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Jitka Pešičková | April 6, 2021
In the previous article, we familiarised you with the basic differences between dissolution of a company with and without liquidation. You also found out that a company may be dissolved voluntarily or involuntarily, and that a so-called preparatory stage may precede voluntary dissolution of a company. In this article we will focus on the process of liquidation.
What are the individual steps in liquidation and how long does liquidation take? This is one of the most frequent questions I receive regarding liquidations.
Last time, I already mentioned that deregistration of a company from the company register is the result of cooperation between a partner, liquidator, lawyer and accountant. From the time a company enters into liquidation until its deregistration from the company register, usually a year or more elapses, due to there being more than ten obligatory steps. Let us go through at least the main ones together.
A decision about dissolution of a company as of a certain date is made at a general meeting or by a sole partner and the person of a liquidator is appointed. In the case of joint stock companies and limited liability companies, the decision needs to have the form of notarial deed. In the current covid era with limited travel options, partners are usually represented at a general meeting based on powers of attorney. It is always suitable to consult a notary regarding the essentials of a power of attorney and other documents for holding a general meeting. Putting together the documents themselves, especially in case of foreign shareholders or partners (for example arranging and apostille, a certified translation…), may take several months.
The date of entering into liquidation is selected by the partners themselves. It is possible to decide about entering into liquidation on the day of the general meeting, or a later date may be specified at the general meeting. It is never possible to set the date retrospectively. Companies usually enter into liquidation as of the first date of a regular accounting period, so that it would not be necessary to compile and extraordinary financial statement.
The information about entering into liquidation, including the addition of the addenum “in liquidation” and person of the liquidator are entered in the company register. It is suitable to ask a notary to record (against remuneration) the changes in the company register as part of a general meeting.
Within 15 days from entering into liquidation, the company informs the respective financial office about it. The announcement is sent through the data box along with a notarial deed about the decision made at the general meeting.
The company is also obliged to inform its creditors about having entered into liquidation, by means of publishing one or two advertisements in the Business Bulletin. After the advertisement is published, a three-month deadline for filing claims starts to run. The liquidator carefully monitors the filed claims and in case they exceed the assets of the company, he needs to file an insolvency petition.
As of the day preceding the day of entering into liquidation, the company compiles a regular financial statement (if entering into liquidation as of the first day of a regular accounting period) or an extraordinary one (if entering into liquidation on any other day). In addition to common operations relating to the financial statement, it is necessary to enter the balances of transitory asset and liability accounts (especially reserves and provisioning, active and passive accruals, accrued revenues, accrued expenses, accrued income and accrues costs), which demonstrably cannot be cleared in the period of liquidation or which will lose their justification by entering into liquidation, into the respective asset and liability accounts or into the respective cost and revenues accounts, according to their nature. Compilation of the financial statement is arranged by the statutory body, and if this is not possible, the liquidator may also arrange compilation of the financial statement.
Submitting corporate income tax return for the period ending on the day preceding entering into liquidation is connected to compiling the financial statement. For a regular as well as an extraordinary financial statement, the deadline for submitting tax return is the same, 30 days from the day the company enters into liquidation.
A balance sheet connects to the financial statement and its compilation is arranged by the liquidator. This is a basic overview of assets and liabilities, based on which the liquidator subsequently commercialises the assets for payment of liabilities. In addition to the opening balance, he is also obliged to compile an asset inventory. Both of these statements will be an annex to a subsequent proposal for deregistration of the company from the company register.
By performing the above steps, all acts connected to a company entering into liquidation are completed. The steps that follow in the course of liquidation are mainly connected to settling the accounting balances. But we will speak about that some more next time…
And if you cannot wait or you would like to receive more detailed information about the individual steps, you can read the publication entitled “Zrušení a zánik obchodní korporace s likvidací” by the authors Jarmila Pokorná, Ivan Fučík, Michal Janovec, Jitka Pešičková and Eva Tomášková published by Wolters Kluwer ČR, a.s.
