Every company, like living beings, has its developmental path, which includes establishment, followed by growth and existence, and ultimately, at the end of this process, its liquidation or cessation of existence in one of the legally prescribed ways. There are companies that have a very long lifespan and have outlived their founders, but even for them, it applies that if one day they decide to cease operations, the “liquidation” process can only be carried out in one of the legally prescribed ways. When we talk about the ways to end the existence of a company, one of the legally prescribed methods is voluntary liquidation of a company.
Voluntary liquidation of a company is an institute regulated by the Serbian Companies Act (hereinafter: “CA”) starting from Article 524 to Article 545. It represents a set of legally defined rules and actions that must be adhered to and executed in the manner envisaged by the legislator in order for the liquidation process to be carried out in accordance with the law and which ultimately aims to end the existence of the company, i.e., to delete it from the register.
1. The difference between liquidation of a company and other ways to cease a company’s existence
Already in the first article (524), the CA regulates that the liquidation process can only be carried out if the company has enough assets to settle its obligations. This creates a distinction compared to the bankruptcy procedure, which is conducted when the company is over-indebted and does not have enough assets to settle its obligations, as well as in relation to the cessation of the company through the application of the institute of compulsory liquidation, which is applied in specific (exhaustively listed) cases (Articles 546-548 of the CA).
Thus, if the company has sufficient funds to settle all its obligations, then the partners/associates/general meeting of the members of the company/general meeting of the shareholders of the company can make the decision to liquidate the company, thereby initiating the liquidation process.
2. Starting the liquidation process
The decision to liquidate the company, made by the partners/associates/general meeting of the members of the company/general meeting of the shareholders of the company, is registered with the Business Registers Agency (hereinafter: “BRA”) and simultaneously, an advertisement regarding the initiation of the liquidation is published, lasting 90 days, in which creditors of the company are invited to file their claims no later than 30 days from the expiration of the advertisement period (i.e., no later than 120 days from the publication of the advertisement in the BRA). The advertisement will also include the address of the company’s headquarters, as well as the address for receiving mail (if different) to which creditors can send their claims. Through the same advertisement, the company calls on all its debtors to fulfill their obligations towards the company.
In the decision to liquidate the company, the company is obliged to, among other things, appoint a liquidator. If the company does not appoint a liquidator (or more than one), then all of the company’s legal representatives (or just one if the company had one director) become liquidators. Also, after the liquidation process begins, the company’s business name is changed by adding “in liquidation” at the end of the existing business name.
3. Liquidator
You might be wondering why the legislator included a liquidator in the process, even though the company already has legal representatives, and what role the liquidator plays in the liquidation process of the company?
The liquidator is crucial in the liquidation process, as from the moment of his appointment, he takes on the role of the company’s legal representative and continue to act in this capacity until the entire liquidation procedure is completed. Moreover, upon appointing the liquidator, all representatives of the company lose their rights to represent the company. This means that if the company had one or more directors who were not appointed as liquidators (which there are no legal barriers to), those directors lose all their rights, including the right to represent the company before third parties and to conclude legal transactions on behalf of the company.
The liquidator is authorized to undertake actions aimed at concluding business transactions initiated before the liquidation, to take necessary actions for the liquidation (such as selling assets, paying creditors, and collecting receivables from debtors), and to perform any other tasks necessary for carrying out the liquidation. Additionally, the liquidator is required to send a written notice to the known creditors of the company about the initiation of liquidation, no later than 15 days from the start of the liquidation. With this provision, the legislator intended to relieve known and undisputed creditors of the company from the obligation to constantly check the status of their debtor. Instead, it is prescribed that known creditors must be informed about the initiation of the liquidation procedure, so they can timely file their claims. Thus, the central figure in the liquidation process is the liquidator, whose purpose and role is to carry out the liquidation process to its completion in accordance with the law.
The appointment, dismissal, and resignation of the liquidator must also be registered with the BRA.
