LIQUIDATION OF A SOCIETY WITH LIMITED LIABILITY – WHO IS RESPONSIBLE TO CREDITORS?

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LIQUIDATION OF A SOCIETY WITH LIMITED LIABILITY – WHO IS RESPONSIBLE TO CREDITORS?

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  The procedure and exhaustive list of grounds for deciding on the liquidation of the LLC are defined by the relevant Law, namely the Law of Ukraine “On Limited and Additional Liability Companies” (hereinafter – the Law). Article 31 of the Law stipulates the obligation of the director to convene the General Meeting of the members of the company if the value of the net assets of the company decreased by more than 50 percent compared to this indicator as of the end of the previous year.

 Such meetings shall take place within 60 days from the date of such reduction and the agenda of such general meeting of participants shall include questions about measures to be taken to improve the financial condition of the company, to reduce the share capital of the company or to liquidate the company. In the event of breach of this obligation and declaring the company bankrupt by the expiry of the three-year period from the date of the decrease in the value of the net assets, the director bears subsidiary responsibility for the company’s obligations to its creditors.

 Subsidiary liability is the additional liability of persons who, together with the debtor, are liable in the cases provided for by law or contract. In this case, in case of insufficiency of the property of the company declared bankrupt in satisfaction of the claims of the creditors, the claims will be satisfied at the expense of the property of the director of such company.
 In order to avoid subsidiary liability under this provision of the Law, a director must:
1) check the value of the net acts of the company for each quarter with this indicator at the end of the previous year. As the net asset value is determined on a quarterly basis, such a review should be carried out quarterly.
2) in case of detection of a decrease in net assets – within the terms stipulated by the Law, to convene a General Meeting of participants and issue a question on taking measures to improve the financial status of the company, to reduce the share capital of the company or to liquidate the company. In this case, it is necessary for the director to keep the proof of confirmation of the convocation of the relevant General Meeting.
 In order to quickly convene the General Meeting and have confirmation of their convocation, we recommend that the charter provides for the possibility of announcing the General Meeting of participants in various ways: by mail with attachment description or by courier or delivery by hand or by email to the e-mail address the participant specified in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Formations, or other address in writing notified by the participant to the company.
 If the charter stipulates the right to hand a message to the members of the Company, the director may, if necessary, “renew” the proof of timely notification of the participants about the need to convene the General Meeting and avoid liability.

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