Company liquidation

Company Liquidation is one of the ways a business entity in Serbia can cease its operations.
Unlike entrepreneur, who can simply close their business by deregistering with the Serbian Business Registers Agency (APR), companies must go through a longer and more complex process – company liquidation.
This applies to all types of companies: general partnerships, limited partnerships, limited liability companies, and joint-stock companies.

Simply put, company liquidation is a process for companies that are solvent, meaning they have enough assets to settle all their liabilities.
Insolvent companies—those whose debts exceed their receivables—go through bankruptcy proceedings instead.
Also, through corporate restructuring processes such as mergers, acquisitions, splits, or demergers, a company may cease to exist without undergoing classic liquidation.
In all other cases, no company can legally cease operations without undergoing a formal company liquidation process—either voluntary or compulsory.

The company liquidation process is regulated by the Companies Act, which distinguishes between voluntary and compulsory liquidation.

This text explains the key aspects of the liquidation process and what it means for owners and creditors. We aim to keep it clear and accessible for non-experts, but note that liquidation is a complex procedure that requires professional assistance.

What is company liquidation and when is it carried out?

Voluntary liquidation can be initiated for various reasons:

·       Founders no longer want to run the business

·       Founders no longer want to operate within the same company

·       The company has fulfilled its purpose

Liquidation is usually initiated when the owners decide to stop the business, even if it is profitable.
Just as a company is established and registered with the Business Registers Agency (APR) through a founding procedure, it is terminated after completing the company liquidation process.
Therefore, liquidation is a legally regulated procedure for closing a solvent company—one that has enough assets to pay off all debts.

Protection of creditors during company liquidation

The purpose of liquidation is to ensure that all creditors are paid and do not suffer real losses due to the company’s closure after having conducted business with it.
With creditors’ interests in mind, during liquidation:

·       No profit shares or dividends are paid out

·       The company’s assets are not distributed to members

·       The company may continue current operations but cannot start new ones

Who can initiate company liquidation?

Liquidation can be initiated in several ways:

·       By unanimous decision of all partners or general partners

·       By decision of the limited liability company’s assembly with a two-thirds majority

·       By decision of the shareholders’ assembly

After the decision, to officially start liquidation, the decision must be registered and an announcement made.
At this point, the company’s name formally gains the suffix “in liquidation.”
Starting liquidation does not affect ongoing enforcement or other proceedings against or in favor of the company.

Liquidator

To formally begin company  liquidation, one important step is the appointment of a liquidator.
The liquidator is the central figure in the process. Upon appointment, all previous representatives’ functions end. If the company does not appoint a liquidator, the current representative acts as the liquidator.

The liquidator is responsible for:

·       Representing the company in liquidation

·       Completing tasks started before liquidation

·       Collecting receivables

·       Paying creditors

·       Selling assets

The liquidator must act in the best interest of both the company and its creditors.

Steps in the company liquidation process

1.     Registration and announcement
The liquidator begins liquidation by publishing an announcement on the Business Registers Agency website for 90 days.
This announcement invites all creditors to submit claims and provides instructions for exercising their rights.

2.     Notifying creditors
The liquidator directly informs all known creditors based on available company documents, urging them to submit claims within deadlines.

3.     Initial liquidation balance sheet and report
Within 30 days from the start, the liquidator must prepare an initial liquidation balance sheet showing the company’s financial position.
After the claim submission deadline, the liquidator prepares a report informing owners or assemblies about:

·       Claims filed, accepted, or disputed

·       Whether the company’s assets suffice to settle all debts

·       Necessary steps to complete liquidation

·       Estimated timeline for completion

·       Other relevant facts

4.     Verifying claims and settling creditors
The liquidator may dispute claims not supported by enforceable documents but must pay verified claims.
Reports prepared include:

·       Final liquidation balance sheet

·       Report on the liquidation carried out

·       Statement confirming notification of all known creditors

·       Proposal for distribution of remaining assets

Distribution of the liquidation surplus

After all creditors are paid, any remaining assets—liquidation surplus—can be distributed to members according to their shares.
However, members who receive surplus assets carry responsibilities, since general partners are jointly and unlimitedly liable for company debts during and after company liquidation.
Limited partners, LLC members, and joint-stock shareholders are liable up to the amount received from the surplus.

Suspension of company liquidation

A company that started liquidation but has paid all creditors may decide to suspend liquidation and resume operations.
This decision follows the same procedure as the one that started liquidation.
Conditions for suspension include no layoffs based on liquidation and no distributions to members.
Formal suspension requires registration and appointment of a legal representative.

When company liquidation turns into bankruptcy

If the liquidator finds from the initial balance sheet or report that the company’s assets are insufficient to cover all creditors’ claims—meaning the company is insolvent—they stop creditor payments and initiate bankruptcy proceedings.

Completion of company liquidation

Company liquidation ends with a formal decision to conclude the process.
After completion, the company is deleted from the Business Registers Agency. For joint-stock companies, deletion occurs after notifying the Central Securities Registry.

Compulsory liquidation

Unlike voluntary liquidation, compulsory liquidation is initiated ex officio by the Business Registers Agency registrar.
Triggers include:

·       Ban on business activity imposed without voluntary liquidation started

·       Revocation of license or permit

·       Expiry of the company’s duration

·       General partnership left with only one partner or limited partnership without general partner

·       No legal representative for more than 3 months

·       Failure to submit financial statements for two consecutive years

·       Other legal reasons

The registrar notifies the company, giving it a deadline to correct these issues.
If the company fails to comply, the registrar adds “in compulsory liquidation” to the company name.

The company continues operating only to complete current obligations—paying due debts, ongoing costs, and employee obligations.
No dividends or asset distributions are allowed before deletion from the register.
Legal proceedings against the company are suspended, except for bankruptcy initiation if insolvency is established.
Compulsory liquidation ends when legal deadlines expire. If unresolved, the registrar deletes the company from the register within 30 days after the announcement period.
Assets of deleted companies pass to members in proportion to their shares; in general partnerships without capital, assets are equally split.
Members remain liable for company debts up to the value of received assets.
Exceptionally, controlling members of LLCs and shareholders of joint-stock companies bear unlimited joint liability even after deletion.

Conclusion

Company liquidation is a regulated method for ending the operations of a solvent company.
For company owners, it is important to understand that liquidation is not bankruptcy—it is a way to close a company that can pay its debts but no longer wishes to operate.
The Companies Act protects creditors, but owners’ interests must also be safeguarded to avoid unexpected liabilities after company deletion.
While we presented liquidation as a process with a clear flow and activities, it is complex, requiring careful monitoring of deadlines and procedures.
Proper preparation and expert help are essential for an efficient and transparent company liquidation.

Law Firm Petrović Mojsić & Partners