Court-ordered dissolution

What it means

Court-ordered dissolution is a way a commercial company ends in which the decision is taken not by its shareholders but by the registry court. The Commercial Code lists grounds on which the court may or must dissolve a company, for example when it has had no statutory body for a long time, has no real registered office, repeatedly fails to file financial statements in the collection of deeds or carries on no activity, or when it was formed unlawfully.

The court acts on an application by a state authority or a person showing a legal interest, and in specified cases on its own motion. Before deciding, it usually invites the company to remedy the defect within a reasonable time. If that does not happen, the court issues a dissolution decision, which is entered in the commercial register once final.

Dissolution is followed by liquidation to settle the company's assets and liabilities. The court usually appoints a liquidator, often from the list of insolvency practitioners. If the company lacks assets to cover liquidation costs, the court may order its deletion without liquidation. If over-indebtedness is found, bankruptcy rules apply.

How it works in practice

Entrepreneurs should understand that failing to meet basic obligations can lead to the company being dissolved against their will. The most common reasons are not filing financial statements, losing the registered office after a lease or virtual office ends, or having nobody to act for the company after the director resigns. These matters need resolving in time.

If the company receives a request from the registry court, it must respond within the deadline: file the statements, register a new office or a new director. Once court-ordered liquidation begins, shareholders lose control of the process, and the liquidator's costs can be high and are paid from the company's assets.

A company the shareholders want to close should use voluntary liquidation or another proper route. Letting the court dissolve it as a cheaper option is risky: directors may be entered in the register of disqualified persons and be liable for damage caused to creditors.

What to watch out for

The biggest risk for directors and shareholders is personal liability. On dissolving a company, the court may bar someone from acting as a director for several years if it finds a breach of duties. Failing to file financial statements and inactivity are frequent grounds considered in such proceedings.

Court-ordered dissolution does not wipe out debts. Creditors' claims are pursued in the liquidation, and shareholders remain liable for unpaid contributions and directors for damage. The company's tax obligations, such as filing a return and deregistering for VAT, are handled by the liquidator, but cooperation from former management is usually essential.