Traditional liquidations involve three steps. The first is when the shareholders hold an extraordinary general meeting deciding to open the liquidation and appoint a liquidator entrusted with the necessary powers to carry out the process. The second step is when the shareholders hold another general meeting (the so-called “second GM”) in order to acknowledge the report prepared by the liquidator summing up all actions taken during the liquidation period, and to appoint an auditor who reviews it and in turn issues a report. The third and final step (the so-called “third GM”) is when the shareholders decide to approve both the liquidator and auditor’s reports and close the liquidation.
One-step dissolution: oftentimes easier and budget-friendly
The Law of 10 August 2016 modernizing the Company Law of 10 August 1915 introduced a simplified dissolution procedure, i.e. a one-step dissolution that does not require the appointment of a liquidator and an auditor. This option is only available if there is a sole shareholder to whom all of the assets and liabilities of the company are transferred as a consequence of its dissolution. This option also requires the obtention of three certificates stating that the company is in compliance with tax, VAT, and social security obligations as well as declarations, and payments. These certificates are issued by the respective administrations upon request.
Obtaining the three above-mentioned certificates sometimes can be quite straightforward, especially if the company has no employees and is not VAT-registered, and to the extent the company has filed its tax returns and paid its tax debts and tax advances on time. In other cases, delays in filing tax/VAT returns or taxes remaining to be paid could entail the non-obtention of one or more certificates, jeopardizing the possibility to opt for a simplified dissolution within the expected deadlines.
‘Obviously, the advantage of the one-step dissolution is that it can be simpler and cost less. However, it can present a certain degree of risk because the sole shareholder takes over not only assets and liabilities, but also rights responsibilities, and engagements. This means, for instance, that if there are ongoing litigations or tax issues to be resolved, possibly in other jurisdictions, these will fall into the lap of the sole shareholder.’ -Alessandro Bertonazzi, Managing Director, Value Partners S.A.
The value of involving a liquidator
Following the three-step liquidation process could better prepare the shareholders for hitherto unforeseen issues, such as making sure that all the agreements that are in place with third parties are formally terminated, for example. Generally speaking, liquidators, who have experience in that field, have a global view on all the tasks to be performed before the closure of the liquidation. This is why the appointment of a liquidator in certain cases may be preferred over a one-step dissolution.
Planning in advance is crucial
No matter what, Mr Bertonazzi and Mrs Him strongly advise clients to plan the liquidation process well in advance of the date by which it is supposed to close. Preparation involves obtaining all the financial information about the entity, its potential remaining subsidiaries, activities, liabilities, and assets, both in Luxembourg and in foreign jurisdictions, and these tasks require time. If you identify legal and tax issues early enough, you can deal with them in a timely manner and meet a liquidation deadline. This way, so-called unforeseeable issues become quite foreseeable.
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