NOVELTIES IN THE PROVISIONS AND PROCEDURES OF THE COMPANIES LIQUIDATION
Liquidation is one of the ways to terminate the existence of a company and can be enforcement only if the company is solvent (liquid), i.e. has sufficient funds to settle all its obligations. This is also one of the essential differences in relation to the bankruptcy procedure which is also conduct on the company and represents one of the ways of its termination.
IMPACT THAT AMENDMENTS HAVE ON THE COMPANIES ACT ON THE LIQUIDATION PROCEDURE
The procedure of the liquidation is regulate by The Companies Act (“Off. Herald of RS”, Nos. 36/2011, 99/2011, 83/2014 – other law, 5/2015, 44/2018, 95/2018, 91/2019 and 109/2021)(hereinafter as: “Act ”) which has undergone certain amendments, among the other things also in the part of the liquidation procedure regulations, which was adopted by the National Assembly of the Republic of Serbia on 17.11.2021. Besides the Act, on the liquidation procedure is also apply the provisions of the Law of the Registration with Serbian Business Registers Agency (“Off. Herald of RS”, Nos. 99/2011, 83/2014, 31/2019 and 105/2021). That amendments of the Act were necessary in order to harmonize the Act with the Law of the Registration with Serbian Register of Business Entities, all in order to implement that both laws in practice as consistently as it is possible.
On the one hand, Act distinguishes the procedure of voluntary liquidation for which can be say that it’s initiated by the company itself which no longer needs to operate and it doesn’t want to exist by deleting from the Register of Companies and on the other hand the procedure of compulsory liquidation, which is force by ex lege, i.e. by force of law, if the some reasons are acquired explicitly prescribed by law. What needs to be emphasized is that the Act has undergone amendments in the part that is related to the procedure of compulsory liquidation. In the following text it will be stated and critically explained what exactly has changed, and what is need to point out for companies.
NEW REASONS FOR INITIATING THE COMPULSORY LIQUIDATION PROCEDURE
As stated in the introductory part of this text, the Act prescribes the reasons that lead to the initiation of compulsory liquidation proceeding if are they realize in a specific case. In this regard, the Act amends Article 546 – “Reasons for Initiating the Proceeding” where it states two new reasons, one of them is directly relate to the changes made in Article 45 of the Act, which refers to types of contributions, and which is in connection with the sale of the bankruptcy debtor as a legal entity in the bankruptcy procedure. The Act states another additional reason for initiating the procedure of compulsory liquidation in Article 19 of the Act relating to the registered headquarter of the company.
1) Namely, Article 19 of the Act was amended in a way that is stipulated that a company seat shall be the place and the address on the territory of the Republic of Serbia from which the company’s operations are managed and that has been determined as such by the memorandum of association, articles of association or general meeting’s resolution, i.e. by the decision of general partners or limited partners. In addition to the previously sentence, Article 19 was supplemented with a new paragraph which stipulates that the interested person may file a lawsuit with the competent court requesting the deletion of the registered address of the company’s seat, if the person who has the right of ownership did not allow the use of the premises where the address of the seat for managing the company’s business is located. The legislator intervened with this addition because in practice there were frequent abuses by registering fictitious company headquarters, in the way that companies registered their headquarters at the address of some citizens without their knowledge and permission, which created additional problems for citizens with public executors and public utility companies. This is also the reason for the introduction of judicial protection of these persons, given that the registration procedure with the competent registry is strictly formal, and the registry is not authorized to examine the legal basis for using the premises where the business entity is based.
Having in mind the above, the Act introduces a new reason for compulsory liquidation within Article 19 of the Act and prescribes that If the company does not register a new address of the seat within 30 days from the day the judgment ordering the deletion of the registered, the register of business entities shall ex officio initiate the procedure of compulsory liquidation of that company. By introducing such a new reason for compulsory liquidation, the legislator obviously had the intention to prevent the abuse of the registered headquarters and to remove legal entities from legal transactions that / would have committed such abuse.
