Can a company be declared bankrupt in liquidation?

Winding up of a company

In connection with the liquidation of a commercial company, the representation of the company is entrusted to the liquidators. During the liquidation process, they are obliged to wind up the company’s current affairs, collect receivables, fulfil obligations and realise the company’s assets. The final settlement of the company’s current affairs involves the termination of existing legal relationships with other entities through their dissolution or termination. The liquidators are obliged to bring the company’s current affairs to a close.

From the company’s assets, due liabilities are settled first, and appropriate sums are set aside to settle liabilities that are uncollectible or disputed. Consequently, liquidators are obliged to settle the company’s undisputed debts that are already due and to set aside funds for the repayment of remaining liabilities before the company’s assets are distributed among the shareholders.

As follows from the above, liquidators are obliged to settle liabilities and set aside funds for disputed claims; consequently, liquidation is intended for entities whose assets are sufficient to settle their liabilities.

Bankruptcy

Bankruptcy is declared when a debtor becomes insolvent. A debtor is insolvent if they have lost the ability to meet their due financial obligations. Persons authorised to represent the debtor have 30 days from the onset of insolvency to file a petition for the declaration of bankruptcy. It is presumed that the debtor has lost the ability to meet their due financial obligations if the delay in meeting such obligations exceeds three months.

Furthermore, a company is also insolvent if its financial liabilities exceed the value of its assets, and this situation persists for a period exceeding twenty-four months.

The purpose of bankruptcy proceedings is therefore to satisfy creditors equitably – in accordance with the law – where the company’s assets are insufficient to repay all debts.

What happens if a company in liquidation becomes insolvent

Consequently, if insolvency arises during the liquidation of a company, the company is obliged to file a petition for a declaration of bankruptcy.

A petition for a declaration of bankruptcy may be filed by:

• in the case of a general partnership, a professional partnership, a limited partnership and a limited joint-stock partnership – any partner who is liable without limitation for the company’s obligations;
• in the case of legal persons and organisational units without legal personality to which a separate Act grants legal capacity – any person who, under the Act, the partnership agreement or the articles of association, has the right to manage the debtor’s affairs and to represent the debtor, either alone or jointly with others;
• in relation to a legal person, a general partnership, a professional partnership, and a limited partnership or a limited joint-stock partnership in liquidation – each of the liquidators.

The obligation to file a petition for the declaration of bankruptcy rests with each of the persons authorised to represent the entity, and therefore also with the liquidators. This is not only a right but also an obligation of the persons entrusted with representing the company. Do you need assistance with bankruptcy proceedings? Contact HWW Law Firm.

Author

Agata Bączkowska

Adwokat, Senior Associate

She specializes in commercial and civil law. She has gained experience in Warsaw law firms providing comprehensive services to companies and a law firm specializing in labor law. She has extensive experience in corporate consulting. She has participated in mergers and acquisitions at every stage of the process, from pre-transaction legal examination to fulfillment of regulatory requirements related to the transformation process. She prepares and reviews contracts entered into by clients and advises in cases of…

View profile →