What are the conditions for deleting a company from the Commercial Register?

Liquidation of the company as a prerequisite for its subsequent deletion from the Commercial Register. § Section 68(3)(a) of the Commercial Companies Code, Section 70 et seq. of the Commercial Companies Code. Our law firm in Olomouc, Hradec Králové and Prague can help you with this issue. Do not hesitate to call for a non-binding meeting.

Author of the article: ARROWS (JUDr. Vladimír Janošek, office@arws.cz, +420 245 007 740)

This article was written in 2018. If you are looking for up-to-date information on this topic, please do not hesitate to contact us at office@arws.cz or by phone at +420 245 007 740. We will be happy to advise you.

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The legislation distinguishes between dissolution of a legal entity with liquidation and without liquidation. Liquidation is compulsory, except in cases where the law provides otherwise (e.g. a legal entity dissolving with a legal successor or in certain situations related to the resolution of bankruptcy).

The statutory procedure for liquidation of a company, in its minimalist formal scope, must be carried out even in those companies which are not aware of the existence of any liabilities to potential creditors (because creditors' liabilities may arise, for example, from breach of legal obligations, etc.).

If the company has not been liquidated, the liquidation, which is a prerequisite for a successful application for the removal of the company from the commercial register, cannot have been properly completed.

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Resolution of the High Court in Prague of 23 October 2017, Case No. 7 Cmo 43/2017

Re: The Court of First Instance dismissed the petition for registration of the erasure dated 26/11/2016, under Fj 443596/2016/MPSH. In its reasoning, the Court of First Instance stated that by the petition received by the court on 26/11/2016, F 443596/2016, the petitioner sought registration of the erasure of the company from the public register.

Reason: The petitioner sent only a petition and in the petition the petitioner stated the legal reason for the cancellation: Kovovelt has not been carrying on any business activity for 20 years․ The partners separated in early 1996 and have not been in contact since then. The tax returns have been sent to the Tax Office for many years with zeros in all the boxes. In view of these facts and the fact that the company has no debts or claims, I request that it be removed from the Register of Companies. As the company has no assets or funds, I request a waiver of all fees associated with its cancellation, which I would have to pay from my retirement pension. The court then stated that, like the formation of a company, its dissolution has two stages. In the first stage, the company is dissolved in one of the ways provided for by law under the law on companies, if the decision to dissolve the company was made before 31 December 2013, as of 1 January 2014 the decision to dissolve the company is made under Act No. 89/2012 Coll. and Act No. 90/2012 Coll., or it may be dissolved by a court decision under Article 764(2) or Article VIII(19) and (26) of Act No. 370/2000 Coll. In the second stage, it ceases to exist on the date of registration of its dissolution from the public register. Until the date of cancellation, the company continues to exist as a legal person, it can therefore acquire rights and obligations by its own acts and has procedural capacity. Similarly to the establishment and formation of a company, its dissolution is constructed in two phases - the company must first be dissolved, either voluntarily by a decision of its shareholders, or by a body of the company composed of the shareholders (general meeting of capital companies), or compulsorily by a court decision. The dissolution of a company is also brought about by legal events occurring without depending on the decision of the company or the court - the company is also dissolved by the lapse of time or by the achievement of the purpose for which it was established. The dissolution may be followed by the termination of the company, which is associated with its deletion from the commercial register. Therefore, if the company has not been dissolved, it cannot be deleted from the public register with the legal reason for deletion being that the company has no activity. The court further cited the relevant statutory provisions (Sections 169(1), 187(1), 207 of the Civil Code), stating that in connection with the dissolution and winding up of a company, the liquidator should file at least two petitions for entry in the public register. First of all, the date of dissolution of the legal entity, the legal reason for dissolution, entry into liquidation and the liquidator's details should be entered. After the liquidation has been carried out, a motion should be filed to register the termination of the liquidation and the deletion of the company from the public register. In view of the fact that the company was not properly liquidated, the court dismissed the application in its entirety.

