Company Liquidation

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COMPANY LIQUIDATION

In Luxembourg law, dissolution, also known as voluntary liquidation, pertains to the shareholders’ decision to terminate the legal existence of the company. Depending on the chosen procedure, this may include liquidation, where the company’s assets are realized, liabilities settled, and any remaining funds distributed to shareholders.
The Company Law outlines two dissolution types:
– “Long-form” dissolution, involving liquidation.
– Simplified or “short-form” dissolution, without liquidation.
Typically, a company’s assets must surpass its liabilities to initiate a voluntary dissolution process.

The short-form dissolution

This process necessitates a single shareholder meeting, convened in the presence of a Luxembourg notary.
Upon the notary’s signing of the dissolution deed, the company immediately ceases to exist. This dissolution results in the automatic transfer of all assets and liabilities to the sole shareholder, without the need for a liquidation process.
Before dissolution, the shareholder must approve and file all outstanding annual financial statements with the RCS.
As a prerequisite for dissolution, the company must furnish the Luxembourg notary with three certificates obtained from the Luxembourg tax authorities.
According to the Luxembourg Civil Code, within 30 days of the publication of the notarial deed dissolving the company, a creditor may request the president of the district court to order the provision of security for the debt, under urgent proceedings.

The long-form dissolution with liquidation

The long-form dissolution with liquidation entails several steps:
– Three shareholder meetings are required for this procedure.
– All outstanding annual financial statements must be approved by the shareholders and submitted to the Trade and Companies Luxembourg (RCS) before dissolution.
– During the first shareholder meeting, held in the presence of a Luxembourg notary, shareholders decide to dissolve the company and appoint a liquidator.
– The appointed liquidator is tasked with overseeing the liquidation process, with broad authority to realize assets and settle liabilities.
– Luxembourg law does not impose specific timing limitations or requirements for the completion of the liquidator’s tasks or the voluntary liquidation of the company.
– Upon completion of the liquidation, signified by the realization of assets and settlement of all liabilities, the liquidator prepares a liquidation report.
– In the second shareholder meeting, a Luxembourg liquidation auditor is appointed to review the liquidation.
– The liquidation auditor scrutinizes the liquidator’s report and accounts, issuing an audit review report if satisfied, which is then approved in the third shareholder meeting.
– In the final shareholder meeting, possibly held with a Luxembourg notary present, the liquidation is officially closed, and both the liquidator and the liquidation auditor are discharged. Shareholders designate where the company’s books and records will be kept for five years after liquidation closure.
– The notice of conclusion of the liquidation is lodged with the RCS, and the liquidation is deemed final upon this second publication. The company is considered nonexistent except for specific residual powers.

Key differences

The short-form procedure is exclusive to cases with a sole shareholder.
In the short-form procedure, there is no subsequent liquidation phase. Instead, the company’s assets automatically transfer to the sole shareholder by operation of law. In the event of unforeseen or outstanding liabilities arising post-dissolution, the sole shareholder bears responsibility for them.
In contrast, the long-form procedure necessitates the liquidator to address all current and potential liabilities of the company, ensuring their settlement or adequate provision before distributing remaining assets and finalizing the liquidation.
The short-form procedure often proves swifter than its long-form counterpart and may also entail lower costs.

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