Types of liquidation of legal entities

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Currently, several types of business liquidation are possible in Ukraine. The choice of which of them will be used by a legal entity to undergo the liquidation procedure mainly depends on its financial condition, the presence of debts and the time frame within which the business owners want to “say goodbye” to the company.

The main and most used types of liquidation include the following:

  1. Liquidation by the decision of the participants (voluntary liquidation). In this case, the participants make a decision on voluntary liquidation, which is drawn up in a protocol and the procedure for the termination of a legal entity is carried out. The end result of such a procedure is the exclusion of the enterprise from the Unified State Register and the entry of an information on its termination. This type of liquidation takes a fairly long period of time, since the termination procedure involves passing inspections by regulatory authorities, dismissal of employees, settlements with creditors, etc. Therefore, this type of liquidation may not be suitable for businesses that intend to liquidate the enterprise quickly.
  2. Liquidation by changing the composition of participants and changing the owner. This type of liquidation refers to the so-called express liquidation. It may be most suitable for entrepreneurs who intend to quickly get rid of their enterprise, even if they have debts. Express liquidation does not provide for the complete liquidation of the enterprise with the entry on its termination into the Unified State Register, but only the transfer of all rights and obligations to another owner by buying and selling a share in the authorized capital and changing the owner of the enterprise.
  3. Reorganization of a company by merger, acquisition, division, transformation. The reorganization of the enterprise is carried out by decision of the participants or the body of the legal entity authorized to do so by the constituent documents, and in cases provided for by law, by decision of the court or the relevant state authorities. When a legal entity is reorganized, property, rights and obligations are transferred to its legal successor. The law may provide for obtaining the consent of the relevant state authorities for the termination of a legal entity through a merger or accession. The procedure for terminating a company by merger, acquisition, division provides for the following activities, such as meeting the deadline for presenting creditors and satisfying or rejecting these requirements. The next step is the drawing up by the commission on termination of the deed of transfer in the event of a merger, accession or transformation or distribution balance sheet for the division procedure, which must necessarily have a provision on the succession in relation to the property, rights and obligations of the legal entity being terminated in relation to all its creditors and debtors, including obligations disputed by the parties. Next, the procedure also provides for an inspection by regulatory authorities, deregistration and entering information on its termination in the Unified State Register indicating the legal successor of the company.
  4. Liquidation by a court decision is possible due to violations committed during the establishment of a legal entity, which cannot be eliminated, at the claim of a participant in a legal entity or the relevant state authority. The legislation establishes that if a state authority has filed a claim for the liquidation of a legal entity, this body may be appointed as a liquidator if it is endowed with the appropriate powers.
  5. Liquidation due to the bankruptcy of an enterprise. This type of liquidation will be appropriate for enterprises with existing debts. The procedure and conditions for declaring a legal entity bankrupt are established and regulated by the Bankruptcy Code. The legislation defines the concept of bankruptcy as the insolvency of the debtor recognized by the economic court to restore its solvency through the procedure of reorganization and restructuring and to repay the monetary claims of creditors established in a certain order otherwise than through the application of the liquidation procedure.

The debtor, the creditor, has the right to apply to the economic court with a claim for opening bankruptcy proceedings. Moreover, proceedings can be opened at the request of the debtor in case of a threat of his insolvency. On sufficient grounds, the court accepts the claim and decides to declare the debtor bankrupt and opens the liquidation procedure. The court establishes a period during which the liquidator is obliged to carry out the liquidation of the debtor and which may exceed twelve months. In order to identify creditors with claims on the obligations of a debtor declared bankrupt that arose during the bankruptcy proceedings, the economic court shall officially publish a notice on declaring the debtor bankrupt and opening a liquidation procedure on the official web portal of the judicial authorities of Ukraine. Satisfaction of creditors’ claims is carried out in turn, the queue of creditors is established by law. If, as a result of the liquidation procedure, after satisfaction of the creditors’ claims, there is no property left, the court shall issue a ruling on the liquidation of the bankrupt legal entity. A copy of this ruling is sent to the state registrar for state registration of the termination of a legal entity – bankrupt, as well as to the owner of the property. If the liquidator has not discovered property assets to be included in the liquidation estate, he is obliged to submit to the economic court a liquidation balance sheet certifying that the bankrupt has no property. If the bankrupt’s property was sufficient to satisfy the claims of creditors in full, he is considered to have no debts and can continue his entrepreneurial activity. In this case, the liquidator notifies the body or an official of the body within whose competence the appointment of the head (management bodies) of the debtor falls, and, if necessary, convenes a general meeting or a meeting of the relevant body and continues to exercise the powers of the head (management bodies) of the debtor until they are appointed in the prescribed manner.

Thus, we can conclude that each type of liquidation or reorganization of legal entities can be applied by business owners or other interested parties, depending on the goals and desired result. All procedures used during the liquidation or reorganization are clearly defined by law, in addition, there is a long-standing practice, including judicial practice, which nevertheless encourages business owners and representatives to apply for legal services during the liquidation and bankruptcy of enterprises to lawyers and legal counsels practicing in these areas. The specialists of the company “PERVAYA YURIDICHESKAYA” have and provide qualified legal assistance in these areas.


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