Liquidation of the company is a procedure regulated by the Companies Act and represents the termination of the existence of a joint-stock company and a limited liability company, including a simple limited liability company. Liquidation, as a regular procedure for a dissolution of the company, is carried out when the company can settle all its possible liabilities to creditors from its assets, unlike bankruptcy proceedings.
The liquidation procedure is more complex than the establishment of the company in terms of the administrative part, and all steps are prescribed in detail. Until the very end of the liquidation, i.e., until the deletion of the company from the register kept by the competent court, the company is obliged to pay VAT and profit tax.
Liquidation is carried out by a liquidator who is obliged to register in the court register and represent the company in the liquidation process. According to Article 371 of the Companies Act, the liquidation of a joint-stock company is carried out by members of the management board, i.e., executive directors as liquidators.
The liquidation procedure can be carried out when the reasons for the termination of the company regulated by Article 97 of the Companies Act arise, however, there are exceptions in which liquidation is not required:
- opening bankruptcy proceedings against the company,
- merger and acquisition with another company,
- in case the company has no assets.
The liquidation procedure of the company is carried out in the following six steps:
1. MAKING A DECISION ON TERMINATION OF A COMPANY
The decision on the termination of the company is made by the members of the company, which must be made with votes representing at least 3/4 of the share capital represented at the general meeting of the company when making decision. The decision on the dissolution of the company is published on the website where the court register is located.
2. MAKING A DECISION ON LIQUIDATION AND APPOINTMENT OF LIQUIDATORS
After the decision on the dissolution of the company has been made, the commercial court decides on entering the opening of the liquidation procedure of the company in the court register. After the decision to open the liquidation of the company is entered in the court register, the company must be marked “in liquidation”. With this act, third parties will become aware of the changes within the company. Although the liquidation procedure has been initiated, the same does not mean that the company’s tax liabilities cease.
Liquidation of the company is carried out by members of the management board as liquidators, but other persons, natural or legal, may also be appointed as liquidators. The liquidator shall hold his role until the liquidation is completed unless he resigns before his completion, or his appointment is revoked. The revocation may be made only by the person who appointed him, i.e., the members of the company.
3. INVITATION TO CREDITORS
After entering the decision on the dissolution of the company into the court register, the company’s creditors must be invited to submit their claims. The invitation must be published in the company’s bulletin if the company has one and on the website of the court register. In the invitation, it is necessary to indicate that the creditors report their claims to the company within 6 months from the date of publication of the invitation, or 2 months from the date of publication of the invitation at j.d.o.o.
4. ACCOUNTING AND TAX LIABILITIES
As the first accounting step, the company is obliged to close business books on the day preceding the day of entry of the liquidation procedure in the court register, after which the initial liquidation financial statements are formed on the day of entry in the court register. Given that very often liquidation is a lengthy process, we emphasize that during the liquidation it is necessary to submit financial reports to FINA for statistics and public disclosure. At the end of the liquidation, it is necessary to submit final liquidation reports.
5. MAKING A DECISION ON THE DIVISION OF THE COMPANY’S PROPERTY
When deciding on the division of the company’s assets, creditors have an advantage over the company’s members. The members of the company will receive only the value of the property that remained after the settlement of the company’s obligations. After dividing the assets, the liquidators submit the final financial reports and the report on the liquidation to the members of the company and the court application for registration of deletion of the company from the court register.
6. COMPLETION OF THE PROCEDURE (LIQUIDATION) AND DELETION FROM THE COURT REGISTER
The company is terminated by deleting it from the court register while the business books and documentation are handed over for safekeeping to the Croatian Chamber of Commerce. The corporate income tax return must be submitted to the Tax Administration within eight days after the completion of the liquidation. It should be noted that the company does not pay advances of corporate income tax from the beginning to the end of the liquidation, but on the day of submission of the PD form, it falls due to the obligation of the tax on liquidation profit.
Termination of the company without liquidation – short procedure
According to the amendments to the Companies Act from 2019, the company may be dissolved under the shortened procedure without liquidation if all its members unanimously decide on such termination of the company. The decision on the dissolution of the company contains:
- name, seat, OIB, and registration number of the company that ceases to exist;
- total number of the members of the company, names and surnames, residence, OIB of each member; and
- plan for the distribution of the company’s assets.
All members of the company are obliged to give statements:
- that the company has no outstanding liabilities;
- that the company has no disputed, or overdue liabilities to its creditors; and
- that each member undertakes to settle, together with other members of the company, all remaining liabilities, if they will be determined.
The decision on the dissolution of the company and the statement are made in the form of a notarial deed and are reported to the registration court for the purpose of entering into the court register. The application is supported by the above documentation (decision and statements) and a certificate from the Tax Administration that the company has no debts. After fulfilling the above, the registration court decides on the termination of the company by shortened procedure without liquidation and as such is entered into the court register. Members of the company, creditors, and state bodies have the right to file a complaint within 30 days, and if the court finds that the complaint is valid, the procedure must continue in the form of liquidation, under the provisions of the Companies Act. If there are no objections, or the existing ones are rejected, the registration court decides on dissolution of the company.
A company that is dissolved by shortened procedure without liquidation is obliged to compile for the period from the first day of the business year to the day of entry of the company’s termination in the court register:
- Annual financial report – form GFI-POD and submit it to FINA, and
- Corporate income tax return – PD form and submit it to the Tax Administration.
The business books and documentation of the company that was terminated under the shortened procedure without liquidation are handed over for safekeeping to the Croatian Chamber of Commerce.
