Liquidation of a legal entity with debt without bankruptcy

Feb, 25 2020

The liquidation of a legal entity with debt without bankruptcy is a complex multi-stage procedure that should be carried out by qualified lawyers. It requires careful compliance with law. The grounds for liquidation, as well as procedure for the enterprise and its debtors are described in a number of laws, including federal law “On Insolvency (Bankruptcy)”.

To close an LLC with debts to its members or the state is much more difficult than to terminate the activities of an enterprise that has no obligations to third parties. Lenders may at any stage request a suspension of the liquidation of a legal entity with debts, even if bankruptcy is not in question.

When a company is not able to manage the business, there is no profit, but only losses, it is not always possible to declare the LLC insolvent. Particularly, it is not possible if the conditions are not fully described in the law on bankruptcy. However, to continue work is pointless and even dangerous, for the reason that there might be further expenses and losses. What should members do in such a difficult situation?

There are several ways to liquidate a legal entity with debt without bankruptcy. The choice depends on the size of the debt, the reasons for its formation and many other factors. After assessing the financial state of the company, it can be liquidated in one of the following ways:

  • voluntarily – at the initiative of the members;
  • compulsory – by court order;
  • through reorganization;
  • through bankruptcy.

The above methods guarantee that the company will be excluded from the register. However, recognizing a commercial company as incapable of fulfilling its obligations is the worst possible scenario, since it entails a loss of business reputation, increased risks in the future, the likelihood of fines and many other unpleasant consequences.

Voluntary liquidation of a legal entity with debt without bankruptcy

This method of termination of the company’s activity is applied if it is able to pay off its loans. Usually voluntary liquidation of business is a complex and time-consuming process; it requires the involvement of qualified lawyers who will help to resolve all issues in an optimal way, without sanctions and fines. The initiators of the procedure in such a situation are its founders or the executive body authorized by the incorporation document.

Stages of voluntary termination of the company:

1) Decision-making on the termination of a legal entity by its members.

2) Appointment of a liquidation commission.

3) Publication of data on the liquidation of the company in the professional press, notification of each creditor. Lenders have 2 months from the date of publication to submit claims. All interested third parties and enterprises that can make claims shall be entered in a special register. This is an important document, according to which the company will pay debts in future. If lenders have not made a claim before drawing up an interim liquidation balance sheet, the amount of debt is credited to the company’s income. But a notice on the preparation of an interim liquidation balance sheet cannot be submitted to the state body earlier than the deadline that the law assigns to creditors so that they can declare their claims and receive payments. Thus, after the company has paid taxes and fees on the amount of the debt, it is considered repaid.

4) Formation of an interim liquidation balance sheet: a document according to which the company will continue to pay the creditors.

5) Meeting creditor’s demands.

6) Formation of the liquidation balance sheet. It is composed by the liquidation commission in the period from the moment of satisfying the claims of the creditors until the date of making a record in the register on the termination of the company. In order to successfully stop the work of the company, the liquidation balance sheet should be “zero” and also approved by members of the legal entity.

7) Submission of documents to the tax authorities. The list of documents includes a statement, liquidation balance sheet, receipt of payment of state fee and document confirming the submission to the Pension Fund of the Russian Federation of information on the termination of the enterprise. Only after completing all the formalities and the appearance of a registration entry can be assumed that LLC or other business entity has officially ceased to exist. How much the procedure will cost and how long it will take depends on the circumstances and qualifications of the lawyers conducting the process.

Compulsory liquidation of a legal entity with debt without bankruptcy

According to Art. 61 of the Russian Civil Code, compulsory terminate the existence of a business is possible only by court order. A state body or a local government body can file a suit to a court. In practice, a court decision may impose obligations on the liquidation of the company on its members or state authorities that can work with the incorporation documents. From the point of view of professional reputation for entrepreneurs, this is not the best option, but frequently the optimal.

State bodies who can file a lawsuit on the compulsory liquidation of a legal entity with debts without bankruptcy:

  • registration authorities;
  • prosecutor’s office;
  • tax authorities;
  • antitrust authorities;
  • Central bank.

Reorganization as a method of liquidation of a legal entity with debts without bankruptcy

Company can be saved by reorganization. Russian laws provide for the following methods of liquidation of a legal entity with debts without bankruptcy: merger, consolidation, split-up, spin-off, transformation. In any case company ceases to exist but may become a part of another enterprise. It is not obligatory to liquidate business directly and members keep being liable for the business’s debts and activity. However, in any case it is necessary to notify the creditors who have a right to stop the process of liquidation.

One of the most effective methods of liquidation of a legal entity with debts without bankruptcy is merger. Decision on reorganization is making during the general meeting of members. Further, the procedure is as follows:

  • notify the state registration authority of the start of the reorganization process;
  • carry out an inventory;
  • publish in the media reports on the reorganization through merger: twice with a frequency of once a month;
  • notify creditors of an upcoming reorganization in the form of a merger;
  • draw up a deed of transfer;
  • pay state fees.

According to article 58 of the Civil Code, when a legal entity joins another legal entity, the rights and obligations of the merged company are transferred to the latter. This can significantly simplify credit burden – in case if another company takes such a step.

Bankruptcy

Option of liquidation of a legal entity with debt without bankruptcy is better than publicly declaring business insolvent. However, sometimes such an unpleasant procedure as bankruptcy cannot be avoided, and this is the best way to end a business. It is necessary to be patient: the process may take 2 to 4 years. Each stage of the termination of the company through recognition of its insolvency can last about a year.

For the members of the LLC there are good news: when declaring a business bankrupt, they do not risk their own property. Grounds for declaring a company bankrupt:

  • inability to pay off debts;
  • inability to pay severance pay and wages;
  • failure to fulfill financial obligations after three months.

Our services

VALEN will help to carry out the liquidation procedure of a legal entity with debt without bankruptcy efficiently and quickly. We offer comprehensive support for a business that is planning or has already suspended its activity. Our qualified lawyers will help you draw up documents, submit them to state authorities, get the necessary certificates and permits. We will do everything in a short time, with minimal risks for the enterprise, even if the situation is unfavorable.

We can also give you detailed consultation on issues related to the liquidation of a legal entity with debts, but without bankruptcy. Please contact us via our website or phone: +7 (495) 7-888-096.