Czech Republic

Dissolution and Termination of a Company by Liquidation, Step by Step

There are many factors that may precede the termination of business or dissolution of a company and its subsequent liquidation. However, these need not include failure, losses, or other business issues. For example, a company may be liquidated when it completes the purpose for which it was created and which is set out in its memorandum of association; after the period for which it was established expires, if it was established for a fixed period; or if the prospect of the liquidation balance is more expedient for the shareholders than the continuation of business activities. If you have already decided to dissolve your company, be prepared for the fact that the liquidation process can be administratively demanding. It is necessary to observe statutory deadlines and to coordinate the entire process from the legal, accounting, and tax perspectives.

Liquidation is governed by the Business Corporations Act and the Civil Code, both of which must be followed in the liquidation process. Pursuant to Section 187 of Act No. 89/2012 Sb., liquidation is defined as follows:

“Liquidation aims to settle the property of the terminating legal person (liquidation estate), to pay the debts to the creditors, and dispose of the net property balance resulting from the liquidation (with liquidation balance) according to the statute.”

From the Liquidator’s Perspective

A natural or legal person may be appointed a liquidator of a company; the liquidator is legally accountable for the liquidation process and the due fulfilment of the company’s obligations. The goal of the liquidator is to ensure that the course of liquidation proceeds adequately, that the liquidation balance is as high as possible, and that all creditors are satisfied.

The liquidation process is time-consuming, with a minimum duration of four months; however, this is only if the company is dormant and has no employees or other obligations. The liquidation period depends primarily on the size and current status of the company; on average, it takes six to 12 months, or even several years in more complicated cases.

From our experience, possible hindrances may include inspections by the Czech Social Security Administration or health insurance companies in connection with the cancellation of the employees’ registration with these institutions or the cancellation of the company’s bank account prior to deletion. This may occur in the event that access to the account has been terminated or if the liquidated company no longer has its own banker. These complications do not necessarily prolong the liquidation process, but they require additional administration and cooperation of the liquidator with the authorities.

After the formal dissolution of a company, appointment of the liquidator and entry into liquidation, there are several steps the liquidator must take:

  • preparation or supervision of the preparation of extraordinary financial statements and filing tax returns
  • obligation to inform the creditors of the company’s entry into liquidation through the Commercial Bulletin
  • overseeing the realisation of the company’s assets and satisfaction of any creditors’ claims
  • overseeing the settlement of all contractual relationships
  • preparation of the liquidator’s final report and distribution of the liquidation balance
  • overseeing the payment of the liquidation balance and settlement of bank contracts and obligations
  • repeated preparation or supervision of the preparation of extraordinary financial statements and filing tax returns
  • obtaining consent from the relevant state authorities for the company’s deletion from the Commercial Register
  • ensuring the deletion of the company from the Commercial Register

The liquidator’s final report, mentioned above, must also be published in the collection of documents of the Commercial Register, and an original copy must be presented to the court when the company is deleted from the Commercial Register.

What can we help you with?

Our experienced Corporate Services team, in cooperation with the Accounting and Tax departments, will guide you through the entire process in the shortest time possible – starting with the preparations prior to the entry of the company into liquidation and the liquidation itself, up to the deletion of the company from the Commercial Register.

As a standard procedure, we provide a liquidator, who acts on behalf of the company during the liquidation process and coordinates the liquidation process in its entirety. We inform our clients of the status of the liquidation process regularly and provide them with an up-to-date timetable, which always shows them what stage of liquidation they are currently in. In order for the whole process to run as smoothly as possible, we need the cooperation of our clients in providing the required documentation for the due planning of the steps leading to the company’s entry into liquidation. The cooperation results in the due termination of all activities and the subsequent deletion of the company from the Commercial Register, all in full compliance with the law.