Liquidation of a legal entity in Ukraine. Step-by-step instruction | сpk.ua
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The law lacks such concepts as “form” (or “method”) of liquidation of a legal entity. Often, they are simply used as synonyms. At the same time, the forms of liquidation of legal entities depend directly on the procedure applied.

So, the liquidation of a legal entity in Ukraine is carried out, both voluntarily, in particular by the decision of the owners, and in the compulsory one – by the court’s decision, when irrecoverable violations were made during the creation of such a legal entity other cases expressly provided by law (at the suit of a public authority).

The voluntary decision of the participants of the legal entity on its liquidation may be made for any reason, in particular, in connection with the expiration of the period for which this legal entity was created, the achievement of its creation goals or in other cases expressly specified in its charter, as well as in fact, for any other reason, including an economic one, which prompted the participants to make such a decision.

At the same time, it is determined by law that the liquidation of a business entity should have a special procedure if such a business entity does not have its own funds and funds that can be obtained from the sale of all its assets to fulfill monetary obligations to its creditors. In this case, it is possible to liquidate it exclusively in court through bankruptcy proceedings. Moreover, the initiator of such a procedure can be both the legal entity itself (or its owners, participants), and its creditors in cases established by law.

In this article we will not consider those cases when the procedure of liquidation of a legal entity is enforced by court decision, in connection with the violations made during its creation, which cannot be eliminated, or in other cases expressly provided by law.

Therefore, we will single out two methods (forms) of liquidation of a legal entity, which depend on the procedure applied, namely: the general liquidation procedure and liquidation through bankruptcy (recognition of insolvency).

In any case, the result of the completion of the liquidation procedure of a business entity is its termination as a legal entity, which results in the termination of the rights and obligations of such a person from the day of its termination (this day, as a general rule, is considered the day the record on the termination of the legal entity ).

n the legislation there is no single legal act, which would regulate the procedure for liquidation of the legal entity according to the general procedure. It should be guided by the general provisions of the Civil Code of Ukraine, the Economic Procedural Code of Ukraine and other legislative acts that contain specific rules governing directly or relating to this procedure in certain matters.

In turn, the liquidation procedure in connection with the insolvency of a business entity is regulated by a special law.

On October 18, 2018, a new Code of Ukraine on bankruptcy was adopted, which comes into force three months after its publication, thereby, on the basis of this Code, the Law of Ukraine “On Restoring Debtor’s Solvency or Declaring Bankruptcy” loses its effect.

Since the liquidation of a business entity in bankruptcy proceedings fully regulated by a special law, in this article we will focus on the general liquidation procedure.

Thus, the law defines the list of procedures that a liquidator (liquidation commission) must carry out in the process of liquidation of a legal entity according to the general procedure, and the legal results that it must achieve, for example, collect receivables, pay off creditors, dismiss the labor collective and other .

At the same time, the legal way to achieve such a result is not legally defined, and the liquidator (liquidation commission) has a choice in deciding when choosing a particular course of action necessary to achieve such results. Thus, the choice of the optimal path to achieve the desired result is, as a rule, the area of responsibility of the external legal adviser engaged to support the liquidation procedure.

To a person who does not have experience in this field, it may seem that the procedure is quite simple, and there is no need to exaggerate its complexity. At the same time, one should take into account the fact that any mistake made when choosing a course of action to achieve the desired result (for example, when dismissing hired personnel, collecting receivables and other tasks requiring permission) can significantly affect the completion time of the procedure termination of a legal entity, in terms of their increase.

Thus, the liquidator (the liquidation commission) takes actions to fulfill the requirements established in the law (for example, collection of receivables), which are legal in nature (for example, going to court with a claim for recovery of debt), but not optimal If we take into account the time frame to achieve the desired result, the process of liquidation of a business entity may be delayed for years.

Therefore, even before making a decision on liquidation, you should contact external specialists with relevant work experience who will be able to make recommendations regarding the performance of optimal actions, taking into account all the features of the liquidated business entity that must be taken into account.

