Company Dissolution and Liquidation

Company Dissolution and Liquidation
The causes of company dissolution and liquidation of activity can be very varied. Montelongo Advisers can help you with the different steps required.

If the company has debts or the available assets can not cover the liabilities due, it can not dissolve the company directly.

In this case we can help you with the procedures of liquidation of the company through the appropriate procedure.

The concept of dissolution of a society is equivocal, it is not equivalent to the “extinction” of society, but to the first phase that will ultimately lead, eventually, to the extinction of society. It is regulated in Title X, Chapter I, of the Capital Companies Act, and includes articles 360 to 370 LSC.

The dissolution of a company supposes the legal disappearance of the same, but does not paralyze or end its activity, although it happens to be liquidation, reason why a society in this situation must add the expression “in liquidation” in its name .

What causes lead us to the dissolution of a society? According to Legislative Royal Decree 1/2010, of July 2, approving the consolidated text of the Capital Companies Act, a company may be dissolved in the following cases:

  • For the cessation in the exercise of the activity or activities that constitute the corporate purpose. In particular, it shall be understood that there has been cessation after a period of inactivity of more than one year.
  • By the conclusion of the company that constitutes its object.
  • For the manifest impossibility of achieving the social purpose.
  • By the paralysis of the social organs so that their operation is impossible.
  • For losses that reduce the net assets to an amount less than half of the capital stock, unless it is increased or reduced to a sufficient extent, and whenever it is not appropriate to request the declaration of competition.
  • Reduction of the capital stock below the legal minimum, which is not a consequence of compliance with a law.
  • Because the nominal value of non-voting shares or non-voting shares exceeded half of the paid-up share capital and did not reestablish the proportion within two years.
  • For any other cause established in the statutes.

Once society has been dissolved, there are three ways:

  • Transfer of property, ie the purchase and sale of the same.
  • Liquidation of the company, that is to say, cessation of the activity, payment to the creditors and partners, closing definitively the company.
  • Contest of creditors, when it can not be faced with creditors, this legal figure can be requested by creditors (forced competition) or by the same debtor (voluntary contest).

The dissolution of the company will be registered in the Mercantile Register and will be published in the “Official Gazette of the Mercantile Registry” (BORME).

Settlement / Dissolution

company dissolution in Spain and Canary IslandsThe dissolution of the company opens the liquidation period, the dissolved company will retain its legal personality while the liquidation takes place. During that time, the term “in liquidation” should be added to its name, as already mentioned above. Therefore, the liquidation has the effect of the loss of the legal personality of the company. With the opening of the liquidation period, the directors will cease to hold office, extinguishing the power of representation, being replaced by the liquidators who will assume the functions of the managers, having to ensure the integrity of the social assets as long as it is not settled and distributed among the partners.

The functions of the liquidators are:

  • Make an inventory and a balance sheet of the company with reference to the day it was dissolved within 3 months from the opening of the liquidation.
  • Perceive social credits and pay social debts.
  • Complete the pending operations and make the new ones that are necessary for the liquidation of the company.
  • Perceive social credits and pay social debts.
  • To carry out the accounting of the society, as well as to take and to guard the books, the documentation and correspondence of this one.
  • Secure the assets of society.

Once liquidation operations have been completed, the liquidators will submit to the General Meeting for approval a final balance sheet, a full report on these transactions and a draft dividend between the partners of the resulting asset, resulting in the division of the corporate assets according to the bylaws , taking into account that the liquidators can not satisfy the liquidation fee to the members without prior satisfaction of the creditors of the amount of their credits or without entering it in a credit institution of the municipal term in which the registered office is located.

In order to finalize the liquidation, the partners must pay 1% of the quota received, as Tax on Patrimonial Transmissions and Legal Acts Documented by Corporate Operations.

Extinction of a company or society

The extinction of a company is carried out in three steps: dissolution, liquidation and cancellation of the seats of the same in the Mercantile Registry.

The liquidators are entitled to grant public deed of extinction of the company containing the statements on terms, payment of creditors and quotas paid to partners.

The public deed of extinction will be registered in the Mercantile Register. The registration will be transcribed the final balance of liquidation and the identity of the partners and the value of the liquidation fee that corresponds to each of them will be recorded and it will be stated that all the seats relative to the company are canceled.

Finally, the liquidators will deposit in the Mercantile Registry the books and documents of the extinguished company.

Liquidators shall be liable to the partners and creditors for any damage that may have been caused by intent or fault in the performance of their duties.

Reactivation of a company in liquidation

Law 1429 of December 29, 2010, provides that companies and branches of foreign companies, at any time after the initiation of liquidation, can be reactivated, provided that the external liabilities do not exceed 70% of the social assets and that distribution of the remnants to the partners has not commenced.

The decision to reactivate shall be taken by the majority provided for in the law for transformation. Absentee and dissident associates may exercise the right of withdrawal. This decision shall be recorded in ACTA, which shall be registered with the chamber of commerce of the registered office.

The determination to reactivate the company must be informed to the creditors within fifteen (15) days following the date on which the decision was adopted, by means of a written communication addressed to each of them. Creditors shall have the right to judicial opposition in the terms provided for in article 175 of the Commercial Code. The action may be filed within thirty days of receipt of the notice. This action is filed before the Superintendency of Corporations through the verbal summary proceedings.

Settlement Record

Once the liquidation process is completed, the final settlement act must be submitted for registration, which must comply with the requirements indicated in articles 247 and 248 of the Commercial Code. It shall include the approval of the distribution of the remaining assets and the accounts of the liquidators. The request for registration of the dissolution must be made at the chamber of commerce with jurisdiction at the place of the company’s main address and at the place where it has open branches.

The main challenge of our lawyers and business consultants is to provide personalized advice to all clients. For this we study the company in depth, its peculiarities and problems, which allows us to cover any need for legal advice, locate aspects of the activity that may be the origin of contingencies, conflicts or claims, and anticipate the most efficient solutions.