Liquidation of legal entities in the Republic of Azerbaijan is primarily regulated in accordance with the Law of the Republic of Azerbaijan “On State Registration of Legal Entities and State Register”, the Civil Code and the Tax Code of Azerbaijan.
Under the law, liquidation of a legal entity is the termination of its existence and activities without the transfer of its rights and obligations to other persons. The liquidation process of a legal entity is commenced upon adoption of the resolution on liquidation of the company by the general meeting of participants (shareholders) of the company and appointment of a liquidation commission or a single person liquidator. The liquidation commission or a sole liquidator assume all management rights in respect of the legal entity effective from the date of its appointment.
Prior to adoption of the resolution on liquidation, the executive body of the legal entity adopts an official statement confirming solvency of the legal entity (on assets and liabilities) to meet the claims of all creditors of the legal entity within 12 months. The executive body of the company either issues this statement not more than 20 days before the adoption of the resolution on liquidation. In case the executive body fails to issue such statement, an independent auditor shall be appointed to confirm the solvency of the legal entity.
Upon appointment of the liquidator, s/he will inform the Ministry of Taxes (by submitting resolution, application, company documents, corporate seal etc.) and State Social Protection Fund of the resolution on liquidation of the legal entity. These state authorities are entitled to conduct various audits/inspections to determine outstanding liabilities of the legal entity towards state budget and social protection fund. The Ministry of Taxes shall make entries in the state register of legal entities which will indicate that the legal entity is in process of liquidation.
Further, under the Civil Code, the liquidation commission (liquidator) shall publish an initial announcement on liquidation of a legal entity and terms of acceptance of claims of creditors in the official newspaper of the Ministry of Taxes within 10 days from its appointment, to be followed by 2 more such announcement with an interval of 15-20 days. The time period for creditors to bring up their claims cannot be less than 60 days.
After the time period for the creditors to bring up their claims the liquidating commission (liquidator) shall prepare an interim liquidation balance sheet of the company and send it to the participants (shareholders) of the company for approval. An interim liquidation balance sheet contains the information of composition of the property, claims and list of debts of the company. The settlement with creditors is conducted in the order of receipt of the claims of creditors.
Further, upon receiving the notice from the company, the State Social Protection Fund will audit whether the company was compliant with payment of statutory social insurance contributions and other obligations under social insurance. In case of any indebtedness was found, the company will settle (or dispute such findings) such debts and then SSPF will issue an official letter confirming absence of any indebtedness in respect of social insurance obligations.
Finally, the most challenging part in liquidation procedures can be considered the audit of and settlement with the tax authorities. Under the Tax Code, the liquidation commission (liquidator) shall submit the necessary tax declarations to the tax authorities within 30 days from the date of the resolution on liquidation. The tax authorities may conduct on-site tax audit of the legal entity to identify its tax liabilities. If no tax related non-compliance identified, tax authorities shall issue a tax audit act confirming that the legal entity does not have any outstanding obligations before the state budget.
Upon, settlement of all claims and debts, the liquidating commission/ liquidator prepares a liquidation balance sheet and a report on distribution of the remaining property between the participants (shareholder). The liquidation balance sheet and the report shall be approved by the participants (shareholders) within 45 days and the remaining assets of the legal entity will be transferred to the participants within 10 days in accordance with a distribution plan in proportion to the shares of the participants (shareholders) in the charter capital of the company.
The final phase of the liquidation procedures is the registration of the liquidation and removal of a legal entity from the state register of legal entities, for which, the following documents will be submitted to the Ministry of Taxes: (i) an application signed by the participants of the company or the members of the liquidation commission (liquidator); (ii) approved liquidation balance sheet; (iii) report on distribution of use of the remaining property and the document on transferring the remaining property to the participants (shareholders) of the company; (iv) originals of the company documents; (v) corporate seal on which a “in liquidation process” notice is marked; (vi) a report from the court on existence of any administrative or criminal charges brought against the company.
After acceptance of the documents listed above, the Ministry of Taxes will take a decision on removal of the company from the state register within 7 working days. The legal entity shall be considered liquidated from the date decision of the Ministry of Taxes on removal of the legal entity from the State Register of Commercial Legal Entities and the Unified State Register of Taxpayers. The Ministry of Taxes will also notify other state authorities (SSPF, employment center, statistics office etc.) of the liquidation of the company accordingly.
This article was prepared as a general information by the corporate team of Baku Attorneys & Consultants (BAC), Azerbaijani law firm. BAC is a full service law firm based in Baku and it has a strong team of corporate attorneys who are available to discuss your company’s case in detail and can advise on all aspects of corporate law, including liquidation or temporary suspension of company activities. Please, feel free to reach us via http://www.batco.az.