Entering the Azerbaijani market and establishing a legal entity are relatively easy. But businesses might be compelled to terminate the operations and liquidate the company due to several reasons, including completion of the project, necessity to leave the market, termination of some business treaties, removal of business and tax incentives, or unsuccessful business operations that lead to insolvency and bankruptcy.
Thus, together with the decision of setting up a company in Azerbaijan, businesses should consider the exit plans and regulations to safeguard their investments. Therefore, the liquidation, bankruptcy and insolvency issues are always should be on top of mind when starting the business.
Liquidation of legal entities in Azerbaijan may be realized in voluntarily or mandatory means. While voluntary liquidation of Limited Liability Company commences upon unanimous decision of shareholders, mandatory liquidation is enforced by the decision of the court. This article is dedicated to briefly explain the legal procedures defined by law and practical issues that could be encountered while voluntary liquidation of limited liability companies, save liquidation stemming from insolvency.
Here are the steps defined by law that shall be followed while liquidation:
1. Shareholders of the company, or a body of the company so authorized by the charter to initiate liquidation of the company, requests from the executive body of the company to render an official statement (covering assets and liabilities) on financial competence to meet claims of all creditors within 12 months;
2. Executive body of company (director) makes this official statement earliest 20 days before the date of general assembly resolution on the liquidation of the company
3. If the executive body rejects such a request and refuses to render the statement, a general assembly of the shareholders may invite independent external auditors to determine whether assets of the company are sufficient enough to meet the claims of creditors. Where auditor by its opinion confirms such financial competence of the company, then such opinion amounts to the required executive statement;
4. Resolution on the liquidation of company shall be adopted by the general assembly of shareholders. By this resolution, the general assembly shall appoint a liquidation commission (or sole liquidator) and determine the procedure and period for liquidation pursuant to the Civil Code.
5. Within 10 days after the appointment, the liquidator shall, in official media, publish an initial notice on the liquidation of the company, specifying additional details on the procedure and timeframe for creditor claims. This notice must be published 2 more times 15-20 days intervals. The total period for creditor claims should not be less than 60 days from the date of 1st publication of the notice on liquidation.
6. On the first day of such publication liquidator sends Notice
- to all known creditors on the liquidation of company
- to executive authorities to define any debt owed to the state budget and to state social insurance authorities
7. Within 15 days after the appointment, the liquidator shall submit the following documents to the tax authority:
- Application (the form defined by the tax authority);
- Statement on the financial competence to meet all creditor claims;
- Evidence of 1st liquidation notice publication;
- Seal of the company;
8. After this stage, the phrase “in liquidation process” shall be specified in the renewed seal and the company name;
9. Within 10 days from the expiry date for creditor claims, the liquidator shall compile and approve an interim liquidation balance sheet and submit to shareholders of the company. The interim balance sheet shall include the least:
- information on the composition of the assets of the liquidated legal entity
- creditor claims and debtor borrowings
10. If the assets of company are not sufficient enough to cover the creditor claims, the liquidator shall immediately start insolvency proceedings;
11. Liquidator shall commence the payment of creditor claims from the approval date of interim balance sheet in the order of claim;
12. Within 5 days from the payment date of creditor claims, the liquidator compiles the Liquidation balance sheet and Report including plan of division of residual assets among shareholders;
13. Within 45 days, this Balance sheet and Report should be approved by the shareholders or by body authorised so by charter of company;
14. Within 10 days after the balance sheet is approved, liquidator provides distribution of residual assets of company among the shareholders;
15. After such distribution of assets among shareholders, the liquidator approves anew balance sheet, and within 10 days submits the following documents to the tax authority for removing the company name from state registry:
- Application signed by the shareholders or liquidator (to be submitted in 2 copies, one for Tax authority and one for the applicant company);
- Final Balance sheet;
- Report about the distribution of property; and
- document (act) on the distribution of property to shareholders;
- original registry certificate and charter of the company
- stamp reading (“in liquidation process”)
16. Within 7 days of such application, a decision should be made and after the liquidation information is included to the registry, the company wind up is completed.
Liquidation is very complicated and multi-stage process, some of which are not specified the expressly, but are followed during practice.
Before starting the liquidation process the Charter of the company should be checked for special procedures of shareholder decision making, since it is mandatory to define the rules of liquidation of company during incorporation and prescribe such terms by the Charter.
The whole liquidation procedure should not exceed 12 months period from the date of entry of liquidation notice into the state registry of legal entities. The passing of that period will result in the recommencement of the liquidation process.
Moreover, all final tax declarations, social insurance and other relevant state reports should be submitted within 30 days from the notice date of liquidation in the registry. Besides this, it should be noted that by law it is forbidden to liquidate a legal entity until the court has fully executed or terminated the decision on the administrative or criminal violation case. Therefore, the special statement from the local court approving the absence of any legal actions against the Company should also be obtained and submitted to tax authorities.
This article shall not be considered as legal advice or report. For legal and tax support, as well as full representation during the liquidation and winding of companies, branches and representative offices in Azerbaijan, please contact us via: [email protected], +994 50 289 89 73
