Definition of Company Liquidation

Company liquidation is the legal and actual process of terminating a company's business by selling its assets, collecting its debts, paying its obligations, and distributing the remainder to partners or shareholders according to their rights.

Reasons and Types of Company Liquidation

Reasons for Liquidation:

• Expiry of company term: End of the period specified in the incorporation contract without renewal
• Achievement of specific purpose: Completion of the project or objective for which the company was established
• Losses depleting capital: Accumulated losses leading to loss of a significant portion of capital (50% or more)
• Partner agreement: Decision by consensus or required majority to dissolve the company
• Court order: Court judgment due to disputes or impossibility of continuing operations
• Legal violations: Breach of commercial regulations or non-compliance with regulatory requirements
• Company bankruptcy: Inability to pay debts and financial obligations
• Death or withdrawal of key partners: In partnerships

Types of Liquidation:

• Voluntary ordinary: Voluntary decision by partners with company's ability to pay its debts
• Voluntary compulsory: Partners' decision due to financial distress or inability to continue
• Compulsory judicial: Court order based on creditors' or competent authorities' request
• Administrative governmental: Decision by Ministry of Commerce or regulatory bodies for serious violations

Company Liquidation Procedures and Stages

Liquidation Procedures:

• Issuing dissolution resolution: General assembly or partners' approval by required majority and official documentation
• Appointing liquidator: Selecting licensed legal liquidator or one of the partners with defined powers and fees
• Announcing liquidation commencement: Publishing announcement in official gazette and Ministry of Commerce website for at least 45 days
• Notifying creditors and debtors: Sending official notices to all related parties with specific deadlines
• Inventory of assets and liabilities: Comprehensive inventory of properties and debts valued at fair value
• Asset sale: Liquidating properties through public auction or direct negotiation for best prices
• Settlement disputes: Resolving pending legal disputes and cases filed against the company

Liquidation Stages:

• Preparatory stage: Preparing final financial statements, asset valuation, debt inventory and claims, liquidation plan development
• Collection stage: Recovering due debts, selling inventory and fixed assets, collecting receivables from customers
• Payment stage: Settling obligations according to priority (employee wages, taxes, secured creditors, ordinary creditors)
• Distribution stage: Distributing net assets to partners according to their shares after paying all obligations
• Final stage: Preparing final liquidation account, obtaining tax clearance, permanently striking company from commercial register

Liquidator: Appointment, Powers, and Responsibilities

Appointment:

• By general assembly: By two-thirds majority of capital represented in meeting or according to bylaws
• Required conditions: Licensed professional, experience in accounting and law, not convicted of crimes affecting honor
• In case of impossibility: Appointment by competent court based on interested party's request
• Appointment duration: Specified for certain period renewable as needed
• Fees: Predetermined or percentage of liquidated assets value
• Insurance: Mandatory professional liability insurance to protect company funds

Powers:

• Asset sale: Selling real estate and movables through public auction or direct negotiation for best price
• Collection: Recovering all debts and claims due to company from customers and debtors
• Payment: Settling obligations according to legal priority order (workers, taxes, secured creditors, ordinary creditors)
• Legal representation: Representing company before courts and government entities in all cases
• Contract execution: Signing sale, collection, and settlement contracts necessary for liquidation completion
• Account opening: Managing bank accounts and depositing sale and collection proceeds
• Expert consultation: Employing lawyers, accountants, and appraisers when needed

Responsibilities:

• Safe custody: Protecting company funds and properties from damage or loss
• Periodic reports: Preparing monthly or quarterly reports for partners on liquidation progress
• Financial transparency: Maintaining accurate accounting records and documenting all financial operations
• Fair distribution: Distributing net assets to partners according to their shares after debt payment
• Legal compliance: Adhering to all laws and regulations related to liquidation
• Final account preparation: Providing detailed final statement of all operations and liquidation financial results
• Personal accountability: Legal and financial responsibility for professional errors, negligence, and default

Liquidation Value and Liquidation Statement

Liquidation Value: Net amount remaining for partners after selling all assets and paying obligations and liquidation expenses.

Liquidation Statement: The comprehensive final financial report documenting all company liquidation operations from start to finish, considered a binding legal document proving distribution fairness and procedure integrity, including:

• Initial asset balance: Detailed list of all company assets (fixed and current) at book value at liquidation start
• Sale operations: Details of each asset sale including sale date, buyer, realized price versus book value
• Debt collection: Amounts collected from debtors and customers and bad debts that couldn't be collected
• Obligation settlement: Details of debt payment according to legal priority (employee wages, taxes, secured creditors, ordinary creditors)
• Liquidation expenses: Liquidator, lawyer, and appraiser fees, advertisement and court fees, administrative expenses
• Final distribution: Detailed schedule of partner names, each one's share, and amount due to each partner
• Signatures and approvals: Liquidator and partners' signatures to approve statement with supporting attachments

Liquidation Duration and Influencing Factors

Liquidation Duration:

• Normal: 6-12 months for small companies
• Complex: 1-3 years for large companies
• Legally: Not exceeding 3 years (extendable)

Influencing Factors:

• Asset size: Quantity and complexity of assets to be sold
• Business type: Complex activities require longer time
• Debts and disputes: Existence of pending cases or legal disputes
• Market conditions: Market condition for asset sales
• Liquidator efficiency: Experience and skill of appointed liquidator
• Partner cooperation: Extent of shareholder and management cooperation
• Government procedures: Speed of approvals and licenses

Difference Between Liquidation, Insolvency, and Bankruptcy

The difference between liquidation, insolvency, and bankruptcy lies in their nature, where liquidation is a procedural process to terminate the company by selling assets, paying debts, and distributing remainder to partners, while insolvency represents a financial condition when company debts exceed its assets or it cannot pay obligations at maturity dates, and bankruptcy is a formal legal procedure declared by court to confirm debtor's inability to pay debts.

These concepts differ in several aspects: timing-wise, insolvency is a prior financial condition, bankruptcy is formal legal declaration of this condition, while liquidation is the subsequent executive process. Regarding reasons, liquidation may be voluntary for various reasons, while insolvency and bankruptcy relate specifically to financial inability. Regarding results, liquidation inevitably leads to company termination, while bankruptcy may lead to restructuring or liquidation, and insolvency is merely financial situation assessment.

Final Distribution and Liquidation Completion

Final distribution and liquidation completion occurs through distributing net assets to partners according to their shares with priority given to preferred then common shares, and preparing final statement of amounts due to each partner. Liquidation is then completed through preparing final account and liquidator obtaining partners' approval on final results, obtaining tax clearance from competent authorities, and permanently striking company from commercial register with depositing all documents with competent authorities, leading to final and definitive termination of company's legal personality.