Liquidating a business issues in germany
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However, the law gives priority to secured creditors those with a charge over some of the company's property as security for the debt. In addition, a number of rules exist to prevent one or more creditors from gaining an unfair advantage. Voluntary liquidation by shareholders' resolution Voluntary liquidation refers to the process whereby the shareholders appoint a liquidator, who is then answerable to the creditors or shareholders. It is not necessary to make any application to the court for this; however, the liquidator may apply to the court for directions and the court has power to remove a liquidator. A voluntary liquidation may also by commenced by the board of directors if an event specified in the company's constitution has occurred.
Voluntary liquidation may be in one of two forms, depending on whether or not the company is solvent. If the company is solvent the shareholders can supervise the liquidation. However, if the company is insolvent, the creditors may take control of the liquidation process by applying to the court. The court will require proof of solvency or insolvency to determine this matter. Compulsory liquidation by court order Compulsory liquidation of a company requires obtaining a court order. This process starts with an application to the court alleging that one or more of the required grounds exist. The application may be brought by the company or a majority of its directors, or by the Registrar of Companies, or by a creditor.
Applications by creditors are by far the most important and common. Applications may be brought on a number of grounds, the most important being that the company is unable to pay its debts. There are a number of factors that the court will take into account when deciding whether or not to make a compulsory liquidation order. The court has a discretion as to whether or not to make the order. Duties of the liquidators Once notified to the German Trade Register, the liquidators become the legal representatives of the company. Their main task of is to wind-up the company's business and to pay all liabilities.
They can take whatever action is necessary and appropriate for this purpose. Announcement of liquidation The liquidators have to announce the company's liquidation in the German Electronic Federal Gazette and to appeal to the company's creditors. At least one year from the date of appeal to the creditors must have elapsed before the company can be de-registered in the German Trade Register. Before the company's remaining property can be distributed, the operation of the GmbH can be carried on but only under the changed company objectives and purpose as per the shareholder's decision.
Distribution of remaining property After the restrictive year has passed and the company's affairs have been concluded, the remaining property can be paid out to the shareholders. This is called the liquidation ending. Ending The liquidation ending has to be notified to the German Trade Register.
Certain legal relations are terminated automatically, such as instructions and powers of attorney, profit and loss agreements. Any contracts which are not fully implemented can either be fulfilled bisiness the insolvency administrator or rejected. If the administrator rejects fulfilment, any claims of the other party are unsecured insolvency Liqjidating. In buisness, long-term agreements such as property leases, remain in force and cannot be terminated by buskness other jssues on grounds of the insolvency only. Claims arising before the insolvency opening can only be filed as issuees claims. Any claims arising after the opening of the proceedings can be claimed from the insolvency mass as a privileged claim.
However, the insolvency administrator may terminate such agreements early in order to free the insolvency estate from disadvantageous liabilities. The possibility of a set-off for a creditor may be affected by the opening of insolvency proceedings, depending on when the claims subject to the set-off become due and how they were acquired. Is any protection given to rescue financing? Granting a loan to a company in financial distress bears risk as the lender may be liable towards other creditors for delaying its insolvency filing if it had no chances of a successful restructuring. In a formal insolvency proceeding, the insolvency administrator may take up a loan, if he deems such loan can be paid back from the insolvency mass.
Such loan repayment claims are qualified as privileged claims. The administrator may take up loans and incur privileged insolvency claims during preliminary insolvency proceedings with prior authorisation of the court. The German Employment Agency pays all employee salaries for a period of up to three months between insolvency filing and the opening of insolvency proceedings. The insolvency administrator can therefore only continue to employ staff if the insolvency mass is sufficient to pay the salaries, social security contributions, loan taxes, etc.
The trials of the configuration parameters come to an end germanu a lien is iterative. Secured creditors may under sale adjustments directly enforce into their assets e.
gemrany Insolvency Procedures 4. Solvent liquidation can be resolved by the shareholders. The debtor company Liquidaating then wound down, i. Solvent isxues is only possible if all liabilities can be met. If the debtor does not have sufficient funds for a solvent liquidation, it must file for insolvency as soon as an insolvency reason exists see section 3 above. See section 2 above. The managing directors issue a company are obliged to file for insolvency if an insolvency reason exists. Creditors are also entitled to file for Liquidatingg, but Liqjidating stricter requirements.
In a solvent liquidation, a liquidator is appointed by the shareholders. This liquidator can be the former managing director of the company. The liquidator manages the winding up of the company until no liabilities remain and it can be deleted from the commercial register when it ceases to exist. The creditor committee and creditor meeting approve the important decisions, and the insolvency court monitors the proceedings see question 3. Are there any restrictions on the action that they can take including the enforcement of security? Shareholders are in full control of the company during a solvent liquidation and creditors have no special rights as all claims will be fully satisfied.
In an insolvency proceeding, shareholders generally lose control over the debtor company. The insolvency administrator or custodian takes over the management and disposal of assets completely, including the realisation of security. The creditor assembly resolves via majority votes on major issues, i. It can also dismiss the insolvency administrator and appoint or dismiss the creditor committee. The creditor committee has additional tasks and rights and may request detailed information from the administrator or custodian and actively participate in the decision making regarding the management of the debtor.
The creditors therefore have a clear influence on the proceedings and can instruct to, or prevent the administrator from, taking actions that the creditors do not agree with. See question 3.
Germany Liquidating issues a business in
Issuws creditors I: Creditors with full title to an asset can claim for the asset to be separated from the insolvency mass and handed over to them. They do iLquidating have to participate in the insolvency proceedings. This is, for example, the case for creditors with retention of title claims. Secured creditors II: Creditors with other security rights e. The insolvency administrator will liquidate such assets, separate the proceeds and pay them out to the secured creditor. Privileged creditors: Creditors which have made agreements with the insolvency administrator, e.
The insolvency administrator is personally liable for these claims.
Unsecured creditors: In practice, unsecured creditors only receive a small quota on their insolvency claims. Subordinated creditors: These are usually shareholder loans or similar claims as well as claims for interest, etc. In the framework of liquidation procedures, the debtor company is usually liquidated and deleted from the commercial register. After deletion, it ceases to exist. However, in insolvency plan proceedings, when the insolvency plan is fully implemented and no new insolvency reasons exist, the company continues to operate and exist. If the insolvency reason is removed for other reasons e. Tax 5. In principle, tax laws do not provide special provisions for insolvency.
Particularly, there are no exceptions regarding the payment of VAT, wage, income, corporation and capital gains taxes. Usually in complex proceedings, a tax opinion from the competent tax authority is requested to mitigate tax risks, especially those arising in connection with the debt restructuring. Employees 6. Employment agreements remain valid, irrespective of an insolvency filing or the opening of insolvency proceedings. The insolvency administrator or custodian may terminate employment agreements with a notice period of three months unless the employment agreement provides for a shorter term.
If the business is continued, the standard rules apply for termination of employment agreements. Also, works councils have to be involved. When mass terminations are necessary, the insolvency administrator must negotiate and agree on a social plan for the employees which will usually provide for compensation payments to the employees privileged claims. In a business transfer, all employees of a business automatically transfer to the acquirer.