Dissolution and Liquidation of a Company in Luxembourg
Company Dissolution and Liquidation in LuxembourgUpdated on Sunday 31st October 2021
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Although Luxembourg is an attractive country for foreign investments, company dissolution and liquidation in Luxembourg can sometimes be necessary when the company proves to be inefficient. The cessation of activity happens in two stages: first the decision to dissolute the company and then the liquidation phase.
Our lawyers in Luxembourg can assist and guide you through the company dissolution and liquidation procedures in Luxembourg.
What types of entities can be liquidated in Luxembourg?
The following types of structures can be dissolved or liquidated in Luxembourg:
- public companies if they have lost at half or three-quarters of the share capital;
- private companies if they have lost half of the share capital or if the maximum of number 40 members has been exceeded;
- general partnerships if one of the members has died, has gone bankrupt or simply left the company;
- limited partnerships if one of the members has left the business, died or gone bankrupt.
The compulsory liquidation can begin once one or more creditors file a petition with a Luxembourg court as a consequence of the company not being able to pay its debts.
Types of company dissolution and liquidation in Luxembourg
The voluntary dissolution of a legal entity in Luxembourg is decided through an extraordinary general meeting. It is a common decision to end any business activities. This can occur if the business purpose is considered terminates, if the business has a fixed term of operation, because of unsatisfactory business results or as a consequence of the company not observing its mandatory legal provisions.
After the dissolution has been agreed upon, the liquidation phase begins. After its dissolution has been pronounced, the company will exist solely for the purpose of liquidation: to satisfy any existing claims from creditors and pay all outstanding debts. A liquidator is appointed during the general meeting. If no one from outside is appointed, the director of the company or a member of the management board can act as liquidator.
Compulsory liquidation occurs when the dissolution of the company is imposed by a court decision. This court decision can be made on behalf of one or more partners/shareholders or upon request from a public prosecutor if the company has breached the law.
Voluntary company dissolution in Luxembourg
As mentioned earlier, one of the ways to terminate a Luxembourg company is by voluntary dissolution which remains at the discretion of the business owners. The reasons for terminating a business can be several and can imply the end of the company’s activities, the sale of its assets or the impossibility of continuing the business. No matter the reason, once the Luxembourg company is dissolved, it must then be liquidated.
Voluntary company dissolution in Luxembourg is made up of a few separate stages which imply:
- the initiation of the dissolution procedure during the shareholders’ general meeting;
- the preparation of all the company’s financial accounts for the liquidation procedure;
- the appointment of the liquidator, who is usually chosen from one of the officers in the company;
- filing a notification about the liquidation with the Trade Register and the tax office in Luxembourg.
Important aspects which need to be considered upon voluntary liquidation in Luxembourg is that the extraordinary meeting during which the cessation of the company is decided must be held in the presence of a public notary.
As a consequence of the voluntary company liquidation procedure:
- the management of the company will no longer undertake any activity;
- the liquidator will complete any other activity left unattended and will complete the liquidation procedure;
- all the documents issued by the company during this period will indicate that the business is in liquidation.
With respect to the liquidator, this can be a natural person or a corporate body, considering the decision to appoint the liquidator depends on the Luxembourg company’s shareholders. Apart from handling the procedure of terminating the business, a liquidator will play other roles in the company among which one of the most important one is to act a company legal representative. The liquidator will also make sure that creditors are paid, followed by the remaining assets or amounts of money (if any) to be secured in a bank account with the purpose of distributing them among the shareholders.
Our attorneys in Luxembourg are up to date with the latest regulations on company liquidation and can advise clients on how to terminate a business.
Audit requirements in voluntary company liquidation in Luxembourg
One of the important requirements to respect when it comes to voluntarily liquidating a company in Luxembourg is to appoint an auditor who will verify the liquidator’s report, the financial documents to be used in liquidation and who will prepare the report to be presented to the shareholders.
The auditor to be appointed during the liquidation procedure must be independent, according to the Company Law in Luxembourg.
Our law firm in Luxembourg can assist business owner in various matters related to voluntary company liquidation procedures.
During the last shareholders’ meeting, a set of documents must be prepared and approved by the company’s shareholders. These documents are:
- the auditor’s report;
- the report on the distribution of the remaining assets;
- information about where the company’s documents and books will be kept;
- the decision on the transfer of assets remaining undistributed;
- the declaration through which the liquidator will comply with the post-closing provisions of the operations of the company;
- the report on closing the liquidation procedure.
After this meeting, the dissolution of the company will be published with the Trade Register.
Our Luxembourg lawyers can offer more information on the documents which need to be prepared in case of voluntary company liquidation.
Compulsory company liquidation in Luxembourg
When it comes to the compulsory liquidation of a Luxembourg company, the procedure resembles the voluntary one, however, the decision on terminating the business will be ruled by a judge in the court of law. Also, an extract of the judgment must be published in local newspaper and in the electronic database of the companies and associations kept by the Companies Register in Luxembourg.
The name of the company must also be amended with the words “in compulsory or judicial liquidation”.
When it comes to the costs associated to the liquidation of a company, the winding up fees and the costs of the liquidation must be supported by the company.
The liquidation procedure will be followed by the removal of the company from the database administered by the Luxembourg Companies Registrar.
Our Luxembourg law firm can offer more information on the compulsory liquidation of a firm in the Grand Duchy.
You can also watch the video below for information on how to liquidate a company in Luxembourg:
Documents needed in a company dissolution process in Luxembourg
The following list of documents must be prepared when dissolving/liquidating a company in Luxembourg:
- a power of attorney granted by the shareholders to the liquidator appointed to complete the process;
- the latest balance sheet indicating the financial status of the company - issued by the tax administration office;
- negative certificates for companies which are not registered for VAT are required;
- certificates indicating the company is registered for taxation purposes are also required;
- information about the immovable properties of the company must be obtained from the Luxembourg Land Register;
- information indicating the company has paid its social security, pension, and insurance premium up to the point of the company liquidation decision.
Our Luxembourg lawyers can assist company representatives in preparing the documents needed in company liquidation. If you want to open a holding company in Luxembourg, we can offer legal advice.
The liquidation process and the liquidator’s duties
The appointed liquidator must draw up an inventory of the company’s asses and draw up a balance sheet in order to determine the assets and liabilities of that legal entity. Afterward, the liquidator will proceed to recover the dissolved company’s assets. Once recovered, the assets will be sold in order to pay the company’s debts. Only after all the debts are settled can the remaining assets or amounts (if any) be distributed among the company’s shareholders.
The distribution of the assets is performed according to the amounts owed to each creditor. The assets must be distributed to all creditors in a fair manner. The liquidator must prepare an annual financial statement. Once the process is complete, a final general meeting is convened in order to approve the final accounts and the liquidator’s report. After the liquidation process is complete, the company is removed from the Trade and Companies Register.
Our Luxembourg lawyers can inform you about the special procedures detailed in the Luxembourg Company Law applicable for certain types of companies in Luxembourg.