The individual characteristics of a liquidated business entity that should be taken into account must include its organizational and legal form, the composition of participants (residents or non-residents), the number and peculiarities of the legal status of hired staff (persons staying on maternity leave for caring for children under three years , and others), its financial position, availability of loans and borrowings, unpaid bills and other debt securities, the ratio of assets and liabilities, the presence of arrears in the payment of taxes and fees, established encumbrances on property (such as mortgages, arrests and others), the presence of legal disputes, open enforcement proceedings in respect of such a business entity, and many others.

Any business entity that needs to be liquidated is individual and subject to thorough preliminary study. Of great importance is the development of a detailed plan reflecting in it not only the necessary actions related directly to the liquidation procedure, but also the approximate dates necessary for their implementation.

The general analysis of the provisions of the legislation allows to identify the main legally significant actions that must be taken in the general procedure for the liquidation of a legal entity – a business entity.

So, the step-by-step instruction for the liquidation of a legal entity according to the general procedure in 2018 may look as follows.

  1. Starting liquidation procedures generally associated with the adoption by a competent (authorized) of business entity body of the respective decision of the termination of such a business entity by its liquidation.

At the same time, it should be understood that the adoption of such a decision is always followed by the performance of certain preliminary actions or the holding of necessary measures. In particular, depending on the organizational and legal form of a legal entity being liquidated, such a competent body is often the highest body of the economic company (general meeting of participants, shareholders) or the highest body of an enterprise, for example, private, (general meeting of founders or owner). If it is the highest body, for example, of a business entity, then it is necessary, in accordance with the procedure established by law or the charter of such a company (if this does not contradict the mandatory provisions of the law), to convene and hold a general meeting of participants (shareholders). If we are talking about a private enterprise, then this procedure should be determined by the charter of the enterprise itself.

Requirements for the content of the decision to terminate a legal entity through its liquidation.

The decision of the competent authority on the termination of a business entity through its liquidation shall be recorded, as a rule, by the relevant protocol.

Moreover, there are statutory requirements regarding the content of such a decision. So, from this decision it should be clear that the highest body made the decision to liquidate a business entity.

Also in this decision, the competent authority of the liquidated legal entity must determine which body will deal with the liquidation procedure of this business entity. Usually, if a liquidated enterprise belongs to a small or medium-sized business, that is, it does not have a significant amount of assets, a large staff of hired personnel, etc., then a single body is appointed — the liquidator, which may also be the current head of this enterprise. In other cases, they appoint a collegial body – a commission for termination (or a liquidation commission). In practice, both names are used as synonyms.

If a collegial body is appointed, the decision must necessarily indicate who heads it, that is, the chairman, and the full nominal (personal) composition of all its members.

Among other things, the protocol must include the full data (full name) of the persons appointed by the liquidator or the liquidation commission (chairman and commission members), as well as their individual tax numbers.

The statutory requirement is that the competent authority that decides on the liquidation of a business entity also determines the procedure and deadlines for the creditors to present their claims to the liquidated person (however, this period cannot be less than two months and more than six months from the date of the official publication of the decision authority to liquidate a legal entity). Usually, this requirement of the law is carried out quite formally.

As a general rule, from the moment the liquidator or the liquidation commission is approved, the powers to manage the liquidated legal entity are transferred to them, and accordingly, such a body will take all measures required by law to liquidate such a legal entity.

After a decision is made to terminate a legal entity, such a decision must be registered in the prescribed manner. For this, a notarized original of such a decision (or its notarized copy) is submitted for state registration of the decision on the termination of a legal entity, about which a corresponding entry is made in the Unified State Register (hereinafter – the USR(EGR)).

So, from the day a state registration decision is made in the USR of the decision on termination, the procedure for liquidating a legal entity is considered as such that it has begun.

  1. Publication of the announcement of the liquidation.

After the relevant registration to the state registration of the decision on termination of a legal entity is made in the specialized media, an announcement of the liquidation of a business entity is published with an indication of the procedure and deadlines for filing claims by the creditors to the liquidated legal entity.

