Striking a limited liability company off the register without discharging its obligations

Liquidation of a limited liability company requires, among other things, discharging the company’s obligations. But what if the company’s assets are insufficient to cover all debts?

Liquidation of a limited liability company is a complex set of activities which, as a rule, follow the shareholders’ resolution on dissolution of the company. In the course of company liquidation, its liquidators should terminate the current business of the company, collect debts, discharge obligations and liquidate assets. New ventures, on the other hand, may only be initiated when necessary to finish the ongoing business. The above-mentioned activities constitute the so-called liquidation activities.

In accordance with Art. 275 § 2 of the Commercial Companies Code (CCC), the distribution of the company’s assets (among the shareholders) must be preceded by repayment of all company’s liabilities, and pursuant to Art. 286 § 1 CCC, it should not take place before the expiry of a 6-month period from the announcement of liquidation. These provisions, therefore, makes it possible to state unequivocally that liquidation of the company is completed when the company’s assets are distributed or a decision is made as to the final allocation of funds or property items transferred to a court (or other) deposit, to secure disputable receivables or receivables not yet due. Such is the meaning of the term “”on completion of liquidation” applied in Art. 288 § 1 CCC. Such understanding of the term “completion of liquidation” means that the company’s liquidated assets are sufficient for the company to discharge all its obligations. The problem arises when the company’s liquidated assets (ongoing business finished and receivables collected) is insufficient to discharge all company’s obligations. In such a situation the question arises whether the company’s liquidation may be considered completed and the liquidator’s request to strike the company off the register be granted?

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Company liquidation and distribution of assets

The Supreme Court has repeatedly commented on this issue. According to the recent judicial decisions, there should be no doubts that the satisfaction or security of all creditors of the company is not a condition for completing the liquidation proceedings – after a literal interpretation of Art. 275 § 2 CCC and 286 § 1 CCC, it is only a condition for distribution of the company’s assets. On the other hand, the distribution of the company’s assets is required to complete the liquidation activities and submit the request for striking the company off the National Court Register. The concept of “distribution of assets” should in this case be understood not formally, but materially. This means that to cease the existence of the company, it is necessary to actually distribute the company’s assets in such a way that after its termination the company will not have any assets. Failure to satisfy or secure the creditors in this respect only has the effect that the property cannot be distributed among the shareholders.

Bankruptcy law and cooperative law

The Supreme Court in its judicial decisions emphasized that in the situation under discussion, in the absence of a specific regulation of the situation in which a limited liability company has unfulfilled obligations despite of disposal of all assets in the course of liquidation proceedings and allocating them for debt repayment, the analogous solutions of bankruptcy law and cooperative law should be consulted. These laws provide respectively that the bankruptcy proceedings will be completed even though not all creditors are satisfied from the bankruptcy estate, and allow for the possibility to strike a cooperative off the register event though it has not fulfilled all its obligations in the course of liquidation. The Supreme Court in its decision of 8 January 2002, file ref. no. I CKN 752/99, indicated that the liquidation is completed (in a way that allows the company to be struck off the register), when there are no property items in the company’s assets and this circumstance will be stated in the liquidation report.

Conclusion

Consequently, it should be stated that it is possible to strike a limited liability company off the register despite the failure to discharge all its obligations in the course of the liquidation proceedings, after having disposed of all its assets, what will be confirmed in the liquidation report. Undoubtedly, adopting a different position would lead to absurd consequences of keeping a “dead” economic entity on the market.

It should be noted that the creditors of a wound up company that have not been satisfied are entitled in certain cases to claims against members of the management board / liquidators under Art. 299 CCC (liability in the event of ineffective enforcement against the company), and actio Pauliana (or fraudulent conveyance) regulated by the provisions of the Civil Code (Art. 527 et seq.).

Author:

Paweł Góra
Legal Adviser
TGC Corporate Lawyers

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