Reasons for initiating liquidation

Liquidation begins at the end of a certain period, once the purpose behind the formation of the legal entity has been achieved, further to a decision by a body of the legal entity or by a public authority, or by operation of the law.

There are a number of reasons why a legal entity might be dissolved with the liquidation of its assets. First, there is a situation where the period for which the legal entity has been established expires or the purpose for which it was formed has been achieved. It may also be dissolved on a date specified by law, by a legal act on the dissolution of the legal entity, or by a decision of a public authority under conditions laid down by law.

The legal act on the dissolution of a legal entity is usually a decision taken by the entity’s supreme body to dissolve it and liquidate its assets. If the legal entity is a business corporation, a general meeting resolution on the dissolution of the company with the liquidation of assets must be adopted by at least a two-thirds majority of all shareholders, unless the memorandum of association requires a higher majority, and must be certified by notarial deed. If the memorandum of association does not give the general meeting the power to decide to dissolve the company, a shareholder agreement on the dissolution of the company is required.

A court, either on the motion of a person who proves they have a legal interest in the matter or on its own motion, dissolves a legal entity and orders its liquidation if it engages in illegal activity to an extent that seriously disrupts public policy, if it no longer meets the statutory conditions required for a legal entity to be formed, if its statutory body does not have a quorum for more than two years, or on other legal grounds.

The law lays down other reasons for business corporations to be dissolved and have their assets liquidated by a court on the motion of a person who proves they have a legal interest in the matter or on a motion from the public prosecutor’s office, if it finds that there is a substantial public interest in this. These reasons include the fact that a legal entity has lost all its business licences (this does not apply if it has been established to manage its own assets or for a non-business purpose), it is unable to carry out its activities and serve its purpose for more than one year, it is unable to carry out its activities due to insurmountable conflicts between the shareholders, or it carries out an activity which, according to other legislation, can only be performed by natural persons, and does so without the assistance of such persons.

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