After the liquidation procedure has officially begun, then the algorithm for the liquidation of a legal entity is as follows.

At the same time, it should be understood that the sequence of all the activities that the liquidator (liquidation commission) must perform during the liquidation procedure is not strictly determined by the regulations, so many of them are carried out simultaneously. It is only important to pay attention to the deadlines for the implementation of some of them, which are defined by law.

  1. Notification of regulatory authorities on the decision to terminate a business entity through its liquidation.

A liquidated enterprise is subject to verification by supervising bodies (tax authorities and bodies of the Pension Fund of Ukraine) regarding compliance with tax legislation for paying taxes and fees to the budget, as well as other mandatory payments, including a single contribution, to state and local budgets, the Pension Fund of Ukraine and other funds state compulsory social insurance.

The purpose of the liquidator’s application (the liquidation commission) to the supervising bodies is to conduct the relevant inspections of the liquidated person as part of their compliance with the requirements of the law on accounting, charging and paying to the state, local and obligatory funds of taxes, fees and other mandatory charges, and respectively, confirmation of the absence of any arrears (debt) for the payment of taxes, fees and other mandatory charges, or, conversely, determination of its size.

For this, the law obliges the liquidator (liquidation commission) to timely provide the tax authorities and bodies of the Pension Fund of Ukraine with the necessary documents of the liquidated business entity, including primary documents, accounting and tax registers.

As a result of such inspections, the liquidated legal entity should receive the relevant information on the absence of debts to the budget for such payments and on its removal from the register in these bodies.

Previously, the certificate of the fiscal authority about the absence of arrears in payment of fees and taxes, the certificate of the Pension Fund of Ukraine on the absence of arrears in the payment of a single social contribution were mandatory documents that had to be filed with other documents defined by law to be recorded in the Unified State Register of termination legal entity.

Starting from 2016, such documents are not filed, but this does not mean that the liquidator (liquidation commission) may not be audited by the controlling authorities. Just now, registration authorities and regulatory authorities have the opportunity to exchange such information in electronic form, through the so-called “unified window”, which contains information about the presence or absence of a ban for conducting registration actions on the termination of a legal entity.

It should be noted that, as before, and now, the procedure for verification by the supervisory authorities of the liquidated business entity and its removal from the register in these bodies is not formal and, as a rule, requires the involvement of the liquidator (the liquidation commission) to accompany the external specialists with appropriate skills (accountants, auditors, tax consultants, lawyers).

We note that it is often an obstacle to obtaining the results of the audit and the certificate of the removal of the liquidated business entity from the tax authorities with a failure to provide evidence of the closure of the liquidation account, which can be done only after all settlements with creditors have been completed. In this regard, as a rule, the result of the audit by the tax authority becomes known only by the end of the liquidation procedure.

Therefore, the timing of such inspections is often significant and, above all, it is not related to the conduct of the inspection procedures as such, but to a greater extent with the slowness of the work of the regulatory bodies themselves and the duration of their internal formal procedures. In particular, a significant timeframe takes the determination of the date of such inspections, since this requires their inclusion in the audit plan for the current year, and this, in turn, requires a number of formal procedures within the regulatory bodies, which, as a rule, fiscal bodies carry out not in a hurry.

  1. Collecting receivables.

Since, in the event of liquidation of a legal entity, there are no assignees, and both the obligations of the person and his rights cease, the liquidator (liquidation commission) must, in the prescribed manner, carry out all possible actions related to the collection of receivables, including in court , while notifying in writing each debtor of the liquidation of the legal entity – the creditor.

As a general rule, since the publication of the decision of the competent body of a business entity on its liquidation, it is considered that all deadlines for the liquidation of obligations to third parties – creditors have occurred. Therefore, as a rule, in this case there are no legal problems in determining whether or not all creditors, regardless of the time period for meeting the obligations specified in the contracts, present their claims to the debtor who is in the liquidation procedure. The answer in this case is yes, they can.

However, when collecting receivables, the situation is not so clear.