2) The next, new reason for compulsory liquidation is directly related to the amendments made in Article 45 of the Law – ” Types of Contributions”, which stipulates that after the sale of the bankruptcy debtor as a legal entity in the bankruptcy procedure, the value of the share capital of that company shall be registered in the amount of the paid purchase price from the contract on sale of the bankruptcy debtor, and the buyer’s contribution as a non-monetary contribution to the share capital, in the amount of the paid purchase price. However, if the value of share capital from the purchase price paid by the new member would is less than the value of minimum share capital, the value of share capital shall be registered at the value of minimum share capital prescribed for that company, and the buyer shall pay in the missing amount up to minimum share capital within six months from the date of suspension of the bankruptcy proceedings. In correlation with the previous provision, Article 546 of the Law was amended with a new reason for compulsory liquidation in case If the buyer of the bankruptcy debtor as a legal entity, does not pay the missing amount up to the minimum share capital within six months from the date of termination of the bankruptcy proceedings.
3) The legislator supplemented the Article 546 of the Law with another reason for compulsory liquidation, which refers to the case of rejecting the application for registration of a headquarters address change. Namely, if final judgment instructed the dissolution of the company rejects the application for registration of a change of registered headquarters address, and the company fails to initiate the liquidation within 30 days from the date of finality of the judgment.
IRREVOCABLE REASONS FOR COMPULSORY LIQUIDATION
Amendments to the Act were also made regarding the category of irreversible reasons for compulsory liquidation, which also need to be pointed out, especially due the procedure itself, which in this case is conducted by the registrar ex officio. In this regard, the interventions were carried out in Article 546, paragraph 2 of the Act, which states the reasons for compulsory liquidation that cannot be eliminated , so the Act exhaustively states the following reasons:
– if the company does not register a new headquarters address in 30 days from the day of the final judgment, who has been ordering the deletion of the registered headquarters address (the reason referred to in Article 19 of the Act);
– If the offending company does not change its name within a term of 30 days of the finality of the judgment ordering the change of business name due to violation of the restrictions regarding the business name (reason from Article 27 of the Act);
– if the offending company does not change its name within 30 days from the finality of the judgment due to violation of the name of another company (reason from Article 28 of the Act);
– if the measure has been imposed to the company by a final act:
- prohibition of performing activities, and the company does not start liquidation within 30 days from the day the act becomes final;
- prohibits the performance of a registered activity, and the company does not register the activity, i.e. change of that activity, or does not start liquidation within 30 days from the day this act becomes final;
- revocation of the permit, license, approval for performing the registered activity, and the company does not register the deletion, i.e. change of that activity or does not start liquidation within 30 days from the day this act becomes final;
– if the final judgment determines the nullity of the registration of the establishment of the company or the nullity of the founding act of the company;
– if the final judgment ordered the termination of the company in accordance with the Act, and the company does not start liquidation within 30 days from the day the judgment becomes final;
– if the company does not submit to the competent register the annual financial statements by the end of the previous business year for two consecutive business years preceding the year in which the financial statements are submitted.
Having in mind the changes related to irreversible reasons, amendments were made to Article 547 of the Act in such a way that in case of irreversible reasons for compulsory liquidation, the registrar publishes a notice on the website of the register of business entities. liquidation, for a period of 30 days. After the expiration of this period, the registrar ex officio issue an act on initiating the compulsory liquidation proceedings which translates the company into “compulsory liquidation” status and at the same time shall publish compulsory liquidation announcement on the website of the register of business entities for a continuous period of 60 days.
Therefore, the change is reflected in the fact that in case of existence of reasons that can not be eliminated, the registrar does not publish an invitation to the company to eliminate the stated reasons within 90 days, which is logical by the nature of things. An invitation for elimination of the reasons for compulsory liquidation is published only for reasons that can be eliminated, all with the aim of preventing the implementation of the compulsory liquidation procedure and closing down the legal entity.
