquidation and closing of a business activity.
Also, similar to every decision made in the company, starting with updating a postal address, paying a dividend to shareholders and ending with the liquidation of a company, it is necessary to ensure that there is a summary of shareholders’ decisions signed by the shareholders or named “Partichal”. (like a protocol).
Now we will distinguish between the three types and the actions that should be taken:
1. Voluntary dissolution of a company.
A company is voluntarily dissolved for one of the following reasons:
- The period of activity stipulated in the “Articles of Association” for the existence of the company has ended.
- The company agreed to dissolve voluntarily as part of a “special resolution” received by its shareholders, with the approval of the board of directors. (Board of Directors – the board of directors).
- In the event that the company was insolvent.
(a situation where the company does not have the ability to pay off its obligations).
A non-quorum decision was made, at a general meeting of the company’s shareholders, to dissolve the company, due to any other personal considerations of the company’s shareholders.
The beginning of a voluntary liquidation is the decision to liquidate the company and from the moment of the decision it will stop conducting its business except for what is necessary for a beneficial liquidation.
Steps of voluntary liquidation of a solvent company:
1. Submission of an affidavit of solvency to the registrar of companies (original) signed by the majority of the directors, including a statement that the company can pay all its debts within 12 months from the date of receipt of the liquidation decision – upon receipt of the affidavit at the registrar of companies, the registrar will record the status of the company as “company in preparation for liquidation”, and send Confirmation to the company about the update.
2. As soon as there is approval from the register of companies (within 20 days) the company will hold a general meeting. At the general meeting, the company will present the appointment of the “liquidator” after notifying the Registrar of Companies, who will be responsible for collecting its assets and liquidating the company’s debts. The liquidator will be responsible for delivering to the registrar of companies a final and summary report of decisions made at the general meeting within a week from the day of the meeting.
3. Completion of the liquidation procedure – liquidation of the company by the registrar of companies, approximately three months after the liquidator’s final report was submitted.
Voluntary liquidation of an insolvent company (liquidation by creditors):
This procedure is different because the company is unable to produce a solvency affidavit, therefore it must initiate a voluntary liquidation by creditors, which will be carried out as follows:
1. Summons and meeting of creditors.
2. Publication of the notice of the meeting of creditors in the register and in the local newspaper common in the area of the company’s operations at least 21 days before the convening of the meeting of creditors.
3. During the meeting the company will present to the creditors a detailed report on the state of the company.
4. The creditors and the company will propose in separate assemblies a candidate to be appointed “liquidator” and if the candidate is not the same, the creditors’ candidate is the one who will be appointed to the position of “liquidator”.
5. A decision on the dissolution of the company and the appointment of the liquidator will be delivered to the Registrar of Companies within 3 weeks from the date of appointment.
6. Publication of the voluntary dissolution of the company in the records within a week of the date of the meeting.
7. The liquidator will work to collect the company’s assets and liquidate its debts until the final liquidation.
8. Part of the liquidator’s duty is to submit to the Registrar of Companies a detailed report on his progress once a year until all of the company’s debts are liquidated.
9. It is important to note that a company that is in the process of liquidation / voluntary liquidation must pay an annual fee as long as it is not liquidated, but a request for exemption can be submitted in an orderly manner.
2. Dissolution of a company by a court decision
A request for the dissolution of a company by a court can be submitted by several parties: the company itself, a creditor of the company, a participant of the company, in special circumstances the Attorney General, the official receiver and the registrar of companies.
Grounds for the request can be different and are listed in section 257 of the Companies Ordinance.
Details of the stages of the liquidation procedure by a court:
1. Forwarding a copy of the liquidation request and confirmation of payment of a deposit to the official receiver and to the company itself (if it did not submit the request).
2. Submitting the application for liquidation to the district court, when the date of submission is considered the date of commencement of liquidation.
3. The publication of the request in the records and in the newspaper within 14 days before the hearing of the request when those who want to come and oppose the liquidation or in their favor must notify 7 days before the hearing.
4. At the hearing, the court can reject the request or order its dissolution and appoint a temporary liquidator (usually the receiver), and then a permanent liquidator who will be supervised by the receiver.
5. The liquidator is responsible for the collection of the company’s assets, their realization by way of sale and the distribution of the proceeds from the sale among the company’s creditors.
6. Issuance of a court order on the termination of the liquidation procedure – this order will be issued only after the court has received a detailed report showing that the company has cleared all its debts and officially completed its liquidation.
7. Within two weeks the order will be delivered to the Registrar of Companies who will update the status of the company.
Liquidation supervised by a court.
In the event that a company has decided to dissolve voluntarily, the court may issue an order that the continuation of the dissolution be under the supervision of the court, which will allow the creditors/other participants to apply to the court.
In fact, this procedure is a combination of voluntary liquidation and liquidation by a court.
When it starts as a voluntary liquidation and continues with the intervention and supervision of the court.
In conclusion, the company liquidation procedure in most cases is a procedure that is carried out voluntarily for business reasons, at the same time, in order to avoid tax accidents, legal sanctions, fines and unnecessary fees, it is advisable to use the help of professionals in this important procedure.