The liquidation of a company encompasses the processes and steps taken to bring that business to an end, at the same time satisfying the existing claims of the creditors. This step is usually necessary when the company is no longer a profitable one and cannot pay its obligations. This is also referred to as insolvency, the point when the company is no longer able to make the payments to its creditors when they are due.
There are many reasons that may cause a company to enter into insolvency. Some of the common issues include impractical business ventures, lack of business/commercial practical knowledge, excessive expenditure, faulty financial management and others. In some cases, businesses may face a combination of these causes. An option for avoiding insolvency and then liquidation is to properly identify the existing problems beforehand and to commence a restructuring process. When this is not possible and the company cannot be salvaged, then voluntary liquidation is often the preferred method to end the business activities.
Our team of lawyers in Liechtenstein details the liquidation process below and can assist investors during this multi-step process.
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Relevant legislation on company liquidation in Liechtenstein
Company liquidation is not a complicated matter, however, it must be treated carefully in order to ensure all commercial aspects are entirely concluded when the procedure is terminated and which ends with the deletion of the former business from the Trade Register’s records. This is why, company owners must pay attention to the following laws:
- the Civil Code, specifically Section 1173a, Art. 59a which provides for the termination of a business’ activities;
- the Company Law which covers all aspects related to the types of procedures to be completed when ending a business;
- the Tax Law which provides for the obligations of the company to de-register from the tax authorities;
- the Tax Ordinance which provides for the taxes and fees to be paid upon company liquidation in Liechtenstein.
Also, when insolvency applies, other laws, such as the Bankruptcy Act and the Unemployment Insurance Law, must be consulted in order to ensure all legal matters are respected.
Our lawyers in Liechtenstein can provide assistance in understanding the legal requirements business owners must comply with upon company winding-up.
What is the liquidation process in Liechtenstein?
There are two ways a company can be liquidated in Liechtenstein – by the member’s decision (voluntary) or by a court’s order (involuntary).
Some of the reasons based on which it can be decided to liquidate the legal entity can include the following:
- if the articles of association stipulate a termination date,
- if the general meeting of the shareholders or the general partners decide so (a decision which was voted by at least two-thirds of the shareholders or another majority),
- by court judgment (where dissolution is requested by a wholly liable member or by members who represent at least one-tenth of the capital),
- by opening bankruptcy proceedings on grounds of over-indebtedness or insolvency.
The liquidation of a branch in Liechtenstein is performed in the same manner as for a resident company. Exceptions to this can be made only by a decision issued by the Public Register Office. The obligations of the liquidators can also apply in case of the General Partnership.
From the moment the decision is taken, the company name must be followed by the termination “in liquidation” on all the official documents. The legal entities registered in the Public Register cannot be liquidated until six months have passed from the third call to creditors. During the liquidation process, the administrator loses his powers who will pass onto the liquidator. This liquidator will take all the decisions necessary to complete the process in good conditions. However, the other bodies of the company will retain the same powers during this state as they have had for the regular duration of the company. The members of the company will retain their role and contributions, however, once the process has commenced, it will not be possible to introduce new company members.
In almost all cases, the appointment of the liquidator is done as per the company’s constitutive documents. A situation in which this is not the case appears when the existence of the company ceases as the result of unlawful or immoral activities. In this particular case, the liquidator is appointed by the Registrar.
The liquidators are subject to observing their obligations and they can be accused of neglect when failing to do so or when they violate these obligations. In the event in which they can be accused of wrongful conduct during the process, they will be held liable after the process is complete and they can be accused of damages or losses that have resulted from their activities. They can be held liable towards the company members and creditors. Our team of attorneys in Liechtenstein can give investors more information about the attributions of the company liquidators.
The liquidation process is also detailed in the following video presented by our lawyers:
What are the steps for company liquidation in Liechtenstein?
The main steps included in a company liquidation process are detailed in the list below:
- The winding-up balance: The first step after the beginning of the liquidation process is elaborating a winding-up balance stating all the entity’s assets. The former administration must assist the liquidator in the process of elaboration and must deliver all relevant records and business papers.
- Creditor notification: All the known creditors must be announced regarding the beginning of the process in writing, while all the other creditors must be notified through announcements made in the relevant newspapers regarding this process.
- Satisfying existing claims: The liquidators must simultaneously ask in court for the discontinuance of all processes not relevant to the process of liquidation. All the claims must be covered and not sooner than six months from the decision of liquidation, the liquidator must distribute the remaining assets to the entitled shareholders and beneficiaries.
- De-registration: After taking this step, the liquidator must notify the Public Registry and ask for the de-registration of the company from the Register. Only after taking this step, the liquidator can be released from its function.
- License deletion: when a company is liquidated, the trade license is deleted and an application must be submitted for this purpose.
Once the company’s debts are paid, the remaining assets (if applicable) can be distributed among the members. This is done either according to their percentage of owned shares or per capita, when the share ownership distribution is unclear. This distribution may not take place sooner than six months from the commencement of the process. In some special cases, the Registrar may allow for the distribution to the members to take place sooner, but only in those cases in which there is no danger to the creditors, namely when there is no concern that their claims will not be met.
