Liquidation and bankruptcy

Liquidation of a company

Liquidation of a company entails its termination. Following liquidation, the rights and obligations of the liquidated entity do not pass by succession to other persons.

A company may be liquidated in the following cases:

• by decision of its founders (voluntary liquidation)
• by a court invalidating the registration of a company in connection with violations committed during its establishment, if such violations are deemed unrectifiable
• by a court decision in case of carrying out activities prohibited by law, or carrying out activities without a license or without applicable permission
• in case of bankruptcy (insolvency) of a company ruled by a court
• by decision of the authorized body in case of failure to restore business activity within 3 years from the date of putting the business in inactive mode due to the failure to carry out financial and economic activities

The founders of a company or the body that made the decision to liquidate the company appoint a liquidator and establish the procedure and deadline for liquidation. From the moment the liquidator is appointed, the powers to manage the affairs of the company are transferred to the liquidator.

The liquidator takes measures to identify creditors and collect receivables. The liquidator publishes an announcement in the media about the liquidation of a company. The announcement of liquidation shall indicate the procedure and deadline for filing creditors' claims. This period cannot be less than 2 months from the date of such publication.

The property of the company remaining after satisfaction of the creditors' claims is transferred to its founders.

Bankruptcy of a company

A company may be declared insolvent (bankrupt) by a court decision if it is unable to satisfy the claims of its creditors.

The company itself and any of its creditors has the right to apply to court to initiate bankruptcy proceedings against the company in connection with its failure to fulfill payment obligations.

The chief executive officer of the company is obliged to apply to court to initiate bankruptcy proceedings in cases if:

• settling the claims of one or more creditors makes it impossible for the company to fully fulfill its payment obligations to other creditors or its tax obligations
• foreclosure on the company's property may further impede the company's ability to conduct business activities or lead to the failure to settle the claims of other creditors

The application to a court must be sent no later than 1 month from the moment the circumstances specified above arose.

When applying bankruptcy procedures, the interests of all creditors are protected by the board of creditors. From the date the court accepts the application to initiate bankruptcy proceedings, creditors have no right to directly approach the company to settle their claims.

The bankruptcy case must be considered by the court within a period not exceeding 2 months from the date of acceptance of the application to initiate bankruptcy proceedings. In exceptional cases, the consideration of the case may be extended for a period of no more than 1 month.

If the insolvency of a business entity is caused by unlawful actions of its founder or the person managing its affairs, in the event of insufficiency of the entity's property such person may be brought to subsidiary liability along with the bankrupt entity.

A court decision to declare the company bankrupt entails the commencement of liquidation proceedings. The duration of the liquidation procedure cannot exceed 12 months.