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A sequence of legal facts and procedures must be followed to close a company:

 

Winding up

Winding up is the procedure through which the company decides or recognises that it should close down.

 

Causes of winding up

The causes of winding up can be:

 

Causes of immediate winding up

Winding up is immediate on the occurrence of one of the following facts:

1. Deadline established in the articles of association.

A company has unlimited duration by default, though the members can define the duration in the articles of association. In any case, once the term has ended the members can agree to extend or eliminate the limited duration before it expires, or even decide to bring a company in the process of winding up back into business.

2. Resolution of the members.

In private limited companies, the resolution to wind up the company must be passed by three-quarters of the votes of the total capital, unless the articles of association establish a higher majority or other requirements.

3. Complete fulfilment of the corporate object.

If the company´s object is completely fulfilled, then the company has no further reason to exist.

4. Supervening illegality of the company´s object.

The illegality must encompass the entire object.

5. The company is declared insolvent.

Insolvency is decided by a law court and as such the company must wind up its activities and go into liquidation, in order to pay off its creditors to the extent possible.

6. Other facts established in the articles of association.

The articles of association can define other occurrences that cause immediate winding up.


In the event of immediate winding up as described in 1, 3 and 4 of the previous paragraph, the members may resolve to consent to winding up by a simple majority, and any member, successor of a member, or company creditor may file for notarial justification or for simplified justification proceedings relative to winding up.

 

Causes of administrative winding up

A request for the administrative winding up of a company may be submitted in the cases defined in law or in the articles of association, and whenever:

  1. The number of members is smaller than the minimum legal requirement for a period of no less than one year, except if one of the members is a public legal person or an entity that is legally comparable thereto. The members can request that a reasonable term be provided them to remedy the situation, suspending the winding up of the company;
  2. When the corporate object becomes impossible to fulfil;
  3. When the company has not performed any business activity for two consecutive years;
  4. When the company´s business is substantially different from that stated in the articles of association;
  5. The winding up procedure will not be ordered if the infringement is corrected while the procedure is pending;
  6. When a natural person is the member of more than one single member limited company;
  7. When a single member limited company has another single member limited company as its sole member;
  8. Other circumstances established in the articles of association;

In any of these cases, the members may wind up the company based on a past fact by absolute majority of the votes cast at a general meeting.

The company can apply for administrative winding up through its members, respective successors and creditors, by means of an application to that end in the competent Company Registry Office.

 

Causes of enforced winding up

If the interested parties do not initiate administrative winding up proceedings then the appropriate registration service should enforce such proceedings whenever:

  1. The company has not filed its financial statements for a period of two consecutive years, and the tax authorities inform the registry service that the company has not filed its income tax return for an equal period;
  2. The tax authorities inform the appropriate registry service of a lack of company activity, as defined by the provisions of the applicable tax legislation;
  3. The tax authorities inform the appropriate registry service that the company has filed a declaration of cessation of business, under the terms of applicable tax legislation.

 

Form of Winding up

Generally, company winding up resulting from a resolution adopted at the general meeting is not subject to any special form. The management or the receivers must petition that the winding up be registered by the appropriate service. Any member may file this request at the cost of the company.

 

Liquidating companies

At the end of the winding up procedure the company is immediately placed in liquidation. This aims to finalise pending business, pay off debts, collect from debtors and share out the surplus resulting from liquidation amongst the members.

As a general rule, a company in dissolution will maintain its legal personality, except when otherwise stated by law or when the formality of liquidation requires otherwise, and will remain subject to the provisions, including any necessary adaptations that govern operational companies.

A dissolved company must add "company in liquidation" or "in liquidation" to its business name and appoint the receivers.

 

Liquidation can be performed in one of the following ways:

Immediate distribution
If upon the date of winding up there are no outstanding debts, or if the outstanding debts are only of a fiscal nature (and are not made payable on the date of dissolution) members may proceed immediately to the distribution of assets.

Tax debts that have not yet come due on the date of winding up do not impede immediate distribution. However, in such an event, all of the members remain jointly and severally liable to an unlimited extent for these debts.

Legislation establishes a special procedure of immediate cessation of a company´s existence that involves the winding up and liquidation of a company with no assets or liabilities to liquidate, and which has been unanimously approved.

 

Global assignment

All of the assets and liabilities resulting from the liquidation of the company may be assigned to one or more of members, when the remaining members are compensated monetarily, so long as written consent is provided by all of the company´s creditors; if provided for in the articles of association, being the others paid with cash.

Tax debts that have not yet come due on the date of winding up do not impede global assignment. However, in such an event, all of the members remain jointly and severally liable, to an unlimited extent, for these debts.

 

Operations preceding liquidation

The management has 60 days to organise and approve the company´s financial statements up to the winding up date. If it fails to do so, the responsibility falls on the receivers.

 

Duration

Liquidation must have terminated and the distribution of assets been approved within two years of the company´s winding up date. This period may be extended for a maximum of one year, always by means of company resolution.

