Common causes for dissolution may be:
- the achievement or termination of the business purpose, or;
- the expiration of the business's fixed term of operation, or;
- a common decision by the partners because of disagreements between them or poor business results, or;
- legal reasons specific to the legal form of the company according to corporate law, which the business may depart from if the articles of association provide for it.
Specific rules apply depending on the type of company.
Voluntary dissolution is different from compulsory liquidation.
The decision to dissolve the business marks the beginning of the liquidation process and the appointment of one or more liquidators.
A company that is being dissolved exists solely for the purpose of its liquidation.
The liquidator is responsible for the full liquidation process until the final general meeting which concludes the liquidation proceedings.
Once the procedure is closed, the company is struck off the Trade and Companies Register (Registre de commerce et des sociétés - RCS).
Who is concerned
The dissolution and liquidation of a company generally ensue from a common decision taken by the shareholders/partners upon the company's creation or during its lifetime.
How to proceed
Reasons for initiating dissolution/liquidation
End of the fixed term of operation
A commercial company is automatically dissolved when it reaches the end of the term for which it was formed.
The partners/shareholders may decide to extend the company's lifetime in accordance with the terms and conditions of the articles of association.
Achievement of the business purpose
When a commercial company ends trading or achieves its business purpose it is automatically dissolved.
Example: A company that has sold its sole equity holding.
Reasons related to the partner
A partnership is dissolved following the death of a partner, a partner's ruin or the suspension of a partner's civil rights, unless otherwise specified in the articles of association.
The company is also dissolved when a partner has made a pledge to contribute to the company's capital and can no longer fulfil their pledge.
Specific rules apply depending on the type of company.
Special case of major loss of net assets
Shareholders must take a position on the continuation of the company if it has suffered significant losses.
For a public limited company (société anonyme - SA):
- in the event of loss of half of the company's capital: a vote must pass by a simple majority within 2 months following the date on which the loss was recorded or should have been recorded; or
- in the event of loss of three-quarters of the company's capital: one-quarter of the votes of shareholders who are present or represented is enough to approve the decision. This decision must also be taken within 2 months.
Exceeding the maximum number of partners
In a limited liability company (société à responsabilité limitée - SARL), if the maximum number of 100 partners is exceeded, the partners must decide to dissolve or transform the company. This rule does not apply in the event of a transfer of a partner's shares due to death or dissolution of matrimonial community.
However, if the articles of association provide for it, the company may continue to operate temporarily, despite exceeding the maximum number of partners, until the situation is settled.
Beginning the liquidation process
Dissolution may not occur without liquidation unless all of the shares are held by one party. Liquidation entails combining the corporate assets or, where applicable, the debts, among the partners.
The managers/directors or members of the management board must convene an extraordinary general meeting to rule on the dissolution of the company. This general meeting must take place in the presence of a notary.
For the decision to liquidate the company to be considered valid, the general meeting must convene:
- for a public limited company (société anonyme - SA) or a partnership limited by shares (société en commandite par actions - SCA or SECA):
- at least half of the company's capital (present or represented);
Failing that, the directors will convene a second meeting that will validly take a decision no matter what proportion of the company's capital is represented;
- the decision must be approved by at least a two-thirds majority vote (whether at the first or second meeting);
- at least half of the company's capital (present or represented);
- for a limited liability company (société à responsabilité limitée - SARL), partnership (société en nom collectif - SENC) or limited partnership (société en commandite simple - SECS): half of partners representing three-quarters of the share capital must approve the decision.
The articles of association may stipulate more restrictive terms and conditions.
Appointment of a liquidator
The general meeting will appoint the liquidator(s) and decide on the method of liquidation.
Any natural or legal person may be appointed liquidator.
If no liquidator has been appointed, the persons in charge of managing the company before its liquidation will be considered the liquidators, namely:
- the managing partners (for a SENC or SECS);
- the managers (for a SARL);
- the directors or members of the management board (for an SA or SCA).
As soon as the company ceases trading, the managers/directors or, failing this, the liquidator must declare the cessation of trading to the various official bodies in order to cancel any existing permits/registrations (business permit, social security, VAT, taxes, trade register, etc.).
Tasks and responsibilities of the liquidator
Once the dissolution has taken place, the liquidator(s) will represent the company and will be responsible for carrying out its liquidation.
Civil and commercial companies that are being dissolved continue to exist during the liquidation procedure, with the exception of temporary partnerships and holding companies.
The liquidator(s) take(s) control of the company and the management board/board of directors relinquishes its powers.
The liquidators are liable to third parties as well as to the company:
- for completing their mandate;
- and for any errors or failings in their management.