COMPULSORY LIQUIDATION AND PRELIMINARY BANKRUPTCY PROCEDURE
In practice, there were cases when the company in the process of forced liquidation did not have sufficient funds to settle all its obligations, so the courts adopted proposals for initiating bankruptcy and thus conducted bankruptcy proceedings against companies that were in the process of forced liquidation. An even bigger problem arose when the Agency for Business Registers, based on the procedure of forced liquidation, would delete from the register the companies over which bankruptcy was opened. In order to avoid such legal difficulties in the future, the legislator intervened and resolved the legal gap by amending Article 547a of the Act, which now stipulates that if a previous bankruptcy procedure is opened during the compulsory liquidation procedure – the compulsory liquidation procedure shall be suspended, and if after that the proposal for initiating the bankruptcy procedure is refused, i.e. the procedure is terminated due to the withdrawal of the proposal for initiating the bankruptcy procedure, the compulsory liquidation procedure shall continue. Also, if bankruptcy proceedings are opened during the compulsory liquidation procedure – the compulsory liquidation procedure is suspended.
CONSEQUENCES OF DELETION OF THE COMPANY FROM THE REGISTER IN CASE OF FORCED LIQUIDATION
Interventions were also carried out in Article 548 of the Act, which refers to the manner of distribution of the liquidation balance among members / partners of deletion of the company, i.e. their responsibility for the company’s obligations, however, the changes are so-called “cosmetic”. Namely, because of the problems in practice, Article 548 of the Act, the 2nd paragraph was deleted, which provided that members regulate their relations regarding property by contract or in non-litigation procedure, and only the 1st paragraph was retained, which specifies that the property of a deleted company becomes the property of company members in proportion to their shares in capital of the company, and in the case of a general partnership that has no capital, the property is distributed in equal parts among the partners. In this regard, the responsibility of members / partners for the company’s obligations after deletion was specified, i.e. that they are responsible for the company’s obligations up to the amount of received assets in accordance with the aforementioned distribution according to shares in the company, i.e. equal parts. However, it remained unclear why the provision was not deleted who referred that the controlling member of a limited liability company (LLC) and the controlling shareholder of a joint stock company (JSC) is jointly and severally liable for the company’s obligations even after deleting the company from the register. bearing in mind that such a provision is in direct conflict with the principle of limited liability of members/shareholders who is applicable to LLC / JSC, i.e. that members/shareholders are liable for obligations of the company only up to the amount of subscribed and entered/paid in share capital, except in the case of a breach of legal personality. Therefore, if the goal was to prevent the abuse of the institute of compulsory liquidation by such a provision in order to deliberately avoid the payment of obligations, it is not justified having in mind the violation of one of the basic principles that applies to LLCs and JSCs.
“FORCED LIQUIDATION” OF THE ENTREPRENEURS
Another novelty of the Act is the institute of forced liquidation of entrepreneurs, which was introduced by supplementing of Article 91 of the Act. Namely, Article 91 of the Act prescribes the cases in which an entrepreneur desist to perform activities by force of law, where he states the reasons that would lead to forced liquidation, having in mind the procedure who would undertaken by the competent authority in such situations. Thus, for example, if the entrepreneur’s business account has been blocked for more than two years, or final act of a competent body imposed him a measure to stop doing registered business activity, etc. registrar who keeps the register of business entities shall publish on the website of that register a notice on the sole trader when the reasons for deletion from the register have been obtained, with an invitation to unblock the bank account within 90 days from the date of publication of the notice. However, if the entrepreneur does not unblock the business account within the set deadline, i.e. does not eliminate the reason for deletion, the registrar will, within a further period of 30 days, ex officio, make a decision on deleting the entrepreneur from the register .
As we can see, this procedure does not differ from the compulsory liquidation of companies, except for specific reasons for initiating and implementing it, and it is clear that in this case it would be a new institute of compulsory liquidation of entrepreneurs, although the Act does not formally call it.
BEGINNING OF IMPLEMENTATION OF NEW LEGAL PROVISIONS RELATING TO COMPULSORY LIQUIDATION
Finally, it is important to point out that the compulsory liquidation proceedings will begin by June 1, 2022 and will be completed in accordance with the provisions of the The Companies Act (“Off. Herald of RS”, Nos. 36/2011, 99/2011, 83/2014 – other law, 5/2015, 44/2018, 95/2018, 91/2019 ), which was valid before the amendments of the Act that were the subject of this text.