A shorter time period may be defined in the articles of association or by resolution of the members.

If the time periods are not complied with, the registry office must compulsorily initiate administrative liquidation procedures.

In the event of administrative liquidation, the time limit set by the registrar must not be greater than one year.

 

Receivers

There follow some details of receivers, which are responsible for effectively liquidating the company by non-judicial means:

 

Appointment

Unless otherwise stipulated by the articles of association or a resolution adopted by the members, the company´s management become receivers at the time the company is considered wound up.

The members may appoint new receivers, in addition to or replacing those already appointed.

If no receiver has been appointed, the company´s supervisory board or any of its members or creditors may request that the appropriate Registry Office administratively appoint a receiver.

A legal person may not be appointed receiver, except if they are law firms or statutory auditing firms.

Appointment is subject to registration in the Company Registry Office.

 

Removal from office

The members may resolve to remove the receivers at any time without just cause.

The company’s supervisory board or any of its members or creditors may petition that the receiver be administratively removed from office based on just cause.

The dismissal from office is effective on its registration.

 

Remuneration of receivers

It is set by members´ resolution and forms part of the liquidation costs. When the insolvency process or compulsory liquidation is the underlying cursor, the remuneration is equal to that established for receivers and experts appointed by a court.

 

Receivers´ duties

Receivers must:

  • Finalise any outstanding business;
  • Fulfil the company´s obligations;
  • Collect from debtors to the company;
  • Pay all company debts permissible by the value of the assets;
  • Convert any residual assets to cash;
  • Propose the distribution of the company’s assets;
  • Submit liquidation accounts and a report during the first three months of each calendar year;
  • Approximately calculate the liquidation costs, in order to exclude this value from the distribution of assets;
  • Hand over the goods according to the approved distribution of assets;
  • Apply for the registration of liquidation closure.

 

The members may authorise the receivers to, via resolution:

  • Temporarily continue the company´s previous business activities;
  • Contract any loans necessary to effectively liquidate the company;
  • Proceed with the global sale of the company´s assets;
  • Proceed with the conveyance of the company´s premises.

Notwithstanding any clauses in the articles of association or resolutions to the contrary, if there is more than one receiver, each one shall have equal and independent powers for liquidation activities, except for the powers regarding the disposal of company assets, which require the participation of at least two receivers.

The receivers´ duties generally end when the company is wound up.

 

  • Liability of receivers

Receivers who maliciously or falsely state on the documents to be presented at the general meeting that all of the rights of the company´s creditors have been settled, shall be personally liable to those creditors whose rights were not duly provided for. Except for cases of willful misconduct, receivers have the right to regress against former partners.

 

Distribution of remaining assets

The remaining assets, after settling or making appropriate provision for the rights of creditors of the company, can be distributed in kind, if such is established in the memorandum or if the members unanimously so resolve.

The remaining assets are first assigned to reimburse the members for the amount effectively invested in the company. This amount is the fraction held by each member of the capital, notwithstanding that established in the articles of association in regard to the assets used as the initial capital contribution being of a higher value than the par value of said fraction.

If full reimbursement is not possible, the remaining assets are partitioned amongst the members so that the losses are distributed across the members in proportion to the share each one has in the company.

If, following full reimbursement to the members, the asset balance is still positive, then these assets should be distributed in the same proportion as those used for profit sharing.

 

Final accounts, report and resolutions by members

The final accounts of receivers must include a plan as to how the remaining assets shall be distributed, and a report containing specific mention that suitable provisions have been made for all creditor rights and that the receipts and relevant supporting documents are available for examination by the members.

Lastly, the above-described is placed before the members for approval.

 

Delivery of distributed assets

Pursuant to resolution by the members and in accordance with the same, the receivers deliver the assets assigned to each member. The receivers are responsible for any formalities required to assign the assets to the members.

 

Closure of liquidation proceedings

The receivers must apply for the registration of the closure of the liquidation proceedings.

The company is considered to be wound up, even among the members, on registration of the closure of liquidation proceedings.

Following liquidation and winding up of the company, the former partners are liable for any company liabilities which are outstanding or for which provision has not been made, up to the amount they received in the distribution of assets.

Following liquidation and winding up of the company, if non-distributed assets are discovered the receivers shall propose the distribution of these assets among the former partners, converting them into monetary amounts if no agreement regarding distribution in kind is reached.

 

Judicial liquidation

It must also observe the procedures provided for in the Code of Civil Procedure.

 

Administrative liquidation

The administrative liquidation procedure commences automatically at the end of the administrative winding up process or via submittal of application from the company, its members, respective successors or creditors, whenever legislation establishes that it must be performed administratively.

The administrative liquidation procedure may be instigated by the registrar on its own initiative, by means of a document specifying the circumstances that justify and have led to the instigation of the procedure, and appointing one or more receivers; or when:

  • Winding up was performed via a compulsory procedure;
  • It is noted that the terms defined for the duration of liquidation have terminated without the respective registration of closure having been applied for.

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