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Liquidation is always a consequence of the breakup of a company, which might be due to different reasons. For example, it is possible that the shareholders simply decide to end the company. Another reason could be, that the company was founded to exist only a specific period of time (in this case the articles of association already include the date, when the company should be liquidated). In both cases there is no external reason to quit the enterprise.
Certainly, in many cases insolvency can lead to the break up of a company and further on to its liquidation. Insolvency simply means that the company cannot meet its financial obligations. It is to distinguish between accounting insolvency and cash flow insolvency. The former means that the total liabilities exceed the total assets, whereas the latter means a lack of liquidity to pay the debts on their due date. But the liquidation of the enterprise is not an inevitable consequence of an insolvency.
There also exists the possibility to re-organise the finances, if the liabilities can be settled to a certain extent (Sanierungsverfahren). The Austrian law (in particular the "Insolvenzordnung") knows two basic alternatives to handle an insolvency: financial recovery ("Sanierungsverfahren") and bankruptcy proceedings ("Konkursverfahren")
The Financial Recovery ("Sanierungsverfahren") has the goal to keep the company alive. Depending on the dividend (percentage of debts that can be settled) the managing director acts under surveillance of an administrator ("Sanierungsverwalter") or the Sanierungsverwalter replaces the managing director. A minimum dividend of 20 per cent of all debts is necessary to start a Sanierungsverfahren. More than 30 per cent allow the managing director to retain his executive power.
The bankruptcy proceedings ("Konkursverfahren", dividend beyond 20 per cent), on the other hand, has the goal to liquidate the company. A liquidator replaces the managing director and tries to sell the company as a whole in a first step to gain a better price than selling all assets individually.
So, a company in liquidation is run by a liquidator. If the shareholders or the articles of association do not have a clause who has to be the liquidator, the managing directors become the liquidators. In case of a liquidation due to insolvency the liquidator will be appointed by the local court. Normally this will be a lawyer.
Entrepreneurs can receive help from tax advisers and specialised lawyers. Some helpful information is also provided by the Wirtschaftskammer.
What follows next is the communication of the winding up of the company. The break up has to be filed at the commercial court immediately. The appointment of the liquidators has to be filed to the commercial court, too. The company has to use "in liquidation" as an annex to its name till it is deregistered.
Also the public has to be informed about the process. The liquidator then has to file an public appeal in an official journal (in the case of Austria this is the "Amtsblatt zur Wiener Zeitung") that all possible creditors shall bill their outstanding receivables ("Gläubigeraufruf"). Moreover, all known creditors have to be informed directly. The liquidator has to distribute remaining funds after settling all liabilities to the shareholders. He is not allowed to do this before three months after having filed in the "Amtsblatt zur Wiener Zeitung".
Having drawn up the last accounts ("Liquidationsschlußbilanz") the liquidator has to file a claim at the commercial court to deregister the company. The claim has to include a statement of the local tax office that there are no tax obligations.
In the life of a small venture, chances are high that founders fail. But regardless of the risks involved, many people strive for innovation and do all they can to keep a business going. Taking a couple of wrong turns might be enough to get your venture out of balance and even if you do everything right, it sometimes just isn’t enough and liquidation becomes the last way out. The topic of insolvency might be a tough one but entrepreneurs can receive help from tax advisers and specialised lawyers. Some helpful information is also provided by the Wirtschaftskammer. And as soon as you've said goodbye, don't forget that the next adventue might already be waiting.
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