So, when collecting debts from debtors of a liquidated business entity, whose deadlines for fulfilling their obligations to such creditor have come (including those liabilities in which there is a delay in fulfillment of obligations), legal problems usually do not arise, except for the very financial condition of such debtors and having a real opportunity to pay off debt.

But in relations with debtors, in which the terms of fulfillment of obligations to the liquidated business entity (creditor) must occur in the future, and in the agreements it is not explicitly stated that the creditor’s transfer to the liquidation procedure is a reason for their early termination (termination), legal problems may indeed arise.

Since there are no imperative rules in the legislation, the analysis of which allows to make an indisputable conclusion that the transfer of the creditor in the obligation to the liquidation procedure automatically has the same legal consequences for all its debtors, without exception, as for the creditors, that is, the deadlines for all debtors’ obligations (and even those that should occur in the future) before such a creditor should be considered to have occurred.

Just as there is no unambiguous judicial practice prevailing on this issue, so there is no common practice in the form of business practices regarding the fact that the transfer of a creditor to the liquidation procedure has as its legal consequence the timing of the fulfillment of its obligations to such creditor by all its debtors without exception.

Therefore, in the case of such debtors liquidator (the liquidation committee) should take legally correct solutions to break the deadlock and resolve issues related to the recovery from these receivables or seek other legal means to achieve the desired result.

Yes, and it is not always easy to resolve issues related to the collection of receivables, even in cases where there is no dispute as to whether the debtor fulfilled his obligations to such creditor.

Consequently, the liquidator (the liquidation committee) in matters of debt collection, it is often necessary to seek other legal ways of solving these problems, rather than a straightforward appeal to the court for the recovery or termination of any contracts and damages.

  1. The dismissal of employees who are in labor relations with a liquidated business entity.

As a general rule, all employees of a liquidated business entity must be warned in writing about their impending dismissal for reasons of staff cuts due to the liquidation of such business entity within a period not less than two calendar months before their dismissal. Moreover, it is desirable that the liquidator (liquidation commission) has a proper confirmation of familiarization of each of the employees who will have to be dismissed in the future about such notification. It should be noted that in this case it is also necessary to notify in writing the territorial department of the center of employment at the location of the liquidated business entity.

If the liquidated subject of managing established its own trade union organization, it is necessary to observe all the formal legal requirements regarding the notification / coordination with the trade union action committee associated with the mass dismissal of employees, as well as those employees who are members of the executive committee of the primary trade union organization on such a enterprise.

It is important to properly evaluate the approximate time of the liquidation procedure, since, despite the fact that the economic activity of an enterprise is terminated, but it may remain assets that require special care, as separate events must be considered in the liquidation procedure, which is impossible without individual employees. Therefore, the liquidator (liquidation commission) must make well-considered decisions related to dismissal in relation to employees such as an accountant, shop manager, electrician, security guards and others, depending on the specifics of the assets of the liquidated enterprise.

It is also necessary to think thoroughly about how to deal with employees belonging to certain preferential categories, having the guarantees of further employment in other enterprises, as established by law, in the event of their dismissal (such categories include pregnant women, persons staying on maternity leave before three years, and others). Employees with such guarantees can only be dismissed with a mandatory subsequent employment.

Rights of workers in this category should be treated with special attention, since with the formal admission of violations of their rights, the negative consequences for the liquidator (members of the liquidation commission) may be different, up to initiation of criminal proceedings due to a substantial violation of labor rights. (The procedure and consequences of the liquidation of the organization)

  1. Resolution of issues with legal entities in which the liquidated business entity acts as a participant.

The law obliges the liquidator (liquidation commission) to inform the participants (owners) of the liquidated business entity about his participation in other legal entities. This is done in order to make a decision on the future of corporate rights that belong to a liquidated business entity.

As a rule, in this case, such corporate rights are assigned to other persons, and the funds received from such operations are sent to fulfill obligations to creditors of the liquidated person.

Such a method as withdrawal from the participants is used less frequently due to the fact that the procedure for paying the due share to a person who has left the participants is not fast and therefore not always acceptable in the current situation due to the need to complete the liquidation procedure as soon as possible.

