Company liquidation step by step – how to close a business in Poland in a secure manner?

This article answers the following questions:

• How to liquidate a limited liability company?
• What are the grounds for opening company liquidation?
• What are the stages of company liquidation?

Liquidation of a limited liability company is a formal process of winding up its business activity which is concluded in the entity being struck off the register of entrepreneurs of the National Court Register (Polish: Krajowy Rejestr Sądowy – KRS). It mandates carefully planned and meticulously executed operations in compliance with the provisions of the Polish Commercial Companies Code of 15 September 2000. Even though it is typically a difficult decision to make, it is worth considering in order to close the business in a secure manner and protect the interests of shareholders and creditors alike. So, when should you decide to take this step and how to approach the entire process in order to satisfy all the statutory obligations and avoid additional expenses? Below, you can find the most important information to remember when closing a business in Poland.

What are the most common reasons for liquidation of a limited liability company?

Company liquidation is a process which can be initiated on statutory, contractual, or other legal grounds. It must be remembered, however, that the appearance of any of the following prerequisites does not automatically close the business, but only initiates the liquidation procedure.

The most common reasons for liquidation are: 

• expiry of the time for which the company was incorporated,
• loss of the permit or licence required for conducting the business activity,
• achievement of the set business purpose (if it arises from the articles of association),
• loss of financial liquidity,
• differences between shareholders (which are irreconcilable) as to the vision of the conducted business activity,
• declaration of bankruptcy issued by the bankruptcy court,
• other legal grounds: absence of articles of association, incapacitation of the persons signing the articles of association, unlawfulness of the objects prescribed in the articles of association, absence of relevant provisions regulating the company’s operations in the articles of association.

What steps need to be taken in the company liquidation process?

The company liquidation process is regulated in Chapter 6 of the Polish Commercial Companies Code of 15 September 2000, in particular Articles 270 through 290, which specify a number of formal requirements which must be met during the entire process. 

However, it is worth noting that the Code does not set out these requirements in the form of a "step-by-step" list. Therefore, entrepreneurs can have a sense of security at every stage of the liquidation process thanks to the services and support of a qualified corporate advisory expert, whose experience ensures reduction of legal risk, optimisation of financial settlements, and protection of entrepreneurs' reputation.

Step 1: Adopting a resolution on the dissolution of the company and on the opening of liquidation proceedings

The first step is the adoption of a resolution of the general meeting on the dissolution of the company, which requires the form of a notarial deed and a two-thirds majority vote. The same notarial deed provides for the appointment of liquidators, who are typically management board members or third parties indicated by shareholders (if this option is allowed in the articles of association). It also happens that liquidators are appointed by the court. 

The liquidators' obligations are to wind up the current affairs of the company, collect debts, liquidate the assets, and satisfy or secure potential creditors.

Step 2: Reporting the opening of the liquidation to the registry court

The following information must be reported to the registry court: 

• opening of the liquidation of the company,
• liquidators' names and their delivery addresses,
• manner of representation of the company in the course of the liquidation,
• any other changes in this respect.

The company must also modify its name by adding the designation "w likwidacji" (in liquidation), which is an important piece of information for its business partners and other stakeholders.

Step 3: Issuing an announcement in the Court and Economic Gazette

After the resolution is adopted, the liquidators are obliged to issue an announcement about the opening of the liquidation in the Court and Economic Gazette (Polish: Monitor Sądowy i Gospodarczy), summoning creditors to put forward their claims within three months from the publication date.

Step 4: Preparing an opening of liquidation balance sheet

In the course of the pending liquidation proceedings, the liquidators of the limited liability company are obliged to organise the assets of the company. An important element here is preparing an opening of liquidation balance sheet, which is a document presenting the current financial situation of the company. It constitutes the basis for further actions, such as debt repayment or asset distribution.

Step 5: Winding up the current affairs and debt repayment

The company in liquidation may conduct its activities only within the scope necessary to wind up its current affairs, to the exclusion of any new business ventures. During this time, the liquidators collect debts owed to the company, repay debts owed by the company, secure creditors, and liquidate the assets of the company. After all the debts have been repaid, the remaining assets are distributed among the shareholders on a pro rata basis to their shares in the share capital.

Step 6: Fulfilling the obligations to keep documents during the liquidation process

In the course of the liquidation process, the company must carry on its bookkeeping and remain in compliance with reporting obligations. In particular, it is necessary to properly secure all corporate (payroll, tax, and accounting) documents, which must be deposited for safekeeping to a professional archive after the company has been successfully struck off the register of entrepreneurs of the National Court Register.

Step 7: Preparing a liquidation report

After all the activities have been completed, the liquidators prepare a liquidation report which presents the final financial position of the company and ultimately closes the books. The report is subject to approval by the general meeting and registration with the Financial Document Repository (Polish: Repozytorium Dokumentów Finansowych – RDF).

Step 8: Applying to strike the company off the National Court Register

The company liquidation process is concluded with the application to strike the company off the register of entrepreneurs of the National Court Register. Before applying, it is imperative to pay off all public debts and secure potential creditors' claims. If these formal and substantive conditions are fulfilled, it is possible to terminate the legal existence of the company by striking it off the register.

Step 9: Removing the company from other registers

The National Court Register is not the only one – the entity must also be removed from tax (VAT), social security, and other records which it has been registered with.

Summing up: what is important to remember when closing a business?

The opening of company liquidation makes it possible to avoid further costs of running the business and wind up the company in a lawful manner, securing the shareholders against legal or financial liability. Despite the fact that the individual steps are fairly precisely defined in the Polish Commercial Companies Code, entrepreneurs often make mistakes in the course of liquidation, which may obstruct or delay the whole process and lead to serious consequences. The most common mistakes observed by corporate advisory experts include:

• lack of the notarial-deed form of the resolution on the dissolution of the company (making all further activities ineffective),
• improperly issued announcement in the Court and Economic Gazette or its complete absence (in both cases, creditors are not formally notified of the liquidation, and that may lead to the court suspending the liquidation or rendering it invalid),
• lack of a liquidation report (preventing adequate accounting for the company's assets and exposing the liquidator to civil liability),
• failure to prepare the final liquidation report (leading to rejection of the application to strike the company off the register and continued formal existence of the entity),
• non-fulfilment of the obligation to remove the company from the social security and VAT registers (causing overdue tax and social security liabilities and potential enforcement proceedings against the company or its liquidators).

Summing up, each liquidation stage is mandatory, and the omission of any of them involves adverse consequences: invalidity of the liquidation, liquidators' liability, and additional expenses and penalties. To be safe from harm when closing your business, it is worth coordinating this process with our experts, whose rich experience in advising local and international entrepreneurs helps them to correctly identify the biggest problems and perfectly understand the most important needs. Feel free to contact us.