How to liquidate a Czech company?
What is liquidation?
The liquidation of a company is a legal procedure leading to the winding up of a company, i.e. to the dissolution and termination of a business when it is not over-indebted. If the company in question is over-indebted, then it cannot be liquidated but must go through insolvency proceedings. The liquidation of a company is mostly done when the owner(s) does not want to operate the company anymore and intends to have the company deleted from the Czech Commercial Registry. The whole process usually takes between six months to a year.
What documents are needed for the liquidation of a Czech company
Approval from the Tax Office to be deleted from the Czech Commercial Registry – can be requested from the Tax Office after filling the code H tax return by filling a form and awaiting approval.
The company must have proof of indebtness, which is obtained from the Tax Office. The company has to have paid off everything, including all taxes owed to the state and any and all social and health insurance.
How to liquidate a company
There are two basic ways how to liquidate a Czech company, either forced (court ordered) liquidation or voluntary (the owner(s)´ decision) liquidation. If it is done voluntarily, the General Meeting must decide upon the liquidation, if so stipulated by the Articles of Association. The resolution of the General Meeting must be agreed by at least 2/3 of all shareholders of the company and must have the form of a notarial deed. But if the Articles of Association do not entrust such a decision to the General Meeting, all of the shareholders must decide on this issue by an agreement which must also have the form of a notarial deed.
At the same time as the General Meeting´s decision to close down the company takes place, a liquidator must be appointed. If the General Meeting votes on the appointment of a liquidator, a simple majority of all shareholder votes is enough. In the event that the liquidator was not appointed by the General Meeting, all members of the company´s statutory body shall act as liquidators.
At the date of the dissolution of the company, its statutory body must hand over all company assets (including all rights, obligations and liabilities) to the liquidator, on the basis of the handover protocol, which contains the following particulars:
- personnel administration
- extraordinary financial statements from the day preceding the date of entry of the company into liquidation
- company inventory
- business agenda (concluded business contracts)
- legal agenda of the company (summary of lawsuits, enforcement actions, out-of-court actions, etc.)
- overview of the company’s archive agenda
- other existing documents
The company´s representative is obliged to ensure the preparation of the financial statements as of the day preceding the day of the company’s entry into liquidation. At the same time it is necessary to close the company´s books. The company is eligible for liquidation on the first day of the financial year (usually the 1st of January), as the law offers the possibility to use the regular financial statements finalized on the last day of the accounting period (usually the 31st of December). If the company enters into liquidation on another day, the company representative is obliged to prepare extraordinary financial statements consisting of:
- a balance sheet containing information on the arrangement of assets, liabilities and other assets and liabilities
- an income statement
- an attachment, providing more detailed information about the balance sheet, profit and loss account, entity, accounting methods and accounting principles used, valuation methods, etc.
- a cash flow statement
- an overview of changes in equity.
The financial statements must be signed by the statutory body and the person responsible for the company´s accounting. If the company representative does not prepare the financial statements without undue delay, this obligation will be transferred to the liquidator.
The liquidator is obligated to open the company books and propose an opening balance sheet as of the date of the company’s entry into liquidation, as well as to make an inventory of the company´s assets, which he then provides to each creditor who so requests. The list of assets usually includes the following items: cash, funds deposited in a bank account, trade receivables, real estate, separate movables and liabilities of the company. It is the task of the company representative to confirm the completeness and correctness of the inventory and to hand over the assets to the liquidator for liquidation.
Whilst the company is winding up, the liquidator is obliged to propose the entry of the company into liquidation and the entry of the liquidator into the Commercial Register without undue delay. The liquidator submits a proposal for the entry of the company into liquidation on the so-called smart form available at www.justice.cz. The application may be submitted in writing where the signatures must be officially verified electronically (where the form must be provided with recognized electronic signatures) or sent via a data box. From the moment of the company´s entry into liquidation, and for the entire duration of the liquidation, the company must add “in liquidation” to their name.
The liquidator is obliged to notify all known creditors about the company’s entry into liquidation. Given the obligation of the liquidator to prepare the opening balance sheet and the inventory of the company’s assets at the date of the company´s entry into liquidation, all creditors of the company will be registered in the accounts or other documents of the company. The liquidator is then obligated to treat the claims of these known creditors as registered.
However, if there are creditors which the company does not know about, who are not registered in the accounts or other documents of the company, the liquidator must, at least twice with at least a two week interval, publish a notification about the entry of the company into liquidation alongside a notice to the creditors to file their claims within three months of the second notification. The liquidator shall fulfill this obligation by publishing a notice in the Czech Commercial Bulletin.
On the basis of the prepared financial statements, the liquidator is obliged to file a corporate income tax return (due tax claim) within 30 days of the company’s entry into liquidation.
In the course of the liquidation, the liquidator continuously evaluates the solvency of the company and if he find that the company is in bankruptcy, he will file an insolvency petition without undue delay. A company is bankrupt if it has multiple creditors and pecuniary obligations for more than 30 days past due, and at the same time is unable to meet these obligations.
If the liquidator does not correctly evaluate the solvency of a company, he would be liable for any damages or other harm which could be incurred by the creditor. The liquidator may be relieved of this liability only if he prove that the breach of his obligation to file an insolvency petition did not affect the extent of the amount to be settled by the creditor in the insolvency proceedings, or that he did not comply with that obligation because of events that happened which the liquidator could not know about or could not be averted even with every effort that could be fairly demanded of him.
For more information please contact:
Vojtěch Makovec, partner
Land line: +420 226 226 026
Cell: +420 604 274 824