Company Liquidation Process: liquidation body and key operations

Company Liquidation Process: liquidation body and key operations

The dissolved company still needs an organizational structure, which remains dual: on the one hand, the general meeting of partners; on the other hand, a body equivalent to the administrative body, which is replaced by a specific liquidation body. 

The liquidators are the management and representative body of the dissolved company, and occupy a legal position similar to that occupied by the administrators in the previous period. The management body and the liquidation body are therefore incompatible. Therefore, upon dissolution, the directors cease to be directors and the liquidators are appointed as a replacement body, whose regime is governed by the rules applicable to the directors unless they are in conflict with their own specific rules. The structure of the administrative body can, in this sense, replicate the possibilities offered in this respect by the administrative body. 

The appointment of liquidators may be regulated by the bylaws. But in the absence of statutory provision, the rule of appointment states that the appointment corresponds to the general meeting. 

What is undesirable is that the body remains vacant, either by silence of the bylaws, or by lack of pronouncement of the general meeting, and for this purpose it is foreseen:

• An automatism consisting of the conversion into liquidators of those who were administrators of the company at the time of dissolution, without the need for any special requirement of designation or acceptance.
• The judicial call of a general meeting for the appointment of the liquidators, in the cases in which the existing liquidation body becomes inoperative for any reason.
• The appointment of the judge himself when the same is not made by the meeting. Although the appointment is made for an indefinite period of time and until the extinction of the company, the liquidators may be removed ad nutum, at any time by the general meeting, without the need for the removal to be included as an item on the agenda.

There is, however, a specific cause for dismissal due to undue prolongation of the liquidation: “After three years from the opening of the liquidation without the final liquidation balance sheet having been submitted for approval by the general meeting, any shareholder or person with a legitimate interest may request the court clerk or the Commercial Registrar of the registered office of the company to dismiss the liquidators” (art. 389.1 LSC).

The functions of the liquidators are usually separated into functions of mere internal management and functions of external representation. Both are always preordained to the extinction of the company, preserving the rights of creditors and partners. 

The liquidation operations are composed of a series of acts of patrimonial transcendence that, depending on the cases, can have a conservative function or a dispositive function. They can be systematized as follows: 

1. Conservation of assets and rights. In order to ensure the success of the liquidation and the maximization of the rights of creditors and shareholders, the liquidators must ensure the integrity and conservation of the corporate assets during the liquidation period. The duty of conservation does not imply a prohibition of alienation, but rather a requirement to maintain the value of the assets, which will sometimes justify the alienation of certain assets and rights to avoid any impairment of their value.
2. Duty of accounting. The liquidators are obliged to keep the company’s accounts (art. 386 LSC), and in particular to draw up an inventory and an initial balance sheet of the company at the time of commencement of the liquidation. In the event that the liquidation lasts longer than the period foreseen for the approval of the annual accounts, they are obliged to present the company’s annual accounts to the general meeting within the first six months of each financial year, together with a detailed report on the state of the liquidation.
3. Pending operations and new operations. Apart from concluding the operations initiated and not completed at the time of dissolution of the company, the liquidators may carry out new operations if they are necessary for the liquidation.
4. Collections and payments. The liquidators must collect the company’s claims against third parties and pay the company’s debts.
5. Disposal of corporate assets. The dispositive function of the liquidators’ actions is the disposal of the corporate assets by the liquidators, by the procedure they consider most appropriate to maximize the sale price. In short, it is a matter of converting the assets into cash and thus facilitating the payments and the distribution of the remainder among the partners. 
6. Representation of the company in lawsuits, transactions and arbitration, when this is in the company’s best interests and for the purposes of liquidation.