LIQUIDATION – TERMINATION OF A COMPANY AND DELETION FROM THE REGISTER

When is liquidation not possible? Insolvency and bankruptcy

Insolvency of the company

If a company is insolvent, meaning that it does not have sufficient funds or assets that can be sold in order to settle its creditors’ claims, bankruptcy proceedings may be initiated. In such a case, a petition for the opening of bankruptcy proceedings may be filed with the competent Commercial Court. The petition may be filed either by a bankruptcy creditor or by the debtor itself, i.e. the company.

In addition to liquidation and closure, the law provides for other options, including the sale or transfer of the company, the sale of pledged assets, the assumption or transfer of debt, or certain corporate reorganisations that result in the termination of the company without liquidation proceedings.

Basic requirement for initiating liquidation

The basic requirement for initiating liquidation proceedings (i.e. closing down the company) is that the company has sufficient funds and assets that can be realised in order to settle all of its outstanding obligations, both to the state and to private parties, including employees, suppliers, banks and other creditors.

In such circumstances, voluntary liquidation proceedings may be initiated based on a resolution adopted by the company’s shareholders’ meeting by the required majority.
The entire liquidation process is conducted in accordance with the law, with the relevant decisions and changes being registered with the Serbian Business Registers Agency (APR).

The liquidation process can generally be divided into two phases.

Phase I – Registration and publication of the decision to commence liquidation

At this stage, a liquidation administrator must be appointed. A public notice is then published inviting all creditors to submit their claims within the statutory deadline.

What is the deadline for submitting claims in liquidation proceedings?

The notice of commencement of liquidation is published on the APR’s website for a period of 90 days from the date on which the notice is registered.
Creditors may submit their claims no later than 30 days after the notice expires, meaning within a total period of 120 days from the date of registration of the notice.
If a claim is not submitted within this statutory deadline, the creditor may lose the right to enforce that claim against the company in liquidation.

Known creditors must be notified individually in writing and informed of the consequences of failing to submit their claims within the prescribed deadline.

When liquidation proceedings are commenced, the liquidation administrator is registered at the same time. The company’s director and other legal representatives cease to hold their representative authority.

Can the existing director be appointed as the liquidation administrator?

Yes. There is no legal obstacle to appointing the existing director as the liquidation administrator.

The liquidation administrator conducts the liquidation proceedings and represents the company throughout the process. Their responsibilities include preparing the opening liquidation report and opening liquidation balance sheet (extraordinary financial statements), preparing a list of submitted, recognised and disputed claims, completing any ongoing transactions and activities, identifying and recording the company’s assets, settling and paying creditors, proposing the distribution of the liquidation surplus, and carrying out all other activities required by law.

Phase II – Completion of the liquidation proceedings

The second phase begins once all creditors have been paid and the company’s outstanding claims against third parties have been collected or otherwise settled.

Following the settlement of all creditors, the company prepares its final liquidation balance sheet, final report on the completed liquidation proceedings, and a proposed resolution on the distribution of the liquidation surplus.
These documents and resolutions are adopted by the company’s shareholders’ meeting.
The final liquidation balance sheet must be prepared and registered in accordance with the regulations governing accounting and auditing.
Once all legally required actions have been completed and the necessary decisions and documents have been registered, the company is deleted from the Serbian Business Registers Agency (APR) and ceases to exist as a legal entity.

Can liquidation proceedings be discontinued?

Yes. Liquidation proceedings may be discontinued, provided that the statutory requirements are met.
In particular, discontinuation is permitted if all submitted claims have been settled, the employment relationships of the company’s employees have not been terminated, and distribution or payment to the company’s shareholders/members has not yet commenced.

What happens to loans and non-refundable government aid received by the company?

With regard to loan agreements, the commencement of liquidation is generally provided as a reason for early repayment of the loan, subject to the terms and conditions of the relevant loan agreement.

Therefore, depending on the agreement concluded with the bank or other financial institution, the amount and conditions applicable to early repayment of the outstanding loan will need to be determined on a case-by-case basis.
As regards subsidies and other non-refundable funds received under government aid programmes, the relevant agreement normally specifies the period during which the company is required to continue operating in order to retain the funds received. If the company ceases its operations before the expiry of the required period, it may be obliged to repay the non-refundable funds, in addition to settling any outstanding loan obligations, depending on the terms of the relevant programme and agreement.

What is the liquidation surplus and how is it taxed?

Once the liquidation proceedings have been completed, any remaining assets of the company — including movable and immovable property, remaining cash and other property rights — constitute the liquidation surplus.

Is tax payable on the transfer of the liquidation surplus, and how much?

If the liquidation surplus exceeds the value of the capital invested in the company, as determined in accordance with the legislation governing corporate income taxation, a tax liability may arise in respect of income from capital, pursuant to Article 61 of the Serbian Personal Income Tax Law. The applicable tax rate on income from capital is 15%.

In order to successfully complete the liquidation proceedings and close the company, all of the above steps must be accompanied by the appropriate corporate resolutions and filings, which must be submitted to the competent authorities within the statutory deadlines.

Author: Sanja Šarić
Legal Specialist