A company's voluntary liquidation
In voluntary liquidation, all of the shareholders of a solvent company are interested in the liquidation of the company.
In order to properly and legally dissolve a company, there are three options available.
It is important to note that each of the options has its own procedural and legal characteristics.
By Igal Mor, Adv. & Notary
Accuracy in Legal Advice. Excellence in legal support.
In many cases, liquidating a company, even if it is voluntary, can be a complex and emotional process. It is often a company comprised of many individuals who have invested heavily in it over time. Therefore, in order to ensure that the liquidation procedure is conducted in the most efficient manner for all parties, as well as to ensure that the shareholders’ and other parties’ rights are preserved, it is very important to hire a lawyer who has expertise in the field of incorporation, in order to ensure that the proper procedure is followed.
What is voluntary company dissolution and when does it occur?
An organization’s liquidation is the process through which the company is dissolved, usually for a variety of reasons, a process that begins with the receipt of a liquidation order and concludes with the liquidator’s completion of the liquidation process. The liquidation process can take several years, and at the end of it, a liquidation order is issued to the company. Interestingly, voluntary dissolution is not the norm. Dissolution of a company is often caused by insolvency – i.e., when the company cannot pay off its debts to its various creditors, including employees, suppliers, tax authorities, etc.
The termination of a company’s business activity does not automatically imply the liquidation of the company, the termination of its legal existence, or the termination of its activity in the Companies Registry. Thus, even if your company’s activities have ended or ceased, it will remain a legal entity with all of its consequences. Only after the process of liquidating a non-active company as stipulated in the law has been completed will the accumulation of annual fee obligations paid to the registrar of companies cease and the collection of these obligations prevented by the fine collection center.
In light of this, and in order to avoid the negative consequences arising from the fact that a company remains registered with the Registrar of Companies and still constitutes a legal entity, It is necessary to apply for a process of voluntary dissolution of a company, which is done with the Registrar of Companies, and only after the Registrar of Companies issues an order and approval, will your company be considered closed.
In Tel Aviv Assessor v. Sivan, civil appeal 1240/00, the following is stated: In the case of voluntary liquidation, the company is given a special status, which has meanings and consequences in a number of areas, and the sale contract, in which it was agreed upon the company’s voluntary liquidation at a later date, expressly prohibits the company from entering the status of a voluntary liquidation company at an earlier date. Thus, the sale transaction should be considered a transaction completed prior to the liquidation starting.”
Which companies are eligible to voluntarily liquidate, and what are the grounds for this decision?
It is important to note that not every company is able to dissolve voluntarily. Voluntary liquidation is only permitted for companies whose financial situation allows them to pay their debts within one year of the date of liquidation, i.e., solvent companies.
A company may decide to dissolve for a variety of reasons. Firstly, it is possible that this is an unprofitable company, and that its continuation would be futile. It is also possible that there is a conflict of control within the organization, which makes it difficult to manage it effectively. Another scenario is where the company’s shareholders wish to liquidate the company, and withdraw the funds they invested in order to invest them elsewhere. Additionally, it is possible that the reason is more technical – the period of the company’s activity, which is specified in the articles of association, has expired, and all the parties have decided not to renew the activity.
Additionally, it is important to keep in mind that the employees of the dissolving company also have rights under this procedure. Typically, when the assets of a company are insufficient to pay off all its debts, there need an explanation between its creditors. As a result, the law considers the company’s employees creditors
What is the procedure for voluntary liquidation of a company?
In view of the broad meaning of liquidating a company, its implementation is a complex process that requires a thorough understanding of company law. It is important to remember that this is a complex and bureaucratic process, and it is in your best interest to use a lawyer who makes the process as straightforward as possible.
The first step is to make a decision:
According to section 342 of this chapter, a company may make a special decision on voluntary dissolution in accordance with the provisions of this chapter.
The steps are as follows:
- When a payment is made to the Registrar of Companies, an affidavit must be submitted. Director signatures are required for this affidavit, stating that the directors have reviewed and approved the company’s financial situation, and are of the opinion that the company will be able to pay its debts in full within 12 months of liquidation starting. A copy of the affidavit must be sent to the Registrar of Companies.
- Convening a general meeting. The company must convene a general meeting and decide on voluntary liquidation, as well as appoint a liquidator. This must be done no later than three months from the date an affidavit is received.
- The assembly must publish its decisions regarding voluntary liquidation and the appointment of the liquidator in the records, within seven days of receiving the decision.
- A copy of the resolutions of the general meeting and the liquidator’s appointment notice must be sent to the Registrar of Companies within 21 days of the meeting’s convening.
- Following the appointment of the liquidator, the liquidator will promote the collection of assets and liquidation of the obligor’s debts. Among other things, to eliminate employee debts.
- A request to be exempt from paying fees can be made through several documents, including an affidavit of inactivity, a certificate from the IRS, or a certificate from an accountant appointed to perform audits in accordance with S. 154 of the Companies Law.
- A final liquidation report shall be prepared at the end of the liquidator’s actions and the liquidation of the company’s debts, in which it will be noted that the company has no remaining assets, liabilities or debts, or that the sum of each asset, liability, and debt combines to NIS 0 at the end of the liquidation.
- A notice of the summoning of the final general meeting is required by the liquidator. Two months prior to the deadline, it must be published.
- Convening a final general meeting – at the meeting, the liquidator must present his or her final report and receive approval.
- The dissolution documents must be sent to the registrar of companies, including the final report, a notice of the prohibition of the report by the assembly, and other related documents.
- The company has been notified that it is being liquidated by the Register of Companies.
Regarding the fee:
An annual fee is charged to a company that has ceased operations and has been placed in voluntary liquidation – a temporary order
In spite of the provisions of Regulation 5, a company that has ceased operations and submitted a report and notification to the registrar in accordance with section 338 of the Companies Ordinance is exempt from paying an annual fee or a financial sanction imposed for non-payment for the years following the date on which it ceased operations, provided that the documents are submitted to the registrar.
- A voluntary liquidation in an expedited procedure is intended for companies with no assets, liabilities, or pending legal proceedings, as well as no pending administrative enforcement actions against them.
- This is a voluntary liquidation process intended for companies with solvency that wish to dissolve voluntarily. It consists of two steps: the appointment of a trustee and publication in the company’s records.
- ‘Liquidation by court’ is the process of liquidating a company through the courts.
- Foreign company removal – intended for a foreign company that is registered in Israel and requests removal from the registry.
The importance of a lawyer in the process of voluntary liquidation of a company
As mentioned, many times, even considering that the liquidation is voluntary, there is great difficulty in liquidating a company. Both procedural difficulty and sometimes even emotional difficulty.
If you own a company and you wish to liquidate it, we invite you to contact us so that we can assist you in the liquidation.
A legal opinion regarding the dissolution of a corporation
Do you wish to dissolve a company? We invite you to a legal consultation to examine the options available to you.
Adv. Mor & Co.’s commercial law department has experience in representing various entrepreneurs, businesses, and corporations from Israel and abroad in a wide variety of legal areas.