4. Actions in the liquidation process
Now that we have explained the role of the key figure in the liquidation process, let’s return to the process itself, specifically the process of determining all of the company’s obligations.
Once all claims have been filed with the company, the company is obliged to register these claims and create a list of accepted and disputed claims. If the company disputes a specific claim, it must inform the creditor of the dispute within 30 days from the receipt of the claim, providing the reason for the dispute. However, the company cannot dispute claims that have already been established by an enforceable document. If the company disputes a claim, the creditor of the disputed claim is required to initiate a procedure before the competent court to determine the claim and notify the company. If the creditor does not take this action within the specified period, the creditor is barred from further claiming the disputed amount from the company. Claims arising after the liquidation process has begun are not registered and must be settled by the end of the liquidation.
If, during the liquidation process, it is determined that the company does not have enough assets to satisfy all creditor claims, a bankruptcy procedure will be initiated against the company, and this request can be made by the liquidator itself.
As for the accounting aspect of the liquidation procedure, the liquidator is required to prepare an initial liquidation balance sheet as an extraordinary financial report within 30 days of the start of the liquidation. This must be submitted to the partners/associates/general meeting of the company for approval, and a decision must be made within the next 30 days. Along with this balance sheet, the liquidator must submit an initial liquidation report containing a list of filed claims, a list of accepted claims, a list of disputed claims, information on whether the company’s assets are sufficient to satisfy all obligations (including disputed claims), the estimated time required to complete the liquidation process, and the necessary actions for carrying out the liquidation process. The initial liquidation report must be prepared by the liquidator no sooner than 90 days and no later than 150 days from the start of the liquidation. The report is approved by the partners/associates/general meeting of the company using the same procedure as for the initial liquidation balance sheet, with the caveat that the liquidator cannot begin payments to settle creditor claims or make distributions to company members before the registration of the initial liquidation report (this does not apply to current obligations of the company).
5. Actions After Creditor Payments
Once all the company’s creditors have been paid, and there are no unrecognized claims and/or disputes regarding claims, meaning that all of the company’s obligations have been fully settled, the liquidator prepares:
- The closing liquidation balance sheet;
- A report on the completed liquidation;
- A written statement that he had notified all known creditors and that the company’s obligations based on filed claims have been fully settled and that no other proceedings are ongoing against the company;
- Draft decision on the distribution of the company’s liquidation surplus (if any).
The liquidation surplus is the amount of funds (or other assets) remaining after the creditors have been paid and all of the company’s obligations have been settled. It may be distributed among the partners/associates/members or shareholders of the company, depending on the decision of the company.
6. Conclusion of the Liquidation
The liquidation process of the company is concluded by the making and adoption of a decision to end the liquidation, after which the company is removed from the register. It is important to note that in order to delete the company from the register, a certificate from the tax authority is required to confirm that the company has no outstanding tax liabilities, as well as a certificate from the local government where the company’s headquarters are registered, confirming that the company has no debts related to public revenues (such as eco-taxes, etc.). A registration application for the company’s deletion from the BRA can only be submitted after obtaining these certificates, which must be no older than 5 days.
The business books and documents of the deleted company must be kept in a way that makes them accessible within the territory of the Republic of Serbia, in accordance with the regulations governing archival materials.
7. Conclusion
Voluntary liquidation of a company is one of the legally prescribed ways to end the existence of a company. While it may seem like a complicated process, liquidation is actually a set of relatively simple rules and conditions that must be fulfilled for a company to be liquidated and cease to exist. This procedure was established by the legislator to protect the interests of both the creditors of the company and the interests of the partners/associates/members or shareholders of the company.
In practice, voluntary liquidation is carried out within a relatively short period (depending on the complexity of the company itself) of time, and the costs of the procedure are significantly lower compared to bankruptcy, which is conducted when the company is insolvent. Nevertheless, this procedure requires the engagement of experts, including lawyers, and the Milošević Law Office can offer professional assistance in all company dissolution procedures, including voluntary liquidation.
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