Liquidation of a Polish Limited Liability Company (sp. z o.o.)

Winding up a business run in the form of a limited liability company (spółka z ograniczoną odpowiedzialnością, sp. z o.o.) can be both an organisational and a legal challenge. Contrary to a widely held belief, a company is not dissolved automatically or on the strength of a single decision. It is a formalised, multi-stage procedure that protects the interests of creditors and shareholders, and commercial dealings generally.

I. What is the liquidation of a sp. z o.o. and what is its purpose?

The liquidation of a sp. z o.o. is a procedure whose purpose is to bring the company’s current business to an orderly close, collect amounts owed by its debtors, discharge its obligations towards creditors and realise the assets it holds.

The legal effect of a properly conducted procedure is that the company divests itself of its assets and its legal existence is finally extinguished by removal from the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy, KRS).

Grounds for opening liquidation:

• a shareholders’ resolution to dissolve the company — in commercial practice by far the most common basis for opening liquidation;
• grounds expressly provided for in the articles of association (for example, expiry of the period for which the company was formed);
• a final and binding court judgment dissolving the company;
• transfer of the company’s registered office abroad.

A separate ground for dissolution, provided for in Article 270(3) of the Commercial Companies Code (KSH), is a declaration of bankruptcy. That does not, however, lead to the liquidation procedure described in this article — once bankruptcy is declared, the Bankruptcy Law applies rather than the KSH provisions on liquidation.

II. When can a company be liquidated, and how long does it take?

Shareholders may decide to dissolve the company at any time — the legislation imposes no restrictions as to when the process may be opened.

It should be borne in mind, however, that in Polish practice the full process of removing an entity from the register may take several months. This follows in part from mandatory statutory periods — such as the 6-month protective period, before the expiry of which the company’s assets may not be distributed among the shareholders. In complex cases (depending on the pace of the court’s work, pending proceedings or the process of realising assets) the procedure may extend to well over a year.

III. Liquidation of a sp. z o.o. step by step

The liquidation procedure requires each of the following stages to be worked through carefully.

1. Adopting the resolution to dissolve the company and appointing liquidators

The process is initiated by a shareholders’ resolution. The form in which it is adopted depends on how the articles of association were created and amended:

A resolution to dissolve a sp. z o.o. and place it in liquidation should be recorded in a protocol drawn up by a notary. The exception is where the articles of association were concluded using a model template — through the S24 system. In that case a resolution signed within the S24 system and bearing the qualified electronic signature, trusted signature or personal signature of all shareholders is permissible. It must be borne in mind, however, that any amendments to the articles of association or changes of shareholders made outside that system deprive the shareholders of that option.

Upon the opening of liquidation, the powers of the management board lapse in favour of the liquidators. By operation of law the liquidators are the members of the existing management board (Article 276 § 1 KSH), unless the articles of association or a shareholders’ resolution provide otherwise. It is worth adopting, at the same time, a resolution specifying how the liquidators are to represent the company.

2. Preparing the opening balance sheet of the liquidation

Under the Accounting Act, the accounting books must be opened and the opening balance sheet of the liquidation prepared within 15 days of the opening of liquidation. Assets are valued in it at their realisable value as at the opening date. The liquidators present that document to the shareholders’ meeting for approval.

3. Publication in the Court and Commercial Gazette and filing with the KRS

Entry in the KRS: the opening of liquidation is filed electronically with the registry court (through the Court Registers Portal or S24). The filing is accompanied by, among other things, the resolutions, a list of liquidators with their addresses for service, and their consents to serve.

Publication in the Court and Commercial Gazette (Monitor Sądowy i Gospodarczy, MSiG): the liquidators are required to announce the opening of liquidation in the MSiG and to call on creditors to submit their claims within 3 months of the date of publication (Article 279 KSH).

4. The liquidation activities proper and administrative duties

The liquidators’ tasks include repaying debts, collecting receivables and realising the assets. Formal duties must also be kept in mind:

• Deregistration for VAT: filing form VAT-Z with the tax office and settling any overpayments or refunds.
• Transfer of employee records: where the company employed staff, a contract must be concluded with an authorised archiving entity for the archiving of personnel and payroll records (registry courts frequently verify this requirement).

5. Distribution of assets and approval of the liquidation report

Assets remaining after creditors’ claims have been settled and secured are distributed among the shareholders (in proportion to their shares, unless the articles provide otherwise). That distribution may not take place earlier than 6 months from the date of publication in the MSiG (Article 286 § 1 KSH).

A liquidation report is then prepared (financial statements as at the day preceding the distribution of assets) and a shareholders’ meeting is convened to approve it and to discharge the liquidators.

6. Removal of the company from the KRS

The final stage is an application to the registry court for the company to be removed from the KRS. The application is accompanied by, among other things, the liquidation report, a statement that no proceedings are pending and that debts have been repaid, and an indication of where the company’s books and records are to be kept. The company ceases to exist once the court’s decision becomes final.

IV. Effects of opening liquidation

Significant legal changes take effect during the liquidation phase:

• Change of business name: the company operates with the addition “w likwidacji” (“in liquidation”);
• Lapse of commercial powers of attorney: a prokura lapses by operation of law and no new one may be granted (Article 284 KSH);
• Prohibition on distributing profit: dividends may not be paid to shareholders (Article 275 § 2 KSH);
• Sale of real estate: as a rule, the company’s real estate may be disposed of by public auction, unless the shareholders permit a private sale by resolution.

Where the company still has unpaid debts after all its assets have been realised, this does not always prevent its removal from the register. Where the liquidators have made all reasonable attempts and exercised due diligence, the case law permits the removal of an entity with no assets. It is nonetheless important to analyse the grounds for bankruptcy in good time.

V. How much does liquidating a sp. z o.o. cost?

The final cost of liquidation is made up of court fees, the notary’s fee and the cost of accounting and legal services. The figures below are indicative only — the amounts of court fees and notarial fees are set by legislation that is amended from time to time, so it is worth verifying the current rates before starting the procedure.

The court fees connected with entries in the KRS — both for filing the opening of liquidation and for the application to remove the company from the register — are fixed fees whose combined amount usually falls within a few hundred zloty. To that must be added the mandatory announcement in the Court and Commercial Gazette of the opening of liquidation and the call to creditors, the cost of which depends among other things on the number of characters in the announcement and usually ranges from several dozen to several hundred zloty. Where the resolution to dissolve the company must be drawn up as a notarial deed (that is, where the company cannot use the simplified S24 route), the notary’s fee together with copies must be added — in the order of several hundred to around one and a half thousand zloty.

A separate and usually the most variable cost item is accounting services — preparing the opening balance sheet of the liquidation, the financial statements and the liquidation report requires an individual quotation depending on the scale of the company’s business and the state of its records. Where the company employed staff, the archiving of employee records will be a further expense, its cost depending on the volume of files transferred to the archive. Finally, where the process is conducted with the involvement of a law firm — common practice in more complex liquidations — the fee for preparing the documentation, resolutions and KRS applications and for representation in the proceedings usually starts at several thousand zloty and rises with the scope of the engagement.