Compulsory dissolution of a private limited company
- Reasons for compulsory dissolution
- The compulsory dissolution process
- The right to represent a private limited company dissolved under compulsory proceedings
A private limited company shall be subject to compulsory dissolution on the basis of a court decision. There may be various reasons for a compulsory dissolution; in general the reason is that the company or its activities do not conform to legislation. If it is possible to eliminate deficiencies related to the company, the court shall grant a term before making a compulsory dissolution decision. This term allows you to eliminate deficiencies and continue the company’s activities.
Reasons for compulsory dissolution
The most common reasons for the compulsory dissolution of a private limited company are the following:
- the company has not adopted a dissolution resolution, even though it was required to do so;
- the term of office of the management board expired more than two years previously and a new management board has not been elected;
- the company’s activity is not in conformity with the requirements set forth in legislation, is in conflict with the public order and good morals.
Liquidation of a private limited company is a fairly time-consuming process that lasts at least six months.
1. Submit to a court the petition for compulsory dissolution of the private limited company. The petition may be submitted by management board, supervisory board, a member or members of the management board, shareholder(s), or another person entitled to do so under law. A compulsory dissolution may be initiated by a court itself. Attach to the petition the resolution of the shareholders and the minutes of the shareholders’ meeting.
The petition for compulsory dissolution must be submitted to the County Court in the territory of which the company is registered.
2. Begin liquidation of the private limited company
You will have to follow a specific series of steps.
Liquidation consists of the following stages:
- Appointment of liquidators and entry of their names into the Commercial Register. In the case of compulsory dissolution, the court will appoint the private limited company liquidators.
- Publication of a notice regarding liquidation of the private limited company in the Ametlikud Teadaanded and notification of all known creditors. The liquidation notice must specify that the creditors must present their demands within four months of publication of the notice.
- Approval of the opening balance sheet prepared upon liquidation and the annual report by resolution of the shareholders. The opening balance sheet prepared upon liquidation and the annual report shall be submitted promptly to the Commercial Register after approval.
- Dissolving a private limited company, collection of debts, sale of assets and satisfying creditors’ demands, regardless of notification of demands. If the assets of the private limited company being liquidated are not sufficient to satisfy all of the requirements of the creditors, the liquidators must file a bankruptcy petition.
- Preparation of the final balance sheet of the private limited company and distribution of residual assets. In general, the assets may be distributed after six months have passed since the dissolution of the private limited company was entered into the Commercial Register and the liquidation notice was published and after two months have passed since the shareholders were notified of the presentation of the final balance sheet and asset distribution plan.
If your company was subject to compulsory dissolution because the objective of your activities or the activities itself were prohibited or in conflict with the public order and good morals, the residual assets left after the creditors’ demands are satisfied will become the property of the state.
The compulsory dissolution will be effective as of the moment the corresponding court ruling enters into force. The court will communicate the relevant information to the Commercial Register for the making of the dissolution entry into the Commercial Register.
The right of representation of the management board or the body substituting for the management board of a company dissolved under compulsory proceedings will remain in place until a liquidator is appointed by a court, bankruptcy is declared, or the company is deleted from the register.
You may make changes to the management board or the body substituting for the management board until that time only with good reasons and with the permission of the court.
A good reason must be one of the following:
- long-term or severe illness, as a result of which it becomes impossible for the member of the management or the body substituting for the management board to fulfil duties;
- death or divestment of active legal capacity of a member of the management board or the body substituting for the management board;
- entry into force of a court decision imposing a term of imprisonment on a member of a management board member;
- entry into force of a court decision divesting a member of the management board or the body substituting for the management board of the right to operate in a particular field of activity;
- the member of the management board or the body substituting for the management board became permanent resident in a foreign country.