Compulsory dissolution of a public limited company

A public 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 public limited company are the following:

  • shareholders did not adopt a dissolution resolution, even though they were required to do so;
  • the powers of the management board expired two years ago, but no new management board has been elected;
  • the company’s net assets are below the minimum set forth in legislation or is less than one-half of the required share capital.

In addition, compulsory dissolution may be based on other reasons arising from legislation. Among other things, compulsory dissolution may be a punitive sanction for an offence committed by the company.

A public 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 decision for the compulsory dissolution of the public limited company. This term allows you to eliminate deficiencies and continue the company’s activities.

The compulsory dissolution process

Submit to the court a petition for compulsory dissolution of the public 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.

The petition for compulsory dissolution must be submitted to the County Court in the territory of which the company is registered.

Contact information for courts

Begin liquidation of the public limited company. You will have to follow a specific series of steps.

Liquidation consists of the following stages:

  1. Appointment of liquidators and entry of their names into the Commercial Register. In a compulsory dissolution, a court shall appoint the liquidators of the public limited company.
  2. Publication of a notice regarding liquidation of the public 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.
  3. Approval of both 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 after approval be submitted promptly to the Commercial Register. A court may release the public limited company of the obligation of auditing the opening balance sheet prepared upon liquidation and the annual report if the financial situation of the public limited company is so unequivocal that an audit appears not to be necessary in the interests of the shareholders or the creditors.
  4. Dissolving a public limited company, collection of debts, sale of assets and satisfying creditors’ demands, regardless of notification of demands. If the assets of the public limited company being liquidated are not sufficient to satisfy all of the requirements of the creditors, the liquidators must file a bankruptcy petition. If a creditor known to the public limited company has not presented a demand and the demand cannot be satisfied due to reasons independent of the public limited company, the funds belonging to the creditor shall be placed in escrow. If it is not possible to discharge the obligation during the liquidation or if the demand is challenged, the public limited company’s assets may not be distributed among shareholders if the disputed sum of money has not been deposited or if the creditor has not been given sufficient security.
  5. Preparation of the final balance sheet of the public limited company and distribution of residual assets. The residual assets shall be distributed among shareholders in accordance with the asset distribution plan prepared by the liquidators pursuant to the nominal value of the shares, unless provided otherwise in the articles of association. In general, the assets may be distributed after six months have passed since the dissolution of the public limited company was entered into the Commercial Register and the liquidation notice 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.

Liquidation of a public limited company is a fairly time-consuming process that lasts at least six months. 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.

Right to represent a public limited company dissolved under compulsory proceedings

The right of representation of the management board or corresponding body of a company that has been 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 reason 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.

Last amended: 12-01-2016 09:22 | Compiled by: Ministry of Justice