Winding down a company in Germany can occur for various reasons and may not necessarily be linked to economic grounds. However, whatever the rationale is for the closure, it is crucial that this winding down is carried out correctly. It is not sufficient to stop trading, just as it’s not sufficient to start selling products when opening a business.
Companies considering closing their operations in Germany should strongly consider the services of our German corporate lawyers. At Schlun & Elseven Rechtsanwälte, our experienced legal professionals will ensure that companies are dissolved correctly, reducing the chances of future legal strife occurring.
Closing a Company: Legal Advice and Analysis
At Schlun & Elseven Rechtsanwälte, our German business lawyers can advise on all matters relating to winding down a company. As a full-service law firm with specialists in many areas of German law, our lawyers will:
- Prepare the required documentation,
- Ensure that all documentation is processed appropriately,
- Collect information needed concerning creditors and debtors,
- Ensure that debts are collected and enforced accordingly,
- Oversee the removal of the company from the trade register
Making sure that a company is wound-up in Germany in the proper legal manner can be daunting, as several legal steps need to be followed. Such a process can be complex, especially for businesses not primarily based in Germany, which should strongly consider a partner there who can oversee the operation.
At Schlun & Elseven Rechtsanwälte, our corporate lawyers are experienced professionals who have worked with clients worldwide and understand the difficulties faced when working with German bureaucratic requirements when closing down companies in Germany.
Although economic reasons may be a common cause, they are not the only basis for the dissolution. The grounds are under § 60 GmbHG (Limited Liability Companies Act). The reasons provided under this provision are the following:
- Upon expiry of the period specified in the articles of association; (period set)
- by resolution of the shareholders; unless otherwise provided in the articles of association, such a resolution shall require a majority of three-quarters of the votes cast;
- by a court judgment or by a decision of the administrative court;
- upon the opening of insolvency proceedings;
- upon the decision to refuse to open insolvency proceedings for insufficiency of assets becoming final;
- upon an order issued by the court of registration establishing that the articles of association are defective per § 399 Act on Proceedings in Family Matters and in Matters of Non-Contentious Jurisdiction (FamFG) becoming final;
- upon the company being deleted from the Commercial Register due to lack of funds per § 394 FamFG;
- the articles of association may stipulate other grounds for winding up the company.
Making this decision is one the company and its shareholders can make based on various business matters. These can range from a different business model being preferable to one on whether they want to continue with the business.
The Procedure for Winding Down a Company
There are two primary manners in which companies are closed down. Companies still solvent at the time of closure can process a voluntary closure, whereas insolvent companies can be ordered to wind down with a court order.
The compulsory closing of companies is regulated under insolvency law and, therefore, will not be analysed in detail here. However, our insolvency lawyers page provides more information about our services regarding insolvency proceedings in Germany.
Winding up a company follows a specific procedure. The primary aim of winding down a company is to remove the business from the trade register. It is not enough to stop trading as the company itself must be removed from existence. To wind up a company, there are three steps involved:
- Dissolution,
- Liquidation,
- Deletion.
Dissolution: The dissolution phase of winding down a company involves a majority of the shareholders (generally at least three-quarters of them) agreeing to a dissolution resolution. It is worth bearing in mind that the number needed may vary depending on what is stated in the company’s Articles of Association.
Deciding on the dissolution of the company involves the company shareholders voting to wind up the company, generally with a balance of three-quarters of the shareholders voting for it. This requirement can be amended in the Articles of Association if necessary. Once the dissolution of the company has been decided upon, the company has started its winding up phase.
The company needs to inform others that it is winding up its business. They can inform them by listing i.L (in Liquidation) or i. Abw (in Abwicklung) next to the company’s name.
For a company dissolution to continue, the dissolution must be notarised and entered into the Commercial Register. From there on, the company enters the liquidation phase. The dissolution of the company is regulated by § 65 GmbHG (Limited Liabilities Act).
Liquidation: The next step taken is the liquidation of the company. Liquidation involves the concluding of any ongoing business and the correct distribution of company assets. For the liquidation phase to proceed, the company must appoint a liquidator to oversee it. They represent the company during this time and oversee the distribution of company assets as appropriate.
The liquidator of the company is generally one of the following people:
- The managing director of the company,
- A liquidator is decided upon within the Articles of Association and is not the managing director,
- The court appoints a liquidator.
In most cases, the liquidator will be the company’s managing director(s). There should be no criminal law reasons preventing the individual’s appointment to act on behalf of the company in this role.
Deletion: Once the liquidation issues have been concluded, the deletion process can occur. Deletion is the final act of closing the company. The deletion of the company involves the liquidator registering the deletion in the commercial register. This process consists of the liquidator signing the document stating that the company should be closed down.
Once this occurs, the company can no longer trade and, for most purposes, no longer exist. However, the company must keep its accounts and books for ten years, even after the company’s closing. This requirement is necessary to ensure that it can still be audited for tax purposes. The liquidator or another designated individual decided upon by the company can keep these records available.
The Role of the Liquidator
The liquidator’s role is essential in winding down a company, as they will represent the company during these complicated proceedings. The position is defined and regulated by § 70-73 GmbHG. During the liquidation process, the liquidator has the responsibilities of a managing director and must oversee the company’s actions.
§ 70 GmbHG lists the duties of the liquidator in more detail. Under this section, these responsibilities are the following:
- the completion of the company’s ongoing business,
- fulfil the obligations of the dissolved company,
- collect its receivables and turn the company’s assets into money,
- they shall represent the company in and out of court,
- enter into new business transactions to complete pending transactions.
Another duty of the liquidator is to prepare and present an opening balance sheet at the beginning of the liquidation process. Essentially, it has to be demonstrated openly that the company’s assets are being resolved transparently.
As can be seen, the liquidator has several important obligations to fulfil, and on this front, our corporate lawyers can assist them in carrying them out correctly.
As the company is winding up its operations, the liquidator must ensure that no new liabilities arise and resolve past liabilities. They are responsible for informing the Federal Gazette of the intention to close the business, which acts as a call to creditors to claim what they are owed. § 65 (2) GmbHG regulates this requirement.
Once the call has been made to creditors, it is the creditors’ responsibility to contact the company.
Creditors are protected, though in the form of the “blocking year”. This year, which begins when the call for creditors is issued, allows the creditors to stake their claims to the company. The company must then provide them with what they are owed before the company resolves the distribution of assets to the shareholders.
Creditors can still approach following this blocking year, but the shareholders can also be provided with their share of the assets at that stage. During that year, the company’s tax requirements still apply.
Following the blocking year, the company assets can be liquidated and distributed to the shareholders. How the assets are distributed is based on the number of shares per shareholder.
Practice Group: German Corporate Law
Practice Group:
German Corporate Law
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