  1. Closure of all separate subdivisions (departments, representative offices and branches) of a liquidated business entity.

The law requires the liquidator (liquidation commission) to take all necessary measures to close all separate subdivisions opened by the previously liquidated business entity.

  1. Cancellation of all previously issued licenses and permits for certain types of economic activities previously issued to the liquidated business entity.

In the course of the liquidation procedure, a liquidator (liquidation commission) is obliged to apply to the relevant authorities with a request to annul previously issued licenses or permits for certain types of business activities by the liquidated business entity.

  1. Closing open in respect of the liquidated business entity, enforcement proceedings.

If any proceedings opened against the liquidated business entity are identified, the Liquidator (liquidation commission) during the liquidation procedure is obliged to apply to the relevant state executive service bodies with an application for their closure due to the liquidation of the debtor.

As a general rule, in this case all enforcement proceedings are subject to closure, and debt repayment to creditors, upon whose application such enforcement proceedings were opened, is carried out in a liquidation procedure in the order established by law.

  1. Closing current and deposit accounts in banking institutions and securities accounts opened in depository institutions.

The law requires the liquidator (liquidation commission) to close all current (deposit) accounts with banking institutions that will not be used in the liquidation procedure. There should be only one account (liquidation), which is determined by the liquidator.

It should be taken into account that the closing of the current accounts of the liquidated business entity is preceded by the procedure of their transfer to the liquidator, including the conduct of a mandatory financial monitoring procedure by a banking institution. And only upon completion of such re-registration of the account manager, will the bank be able to accept from the liquidator (the chairman of the liquidation commission) an application for closing the account.

The law stipulates that such accounts must be closed before the deadline for accepting claims from creditors. However, this requirement is often not respected, especially in cases where there are arrests imposed on funds in accounts that were not timely removed by the state executive service.

When identifying accounts that are under arrest, the liquidator (liquidation commission) is obliged to apply to the state executor with a statement about sending a copy of the decision on closing the enforcement proceedings to the bank. It is important that, in this case, such a resolution comes to the bank directly from the state executive service, otherwise, if such a decision comes from the liquidator, the banking institution may refuse to lift the arrest on formal grounds, referring to the provisions of the relevant instructions of the National Bank of Ukraine.

It is also necessary to take into account certain features of working with banking institutions in the event that during the liquidation procedure, when settling with creditors, it is necessary to acquire currency in order to fulfill obligations to non-residents.

Yes, and in view of the instability of the banking system, it should now be very carefully approached the question of electing a banking institution in which a liquidation account will be opened. Since if such a bank subsequently has problems with solvency and the curator of the National Bank of Ukraine is introduced into it, and later a temporary administrator, the liquidation procedure may be essentially suspended due to the inability to use the accumulated funds in the account in such a troubled bank . To open a new account and transfer funds there will be problematic. We will have to file a lawsuit in court with the tax authority to register a new account as a liquidation account, which, again, may affect the timeframe for the completion of the liquidation procedure. As regards the funds remaining on the account in the problem bank, it will be necessary to develop a separate strategy, since the legislatively established moratorium in such cases does not allow the bank to settle with its creditors.

If a liquidated legal entity has opened securities accounts at depository institutions (so called custodians), such accounts are also subject to closure on a mandatory basis, and if they take into account securities belonging to this legal entity, they, as a rule, are subject to sales to third parties.

  1. An inventory and valuation of assets (property) of a liquidated business entity.

The law obliges the liquidator (liquidation commission) to take an inventory of the entire property of the enterprise being liquidated, and in separate cases, to conduct its independent assessment.

The basis for the inventory is the order of the liquidator (liquidation commission) on the beginning of its conduct, which also indicates the date of its conduct and the personal composition of the inventory commission. As a rule, it includes three people, in particular, the liquidator himself or the chairman of the liquidation commission, the accountant and the materially responsible person.

