Dissolution of a company without liquidation

A company can be liquidated in many ways, but there is also a way to dissolve a company without prior liquidation proceedings. In what situations such a solution can be used?

The usual procedure is to open a liquidation of the company (by shareholders or the court) and conduct the liquidation proceedings. However, the National Court Register records many entities that have no assets or conduct no business activity and do not fulfil any reporting obligations. Because such entities exist, the legislator equipped registration courts with a tool for “clearing the National Court Register of dead entities”, which in practice means it is possible to dissolve the company without prior liquidation proceedings.

When can a company be dissolved without liquidation?

Under Article 25a(1) of the National Court Register Act, the registration court initiates ex officio the proceedings to dissolve an entity entered in the register without conducting liquidation proceedings, in cases where:

• dismissing a bankruptcy petition or discontinuing bankruptcy proceedings, the bankruptcy court finds that the material accumulated in a case provides grounds for dissolution of the entity without conducing the liquidation proceedings. This ground is connected with Article 13 of the Bankruptcy Act of 28 February 2003 (Dz.U.2020.1228, “Bankruptcy Law”). In accordance with paragraph 1 of this article, the court dismisses the bankruptcy petition when the assets of the insolvent debtor are not sufficient to cover the cost of the proceedings, or are sufficient to cover only these costs. The court may dismiss the bankruptcy petition if it ascertains that the debtor’s assets are encumbered with a mortgage, pledge, registered pledge, tax lien or maritime mortgage to such a degree that the debtor’s remaining assets are not sufficient to satisfy the costs of proceedings (Art. 13(2) Bankruptcy Law). Also, in accordance with Article 361(1)(1), the court will discontinue the bankruptcy proceedings if the assets remaining after exemption of the debtor’s proprietary items encumbered with a mortgage, pledge, registered pledge, tax lien or maritime mortgage are not sufficient to satisfy the costs of the proceedings;
• the bankruptcy petition has been dismissed or the bankruptcy proceedings have been discontinued due to the fact that the assets of the insolvent debtor are not sufficient to cover the costs of the proceedings, i.e. the bankruptcy petition has been dismissed under Art. 13(1) and (2) Bankruptcy Law or the proceedings have been discontinued under Art. 361(1)(1) Bankruptcy Law;
• a ruling on waiving the compulsory proceedings or its discontinuance has been issued – the court will issue such ruling if data contained in the registration files shows that it will not lead to the submission of an application for entry in the National Court Register or documents the submission of which is mandatory. The assumed ineffectiveness of the compulsory proceedings may be the result of lack (or death) of governing bodies, lack of address or ineffectiveness of fines;
• despite the summons by the registration court, annual financial statements for 2 consecutive years have not been submitted – and these do not have to be the last two financial years;
• despite being summoned twice by the registration court, no other duties referred to in Article 24(1) of the National Court Register Act, have been discharged (for example, the composition of the management board or the current address of the company’s registered office have not been reported).

Deleting an entity from the National Court Register without liquidation

The registry court, obligatorily and ex officio, initiates the proceedings for striking off the entity without liquidation if any of the above-mentioned condition is met. Such proceedings may be initiated even if there is no governing body (management board) or persons (e.g. general partner) authorized to represent the entity.

What important, the article does not specify any time limit in this case, which means that the proceedings for dissolution of an entity without liquidation theoretically may be initiated immediately after finding any of the reasons listed in Article 25a of the National Court Register Act.

It should be noted, however, that not every procedure that is initiated in connection with the above-mentioned circumstances must end in striking the entity off the National Court Register. For this legal device is not intended for deleting from the Register entities that do not fulfill the obligations to update their own data, but to delete business that do not actually perform activity. Only in the absence of any transferable property with the simultaneous actual cessation of business activity, the entity may be deleted from the National Court Register.

If “dead entity” exists and it is not possible to carry out another procedure for dissolving the entity without liquidation (which is possible in the case of e.g. general partnerships), anyone who knows about the occurrence of such a situation, e.g. the president or shareholder of the company, may apply for the initiation by the competent registry court of the appropriate procedure ex officio.

Depending on the factual situation, the application should be combined with an application to withdraw from the procedure forcing the submission of documents that must be submitted to the register over the years, because one of the conditions for liquidation and deletion of the entity from the National Court Register is, among other things, issuing an order to withdraw from the compulsory procedure. If the court finds any of the conditions listed in the Act are met, it will have to initiate proceedings ex officio, however, it should be remembered that the court is in no way bound by the application submitted in this regard.

Verification of activity and assets

In the course of the proceedings, the registration court is obliged to perform a number of obligations, without which the entity cannot be effectively dissolved without liquidation. The court has to determine whether the company is active and to inform about the initiation of proceedings by:

• notifying the entity entered in the register about the initiation of this procedure, at the same time summoning it to prove that it actually conducts business and has assets, indicating its components, within 14 days from the service of the summons, with instructions on the consequences of failure to respond to the court summons,
• announcements about the initiation of this procedure in the Court and Economic Monitor (court may order the publication of the announcement also in a journal or magazine and publish it in a different manner, as it deems appropriate; in the absence of a body authorized to represent the entity or in the absence of the current address of the entity entered in the register the announcement is replaced by the notice of initiation of the procedure),
• examine whether the entity in relation to which the proceedings have been initiated has transferable assets and whether it actually conducts business.

In carrying out the obligation to determine whether the entity has transferable assets and whether it actually conducts business, the registration court may request information from tax authorities, authorities keeping public registers and records or other public administration authorities and social organizations (primarily these will be: tax office, ZUS, land and mortgage register court, pledge register, CEPiK). This is a rule when the entity against whom the proceedings have been initiated does not provide the answers requested by the court. However, the liabilities of the entity are not an obstacle to the deletion of the entity – an entity that does not have any assets cannot be considered capable of satisfying the creditors.

If the registration court determines that transferable assets of the entity exist or that the activity is actually conducted, it shall discontinue the proceedings for dissolution of the entity without conducting liquidation proceedings. It may also do so if there are other significant circumstances against the dissolution of this entity without conducting liquidation proceedings, including in particular those justified by the interest of the creditor. 

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Assets of a company dissolved without liquidation

It is also important that in the event of dissolution of the entity without conducting liquidation proceedings, any property remaining after it is transferred to the State Treasury, which is liable to the creditors of the deleted entity with this property. The creditors’ claims, however, expire within one year from the date the remaining property was acquired by the State Treasury by virtue of the act, if they are not pursued from the State Treasury at that time. Moreover, it should be remembered that if the creditor obtained an enforceable title before the dissolution of the company (e.g. a judgment with an enforcement clause), it may apply to the court for an enforcement clause against the State Treasury. This clause reserves the limitation of liability to the property remaining after the entity has been dissolved without liquidation.

The dissolution of the company without liquidation ends with the issuance of a decision on the dissolution of the entity without liquidation proceedings and with the issuance of orders on the entry in the National Court Register of information on the dissolution of the entity and deleting the entity from the National Court Register. With the issuance of the decision to dissolve the entity, the entity’s legal existence ends, which means there is no need to perform any other activities that should be performed in the usual liquidation procedure, e.g. closing the bank account, deletion from VAT register, REGON, ZUS etc.

Author:

Paweł Góra
Legal Adviser
TGC Corporate Lawyers

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