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Importance of dissolving the company due to debts in the company

Business Law
 Importance of dissolving the company due to debts in the company

Faced with the economic debacle that has been experienced worldwide as a result of COVID 19, many entrepreneurs have raised the question about the dissolution and liquidation of a company, especially when the lack of liquidity increases, and there are debts.

Others, on the other hand, have considered the possibility of leaving their companies inactive regardless of the debts, since with this they could recover their company when it interests them, given the expectations of a change in circumstances or because the possibility of selling the company arises.

However, it is important to bear in mind that a company with no commercial activity maintains the tax and commercial obligations in force throughout its existence, with the consequent expense that their compliance implies, without there being any income from the company. 

In any case, the importance of the decision made by the employer must be made for real reasons and that the members of the business society take into account the possible consequences of the imminent situation of insolvency and avoid being found guilty, timely raising a bankruptcy. creditors or the dissolution of the company.

Dissolution or liquidation of companies?

It is possible to initiate a process of dissolution of the company and later proceed to its liquidation. However, it should be considered that although the company disappears legally with the dissolution, as long as the liquidation is not carried out, the commercial activity continues.

Hence, the dissolution of the company due to debts must immediately choose one of the three ways provided by the Spanish legal system, namely: 

  1. Sale of the company.
  2. Liquidation of the company, ceasing its commercial activity and proceeding to the payment of creditors for its subsequent closure without obligations.
  3. If there is a lack of liquidity, it will be done through a bankruptcy.

Then, once the company is dissolved, it will proceed in accordance with Royal Legislative Decree 1/2010, of July 2, to add the expression "in liquidation" to its company name, for the consequent purposes.

Likewise, the administrators will cease in their positions and with it their power to represent the company, proceeding to assume such responsibility the liquidation board, who will mainly have the task of ensuring that the assets are intact until such time and a once the credits are satisfied.

Consequences of not dissolving the company due to debts.

As Forcam Abogados comments, one of the consequences for the partners who do not proceed to dissolve the company in accordance with the processes established in the current Spanish legal system is the responsibility of the partner or partners, for the declaration of guilt, as appropriate, which has the following effects:

Disqualification to manage third party assets, representation and administration of any person for a period of 15 years.

Loss of rights over the mass of claims, if any, and the obligation to reimburse the assets or rights obtained with the corresponding compensation for damages.

That is why the best alternative for a company that generates debt is the closing of the company through the dissolution and liquidation of the company, as well as the corresponding expenses and obligations.

Advantages of the express bankruptcy procedure

As a result of COVID-19, the Spanish Government has included the express bankruptcy procedure within its package of measures, allowing the employer to declare its insolvency, quickly, putting an end to its commercial activity without having to appoint a bankruptcy administrator, only with the approval of the Judge.

Other advantages of this procedure in those cases where it applies are:

The employer is exempt from liability for the lack of economic solvency of the company.

Possibilities of reaching a payment agreement with the company's creditors in those cases in which there is the possibility of recovering liquidity.

The presentation of the assets is not necessary to access the bankruptcy liquidation process.

Decrease in expenses and time for the liquidation of the company, since the appointment of a bankruptcy administrator is avoided, and can also use the ordinary judicial procedure for the declaration of bankruptcy.

Paralysis of the interests that are caused by those credits acquired, when declaring the bankruptcy, with the exception of those that are the product of real guarantees.

The positive balance that will remain once the company has been liquidated and the bankruptcy credits have been satisfied may be paid to the tax debtor balance.

The execution of goods and other assets of the company and those of the patrimonial mass of the debtors is paralyzed.

To carry out this procedure, the participation of a solicitor and the assistance of a specialist lawyer will be necessary to carry out the bankruptcy.

Contact us, and our lawyers specializing in business law will study your specific case. 

At Forcam Abogados we have offices in Barcelona, Madrid and Reus.