In some cases, when it is found that there are additional company assets after the dissolution was entered in the Registry, the Court can apply for extrajudicial proceedings for the distribution of assets supervised by appointed liquidators.
Specific requirements may exist for certain types of legal entities in Liechtenstein. For example, in case of the company limited by shares, the resolution for the liquidation of a company must be approved by 2/3 of the votes in a General Meeting. This applies when the Articles of Association do not specify otherwise. Similar to ending a company, the liquidation of a trust in Liechtenstein can take place at any time after the process is concluded and the deregistration can take effect in a matter of days.
One of our lawyers in Liechtenstein can help investors with more information about the steps for liquidation.
Appointment of liquidators in Liechtenstein
One of the first steps to complete upon company liquidation in Liechtenstein, be it voluntary or compulsory, is the appointment of the liquidator.
In case of the voluntary liquidation of a company in Liechtenstein, the liquidator can be appointed during the meeting of the shareholders when the official decision to terminate the activity is registered. In case a court decision to terminate a business must be made, the judge will appoint the liquidator who can be an official representative of the court.
Where the company is voluntarily liquidated, the person in charge of the procedure can be selected among the ranks of management members (one of the directors or even a partner in the business). However, the auditor, or even, the lawyer of the company can be appointed as a liquidator.
No matter the situation, the liquidator will have the same tasks and those imply:
- making an inventory of all the company’s assets;
- establish the assets and their division in an equitable way so that the company pays all its creditors;
- the division of the remaining assets between the shareholders in accordance with their contribution to the capital of the company.
The liquidator will also be in charge of preparing various reports on the liquidation procedure. These reports will be presented to the shareholders and the court (where applicable). It is also possible for the liquidator to act as an administrator of unfinished matters in the company.
The name of the liquidator must be recorded with the Companies Register in Liechtenstein at the same time the trading name is appended the “in liquidation’’ termination.
If you need legal advice on the appointment of liquidators, our attorneys in Liechtenstein can provide detailed information on the legislation on this matter.
Tax-related matters when liquidating a Liechtenstein company
Company liquidation is a complex matter in Liechtenstein, just like in other countries, which is why all aspects that may attract further liabilities after the business has terminated its activities must be extinguished. This implies ending the tax obligation with the Tax Authority.
Before the company is deleted form the Trade Register and the Tax Authority’s database, the liquidator is required to prepare and submit a comprehensive tax return which proves the company has respected the payment of remaining taxes. All documents attesting to this must be signed and filed by the liquidator.
We can also provide assistance in tax related matters in Liechtenstein.
What happens to the trading licenses of the company?
Where a Liechtenstein company has obtaining a special business permit, this must be deleted from the Office of Economic Affairs. The original license must be returned to the Office which will delete the company from its records.
Once the company is liquidated, it will be deleted from the Company Registrar’s records.
What are other issues when dealing with company liquidation in Liechtenstein?
A company’s tax liabilities in Liechtenstein end once the liquidation process is complete, namely when the location of the main headquarters has been removed from the commercial register. However, entrepreneurs should know that a company which is undergoing liquidation is still required to provide a complete tax return for the corresponding period and provide all of the needed documents that prove the company’s financial transactions. The liquidator who handles the process is the one who is responsible for filing the needed documents with the tax authorities. A number of differences exist as per the treatment of companies that are in liquidation and those that are in bankruptcy for taxation purposes. When a company is bankrupt, therefore it is considered that it cannot repay its debts but its assets have not yet been subject to liquidation and distribution, it needs to comply with the tax requirements up to the date when the bankruptcy process started.
The treatment of employees in case of voluntary liquidation is also important when dealing with this process. When the company enters into liquidation, it will terminate the existing employment agreements. In those cases in which the liquidator allows the company to continue trading, some of the employees may remain during this time. However, it is important to note that this is not always the case, as the company may have sufficient assets to dispose of for satisfying the creditor’s claims. When dismissing employees, company owners should know that they are required to observe the current rules for dismissal, with the adequate notice, in order to avoid being accused of wrongful dismissal.
The process of liquidation of a Liechtenstein entity depends on many factors, but the applicants must be aware that, for example, the distribution of the assets to its shareholders cannot be performed sooner than six months from the initial decision and the cancelation from the Register also cannot be performed sooner than six months from the beginning of the process. After the claims of the creditors are met, the remaining assets are distributed among the company members, according to their quote of owned shares. After the company is wound up, its business records and documents are deposited for a ten-year period, as per the indications of the Registrar.
Economic facts on Liechtenstein
If until a few years ago, Liechtenstein relied on the financial sector, recently it has started increasing its Gross Domestic Product (GDP) from other industries. According to NordeaTrade.com:
- the services sector accounted for 52% of the country’s GDP in 2019;
- it was followed by the industrial production industry which accounted for 41% of the GDP;
- agriculture represented 7% of Liechtenstein’s economy;
- the country has one of the lowest unemployment rates in Europe at the level of August 2019 of only 1.5%.
For more details about how to liquidate a company, you may contact our law firm in Liechtenstein.