How to liquidate a German company?

If a company or an association becomes insolvent or is over-indebted, there are two approaches to choose from: bankruptcy or structured deletion - the latter is also known as liquidation.

Which decision is made depends on what should happen next to the company or association. If you think there are still opportunities for the future, you should consider bankruptcy. If the fate of the company is sealed, however, the last official act of the owner, the shareholders, or the board of directors is the liquidation of the assets.

What is liquidation? Definition and meaning of the term

A liquidation is appropriate if a corporation or a partnership becomes insolvent and should be dissolved as a result. The aim is to make the company's existing assets (e.g. buildings, machines, vehicles) * liquid (liquid) * to meet all liabilities - i.e. to convert them completely into * cash * or other means that can be easily exchanged for cash.

Distribution of the liquidation proceeds

The remaining assets are also called liquidation proceeds. It should

First, cover the claims of the creditors and
are then distributed to the shareholders or go to the owner.

If a surplus remains after the liabilities have been settled, the assets of the dissolved company will be distributed to the shareholders, taking into account any deviating provisions of the articles of association, based on the ordinary shares and taking into account any additional payments made.

The liquidators draw up a final account. The distribution may be carried out at the earliest after one year, counting from the day on which the debt call was issued for the third time. This blocking year serves to protect creditors. Distribution may take place after three months have elapsed if a licensed audit expert confirms that the debts have been repaid and, given the circumstances, it can be assumed that no interests of third parties are endangered.

Each partner is entitled to a share in the GmbH liquidation result, which corresponds to the ratio of the nominal values of his shares to the share capital. If additional contributions have been made and not paid back, their amount is to be added to the shares of the respective shareholders and the share capital. The statutes can provide for a different regulation.

The different types of liquidation

Liquidations can be distinguished based on three factors :

Purpose: If the assets of a company are completely sold and the company is then terminated, one speaks of a material liquidation. In the case of a formal liquidation, on the other hand, the company continues its business activity in a new legal form. To do this, the assets will be transferred to the new company.
Amount of assets: A distinction is made between total liquidation, in which all available assets are sold or transferred to a new legal form, and partial liquidation . The latter only affects parts of the property. Such a settlement process usually leads to a restriction of the company's economic capacity to act without affecting its legal form.
Occasion: As a rule, the liquidation of a company is decided by its shareholders or by the general meeting. In this case one speaks of a voluntary liquidation . A distinction must be made between this and the forced liquidation * by a court order. Sometimes the time of a settlement is already stipulated in the articles of association (§ 131 HGB).

Liquidation: the same as bankruptcy?

When a company slips into insolvency, it typically has two options:

either liquidate its remaining assets,
or file for bankruptcy.

Liquidation is only possible if a company is either terminated regularly (e.g. because it was only intended for a certain period of time) or insolvency is rejected for lack of assets.

Insolvency proceedings can be initiated if the company is insolvent, is threatened with insolvency or overindebtedness becomes apparent. The competent bankruptcy court then provides the company with a so-called insolvency administrator. This ensures that the company, in accordance with the regulations of the Insolvency Code (InsO), is either liquidated or solvent again, i.e. restructured, and resumes normal business operations.

As with liquidation, the company loses all of its assets if it is wound up in the context of bankruptcy proceedings. * However, it remains in its current legal form *. Thus, insolvency always makes sense if a company is to be restructured after a bankruptcy. On the other hand, liquidation comes into question if the termination of a company has already been decided - or if an application for bankruptcy has been rejected by the court because there was not enough money to pay the legal costs.

Complete liquidation of a company: accountability and execution

Before a company can be wound up, it must * first be properly dissolved.

This requires the resolution of the shareholders, who must make it with a three-quarters majority (unless otherwise agreed in the articles of association). The dissolution must then be registered for entry in the commercial register.

The company then becomes a settlement company. This fact is indicated to the public with the addition “i. L. "(" in liquidation ") or" i. Abw. "(" In progress ") marked in the company name.

The liquidator

From then on, a so-called liquidator takes over the settlement process. He must strictly adhere to the applicable laws and should therefore have the appropriate technical competence. As a rule, this role is filled by one of the people who previously ran the company's business - i.e. a board member * or the * managing director * personally. But no matter who takes on the task: The liquidator must * be registered with the commercial register.

There is also the option of appointing an external legal or natural person * as liquidator by means of a clause in the articles of association or a resolution of the general meeting. This then acts on behalf of the management and represents the same (also in court) externally.

The main concern of the liquidator is to generate as many assets as possible * in the interests of creditors, shareholders, and partners. For this purpose, he has full authority to act and can also conclude new contracts if necessary.

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The sequence

How the settlement process is to run is regulated in various laws. Certain special regulations apply to some legal forms, such as a GmbH or a GbR.
The basic process is the same for all liquidations:

Opening balance sheet: The tasks of the responsible liquidator include proper bookkeeping. He has to create an opening balance sheet on the cut-off date of the dissolution resolution. This simultaneously initiates a new invoice section for processing.
Appeal to creditors: In order for any creditors to be able to assert their outstanding claims against the company, they must be informed of their imminent termination. To do this, the liquidator must (once) publish a corresponding announcement in the company's so-called business gazettes. This includes above all the electronic Federal Gazette. However, other media can also be mentioned in the articles of association.
Settlement: The actual settlement process includes not only the termination of all ongoing business of the company but also the collection of outstanding claims. Likewise, all of the company's outstanding debts must be paid. The liquidator can convert the remaining assets into cash if the company's outstanding debts cannot otherwise be settled.
Interim balance sheet (s): If the settlement process takes longer than a year, the liquidator must prepare an interim balance sheet including a management report for each financial year. The latter is intended to give the court insight into the current financial situation and to document that the interests of the creditors and shareholders are being protected.
Closing balance: To complete the detailed bookkeeping, a closing balance is drawn up at the end of the procedure.

The deletion of the company in the commercial register is no longer part of the liquidation process itself: this can only take place as soon as there are no more assets in the company, i.e. the material liquidation has been completed. If this has been confirmed by the registry court, you can register the deletion with the commercial register, which basically leads to the * loss of legal and party capacity * of the company. After this formal liquidation, the liquidator or a third party must keep the books and documents of the company for another ten years so that they can be made available to the tax office in the event of a subsequent examination.

The last step is the payment of the assets to the shareholders of the company - provided that there is still something of the liquidation proceeds after the creditors have been satisfied. However, this step may only take place after a blocking year has expired, which began with the publication of the dissolution of the company and the appeal to creditors. The distribution of the money depends on the nominal shares of the shareholders.