When a company or association faces insolvency or is over-indebted, it typically has two paths to follow: bankruptcy or structured liquidation in Germany (also called voluntary dissolution). The decision largely depends on what is next seen for the future of the business. If there is still hope for a turnaround, bankruptcy might be the right choice. If, however, the company’s future is sealed, company liquidation in Germany is the final step where the assets are sold off to settle liabilities. Find below the detailed guide in this matter offered by our specialized attorneys in Germany.
Table of Contents
How can a company be liquidated in Germany?
The two ways a company can be liquidated in Germany are compulsory and voluntary.
The voluntary procedure can be initiated only by the members of the company during a general meeting while the compulsory procedure can be initiated by a competent court.
The main regulations used by the companies in the process of liquidation can be found in the Commercial Register Regulation, Commercial Code, the Civil Code, the Stock Corporation Act the Limited Companies Act and the Industrial Code.
| Quick Facts | |
|---|---|
| Applicable law(s) | German Commercial Code (HGB), Insolvency Code (InsO), and Civil Code (BGB). |
Conditions to liquidate a company | Insolvency, shareholder resolution, or business closure decision. |
Types of procedures | Voluntary liquidation, Compulsory liquidation. |
| Voluntary company liquidation | Initiated by a shareholder resolution to dissolve the company. |
| Compulsory company liquidation | Initiated by a court order due to insolvency or creditor petition. |
| Appointment of a liquidator in a voluntary procedure | A liquidator is appointed by the shareholders, typically a director or an external professional. |
| Appointment of a liquidator in a mandatory procedure | The court appoints a liquidator, typically from an insolvency administrator list. |
| Authorities to notify in case of liquidation | Trade Register, tax office, social security institutions, creditors. |
| Requirement to notify other parties (YES/NO) | YES |
| Notice requirements | Publication of liquidation notice in the German Federal Gazette (Bundesanzeiger). |
| Additional accounting requirements to comply with | Final accounts must be prepared, including a balance sheet and income statement at the time of liquidation. |
| Company liquidation time frame (approx.) | 6 to 12 months, depending on the complexity of the liquidation process. |
| De-registration with the Tax Office in Germany required (YES/NO) | YES |
| Trade Register deletion requirement (YES/NO) | YES |
| Company liquidation support (YES/NO) | YES, our legal and financial advisors can assist throughout the process. |
What are the steps for company liquidation in Germany?
The voluntary liquidation is decided by at least 8/4 of votes in a general meeting (unless stipulated that is made differently in the articles of association).
Before beginning the process of liquidation it’s necessary to prepare a balance sheet which must contain the name and address of the person in charge with the liquidation (liquidator) and the name and address of the person responsible for keeping the books of the company after the liquidation. The liquidator is usually a former member of the management board and has the same powers as the management had but it can use it only if are in the interest of the liquidation.
The first step of the liquidation is sending a notification to the German Trade Register, containing the declaration of the liquidator that there are no reasons not to liquidate the company. The decision of liquidation must be published in the German Electronic Federal Gazette and the creditors must be notified regarding the decision of liquidation and the procedure of submitting the claims.
The claims from the creditors are the first to be covered and if in one year from the initial decision there are remaining assets, it had to be distributed among the shareholders, according to the articles of association’s provisions.
The cancelation from the German Trade Register cannot be made sooner than a year from the first notification sent to the creditors. The request for cancelation must contain the liquidation decision and a proof that the creditors were announced regarding the liquidation.
The compulsory liquidation is similar with the voluntary decision but the liquidator is appointed by the court and the whole process is supervised by it. The company has the obligation to de-register from the local authorities, such as the German pension insurance scheme, Federal Employment Agency and tax authorities.
Working with a team of accountants in Germany during company liquidation can be essential for the proper distribution of the remaining company assets to its creditors. Our team of German accountants is able to assist business owners during this process. We will help guide the company owners, as well as provide information on the final financial reporting and payment requirements for the company that is about to close.
The company liquidation process is further explained in this video:
Types of company liquidation in Germany
Company liquidation processes in Germany can be classified into three categories based on:
Purpose:
- Material liquidation in Germany: this involves selling all of the company’s assets, after which the business is completely closed;
- Formal liquidation: in this case, the company’s business continues under a new legal form, transferring its assets to the new entity.
Asset scale:
- Total liquidation: all company assets are sold or transferred;
- Partial liquidation in Germany: only parts of the company’s assets are sold, and the company continues in some capacity.
Initiation:
- Voluntary liquidation: this is typically initiated by the shareholders or the general meeting of the company;
- Forced liquidation: this is ordered by a court, often due to insolvency, where the company is forced into liquidation.
Find support from our specialized German lawyers in order to better understand the processes of company liquidation in Germany and how it works.
Liquidation vs. Bankruptcy in Germany
When a company in Germany becomes insolvent, it generally has two options:
- Liquidate: this involves selling off assets and ending operations;
- File for bankruptcy: bankruptcy may allow the company to restructure and possibly continue operations.
Liquidation can only occur if the company is either set to close down (e.g., a business with a limited lifespan) or if the court has rejected a bankruptcy filing due to insufficient assets to cover legal costs.
If bankruptcy is pursued, a court-appointed insolvency administrator takes over the company’s affairs, working to either restructure the company or liquidate its assets. In liquidation in Germany, the company ceases to exist, while in bankruptcy, it may continue in a restructured form.
To have a better understanding of how these two procedures work, our team of professional accountants in Germany can offer relevant assistance and support. In this matter, the work of a German accountant can be essential when it comes to liquidation, but also to other important aspects of business operations, such as VAT registration in Germany, for example.
How long does it take to liquidate a company in Germany?
A liquidation of a company in Germany takes more than a year, since the cancelation from the Trade Register cannot be performed earlier than a year from the first notification of the creditors.
Get support from our lawyers in Germany in order to make the company liquidation process as efficient as possible.
Liquidation and insolvency data in Germany
According to the Federal Statistical Office, there have been presented some up and down numbers regarding companies declaring insolvency in Germany in the past years:
- In April 2023, requests for normal business insolvency in Germany decreased by 14.1% compared to March 2023;
- In February 2023, there was a 10.8% increase in requests for insolvency compared to the previous month;
- In March 2023, requests for insolvency rose by 13.2% compared to February 2023.
If you are looking to ease the liquidation process of your German company or you are looking for more information in this matter and other business-related issues, do not hesitate to contact our law firm in Germany. Our team can also help you start a limited company in Germany.