An attorney advises: when and how to liquidate a company?

  • 2024-02-05

If an owner does not wish to keep their company running, it is worth considering terminating its activities. Otherwise, both time and money will be spent on an inactive company, emphasized Andres Kivi, a senior associate at Hedman Law Firm.

Hedman’s senior associate Andres Kivi explained that a legal entity can be dissolved either voluntarily by the owners or by compulsory dissolution by the court. In both cases, the processes end with the deletion of the company from the commercial register. “The public mistakenly associates the liquidation of a company with the activities of liquidators popularly known as the so-called buriers of dead companies. Voluntary liquidation aims to act in a correct and law-abiding manner, thus maintaining the reputation of the company and its owners. However, the aim of a liquidator “burying” the company is the opposite - conserving business activities and not submitting annual reports to achieve the company's compulsory termination by the court,” clarified Kivi.

Voluntary liquidation of a company starts with the adoption of a dissolution resolution by the shareholders. As a rule, the liquidators are also appointed and the decision is entered in the commercial register.

In voluntary liquidation, the company's assets are sold, creditors' claims are satisfied, and the remaining money is distributed among the shareholders. Although the law provides for the sale of the company's assets, by mutual agreement of the owners, the assets may remain unsold. “In practice, a large amount of the assets remains unsold, and is distributed directly to the owners who know how to benefit more from them," added Kivi.

Once the process of satisfying claims and selling assets is completed, the liquidator prepares the final balance sheet and a plan for the distribution of assets. Once all the procedures have been completed, the company will be removed from the commercial register after a certain buffer period. If the assets of the company are still insufficient to satisfy all claims, the liquidators are obliged to file for bankruptcy with the court.

To ensure a proper liquidation, Hedman’s senior associate recommends seeking professional advice if possible. For example, in an independent liquidation, it may happen that after the company has been wound up, significant assets are found that were not distributed or disposed of during the liquidation proceedings, or that the tax liability was not correctly calculated. Additional liquidation must be initiated by submitting the relevant application to the court for the sale or distribution of the discovered assets.

Maintaining an inactive company costs money

Even owners of a dormant company are sometimes forced to spend money and time on it because not submitting financial reports can result in fines for both the company and its board.

"The commercial register has become more active in fining 'sleeping' companies that fail to comply with their legal obligation to file annual accounts. In addition, the court can compulsorily dissolve a company, and here owners should be aware that it is difficult to carry out transactions with the assets belonging to the company after the compulsory dissolution,". "In order to mitigate the risk of fines, it is strongly recommended not to neglect companies but to wind them up in accordance with the law," he added.  

“The commercial register has become more active in fining so-called sleeping companies that do not fulfill their obligation to submit annual reports as required by law.  In addition, the court can compulsorily dissolve a company, and in this regard, owners should be aware that conducting transactions with the company's assets is difficult after compulsory dissolution,” Kivi listed the risks. “To mitigate the risk of fines, it is strongly recommended not to neglect companies but to liquidate them in accordance with the law," he added.

Hedman Law Firm specialises in commercial and corporate law and assists its clients in investment fundraising, shareholder relations, technology law, mergers and acquisitions, cross-border corporate transactions, IT law and data protection and intellectual property matters.