The liquidator is not personally liable to pay the company's debts with their own assets. The liquidator must only act carefully and diligently. The liquidator(s) may be held liable for any errors that they may commit, depending on the rules of the mandate.
Recovering and realising assets
The liquidators must recover (collect funds owed to the company) and realise (sell assets belonging to the company) the dissolved company's assets in order to be able to:
- pay off the company's debts;
- distribute any remaining funds (surplus on liquidation) to the partners/shareholders.
To this end, they may, in particular:
- bring any legal action on behalf of the company;
- collect any payments;
- issue a release (mainlevée) with or without a payment receipt;
- sell all the company's transferable securities, etc.
The liquidators may also perform certain exceptional actions. For example, they may:
- continue the company's activities on a temporary basis;
- take out loans;
- issue commercial paper, grant pledges and mortgages;
- surrender property;
- make contributions to other companies.
The liquidator is also responsible for acting as the company's legal representative.
These powers are not mandatory and may be restricted or extended as specified in the articles of association or in the notice of appointment.
The liquidator may take legal action against the partners to require the payment of funds:
- that the partners owe to the company;
- that the liquidator deems necessary for settling the liquidation.
Example: when an SA is formed the shareholders may commit to paying only one-quarter of the subscribed share capital.
The liquidator may take legal action against the shareholders to require that the subscribed capital be paid up and to obtain payment for the remaining three-quarters that have not yet been paid as of the date of liquidation.
Distribution of assets
The liquidator must distribute the company's assets among its various creditors.
The assets are to be distributed proportionally according to the amount owed. Creditors must be treated equally and assets must be distributed fairly and impartially.
However, the liquidator must respect the priority status of certain claims (wages, taxes and social security contributions, mortgages, etc.).
No distinction can be made between payable and non-payable claims. All claims must be settled.
Example: an invoice has not yet reached its due date on the day that the liquidated assets are distributed. This invoice must be paid, regardless of its due date.
Nevertheless, if the assets are sufficient to pay off all creditors, the liquidator may settle claims as and when they become due. They must, however, ensure that sufficient funds will remain to pay creditors that do not receive immediate payment.
If any of the company's known creditors do not come forward during the liquidation procedure, despite being requested to do so by the liquidator, the liquidator must deposit the sum due to them with the Deposits and Consignments Fund (Caisse des dépôts et consignations).
Once all debts owed to the creditors have been paid or deposited, the liquidator may distribute any remaining assets to the partners/shareholders.
When distributing these assets, the liquidator must pay any taxes owed when the company ceased trading.
If the assets are insufficient to pay off all debts owed, the liquidator must file for bankruptcy on behalf of the company.
- for cessation of payments;
- for loss of creditworthiness.
If the liquidation lasts more than one year, each year the liquidator must:
- draw up an annual report specifying the reasons that have prevented the conclusion of the liquidation proceedings;
- submit the results of the liquidation to the general meeting;
- for a public limited company, disclose the annual financial statements.
Once the liquidation has ended, but before concluding proceedings, the liquidator must produce the liquidation accounts.
At this general meeting, the shareholders/partners must:
- acquaint themselves with the liquidators' report;
- appoint one or more internal auditors to check the accuracy of the liquidators' report and liquidation accounts prepared by the liquidators.
Somewhat large SAs and large SARLs (more than 25 partners) are required to hire a statutory auditor;
- set the date of the final ordinary general meeting, at which:
- the internal auditor's report will be read;
- the liquidation proceedings will be declared closed.
A notary does not need to be present at the final general meeting.
Concluding liquidation proceedings
At the final general meeting, the shareholders/partners must, in particular:
- approve the liquidation accounts and the auditor's accounts;
- release the liquidator from their duties;
- specify where the company's books and documents will be stored for 5 years;
- decide how any surplus liquidation proceeds will be distributed.
The conclusion/notice of dissolution must be filed with the Trade and Companies Register so that it can be published in the electronic compendium of companies and associations (Recueil électronique des sociétés et associations - RESA).
This notice specifies:
- the location where the company's books and documents will be held for 5 years;
- the actions taken to deposit the funds that could not be returned to creditors or partners.
Consultation of the RCS
When a company is under liquidation, or if it has been struck off the RCS following the filing of the liquidation notice, the wording 'en liquidation judiciaire' (compulsory liquidation) or 'radiée' (removed) will appear next to the company name in the search results on the website of the Luxembourg Trade and Companies Register (see 'Consulter une personne').
For the dissolution to be considered valid, the company must have a certificate proving that it is in good standing with the social security, VAT and inland revenue authorities.
Unless otherwise agreed, the appointment of one or more liquidators, as well as the terms and conditions of liquidation, are determined by the general meeting of partners.