According to the results of the inventory, an appropriate inventory list of the property of the liquidated business entity is drawn up, which was identified and which is listed according to the documents, but is actually absent. Identified property may be transferred to an appraiser to conduct an assessment, and for property that is missing, an application must be submitted to law enforcement agencies to decide whether to open a criminal case in connection with the possibility of theft of such property.

Property valuation of a liquidated business entity is mandatory only in cases expressly provided by law.

  1. Realization of property of a liquidated business entity and settlement of accounts with its creditors.

One of the most crucial stages in the liquidation procedure is the stage at which the liquidator (the liquidation commission) considers the claims received from creditors (and each requirement is separate) and decides on each of them the decision to recognize or refuse to accept. The liquidator is obliged to notify each of the creditors about the results of consideration of his claims within 30 days from the moment of receiving the relevant claims from the creditors.

According to the results of the completion of the mandatory procedures related to the inventory, and in cases determined by law, and the assessment of the property (assets) of the enterprise being liquidated, with consideration of the claims of creditors, an interim liquidation balance sheet is compiled, which displays information on the composition of the property, submitted creditor claims and the results of their consideration .

This document is approved by the body that made the decision on liquidation. That is, the liquidator (liquidation commission) must organize the procedure defined by law or the statute to convene a general meeting of participants (shareholders) (or another supreme body, if, for example, this is a private enterprise), on whose agenda the question should be put on approval of the interim liquidation balance sheet.

In fact, the content of this document determines the further procedure for the liquidation of this business entity.

So, if the liquidated person has enough cash or assets to fulfill its obligations to the creditors who have stated the claims, even if he doesn’t have any property after that, the liquidation procedure will continue. Otherwise, if it is clear from the interim liquidation balance sheet that a business entity does not have its own funds and funds, which can be obtained from the sale of all its assets, to fulfill monetary obligations to the creditors who have filed claims, then the court should be contacted to continue the liquidation procedure through the bankruptcy procedure.

So, on the basis of the data of the interim balance sheet and in accordance with the established register of accepted claims, settlements are made with creditors in the order established by law.

If a liquidated business entity does not have enough cash to settle claims included in the registry, then its assets are sold and the proceeds are used in settlements with creditors.

As a rule, such a sale of assets is carried out with the involvement of the trading organization (stock exchange) through an auction organized by it. In this case, often, the property is sold by lot, and the proceeds are credited to the liquidation account and are sent in the future, taking into account a certain priority for repayment of debt to creditors.

  1. Distribution of funds and property of a liquidated business entity among its participants (shareholders, owners).

Remaining after the fulfillment of obligations to creditors,  funds are distributed in accordance with the Charter of a liquidated business entity in proportion to its participants (shareholders, owners).

The property of the liquidated business entity, remaining after the settlement with all its creditors, is either distributed among its participants (shareholders, owners), or sold, and the proceeds from its sale are distributed among its participants (shareholders, owners).

  1. Approval of the liquidation balance of a business entity.

After all obligations to creditors are fulfilled and the remaining funds and property are distributed among the participants (shareholders, owners), a liquidation balance sheet (so called “zero” balance) is drawn up, which is approved by the body that made the decision on liquidation, and submitted to the regulatory authorities ). In this case, the procedure for approval of the liquidation balance sheet is similar to the procedure for approval of the interim liquidation balance sheet.

  1. Final activities related to the liquidation of a business entity.

In the end, there are only technical measures that the liquidator (liquidation commission) must carry out, in particular.

The liquidation account should be closed in the bank and a certificate of its closure must be obtained.

All documents on such a legal entity are transferred to the archive, and the seal must be destroyed.

After that, a corresponding application is submitted to the state registrar with a certificate from the archive department attached to it.

Confirmation of the end of the legal procedure for the liquidation of a business entity is the state registration of the termination of such a legal entity as a result of its liquidation, about which a corresponding note is made in the USR (on termination and exclusion of such a legal entity from the USR), based on the documents submitted by the liquidator (liquidation commission).


Artur Nonko

Managing Partner Law Firm “Legal Consulting Center”

PhD in Law

 

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