The company lodged a timely appeal against the order of the Court of First Instance. In its appeal, the company stated that it had no tangible or financial assets. The appeal requested that the application for striking off the company be allowed. The notice of appeal further stated that 'I enclose the order of dissolution of the company'. The attached document was marked as 'Resolution for dissolution of the company'.

The High Court in Prague, as the Court of Appeal, examined the contested order of the Court of First Instance to the extent challenged in the appeal and concluded that the appeal was not well-founded.

Legal relations arising prior to 1 January 2014 are governed by the existing legal provisions (see the transitional and final provisions of Act No. 89/2012 Coll. (Section 3043(2)) and Act No. 90/2012 Coll. (Section 775)), i.e. here the Civil Code No. 40/1964 Coll. (hereinafter referred to as the Civil Code 1964) and, in particular, the Commercial Code No. 513/1991 Coll. (hereinafter referred to as the Commercial Code) in the applicable version (i.e. in the version in force on the date of the dissolution of the company on 31 December 1997).

According to the contents of the submitted register file, the company KOVOVELT, spol. s r.o., as the petitioner, filed a petition for its deletion from the Commercial Register, requesting that the following text be entered as the legal reason for the deletion: "Kovovelt has not been conducting any business activity for 20 years. The partners separated at the beginning of 1996 and have not been in contact since then. Tax returns have been sent for many years with zeros in all boxes. In view of these facts, and the fact that the company has no debts or claims, I request that it be removed from the Register of Companies. As the company has no assets or funds, I request a waiver of all fees associated with its cancellation, which I would have to pay from my retirement pension." The appellant has submitted a document marked 'Decision on the dissolution of Kovovelt spol. s ručením ograniczoną, ..., represented by its sole executive Zdenka Feglarová (formerly Moučková)', which further states that 'In accordance with the 1992 Memorandum of Association (Memorandum of Incorporation), in which, as the executive of the company, I have the final and decisive say authorising all actions, including legal ones, I have decided to dissolve the above-mentioned company. I declare that Kovovelt has no tangible or financial assets. All debts were settled in 1996 shortly after the dissolution and no legal proceedings have been brought against Kovovelt as a debtor. The bank account has been cancelled for years, the trade licence also cancelled and the lease of the premises terminated. In Chrastava on 8 December 2016'; the deed was signed by Zdeňka Feglerová, with the words 'Managing Director of the company' below her signature. In the folder of the register file marked "Cover for the articles of incorporation and the articles of association of the company" there is a memorandum of association on which the signatures of the founders are officially certified as of 21 July 1992. According to point 3.2, "The company is established for a definite period, i.e. 5 years until 31 December 1997." Pursuant to point 16.1. "Except as provided for in the Commercial Companies Code, the company shall cease to exist after the expiry of five years, i.e. 31 December 1997, unless the shareholders agree on the continuation of the company."

According to Section 68(1) of the Commercial Companies Code "the company shall cease to exist on the date of its deletion from the Commercial Register, according to Section 68(2) of the Commercial Companies Code "the dissolution of the company shall be preceded by its liquidation with or without liquidation if its assets are transferred to a legal successor. Liquidation is also not required if the petition for declaration of bankruptcy is rejected due to lack of assets or if no assets remain after the bankruptcy proceedings are closed."

According to Section 70(1) of the Commercial Companies Code, "if the entire assets of the company have not been transferred to a legal successor (Section 69), liquidation shall be carried out in accordance with this Act, unless a special law provides for a different method of settlement of its assets." According to Section 70(2) of the Commercial Companies Code, "the entry of the company into liquidation shall be entered in the Commercial Register. During the period of liquidation, the company's business name shall be used with the endorsement 'in liquidation'."

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According to Section 71(1) of the Commercial Companies Code, "a liquidator shall be appointed by the statutory body of the company, unless otherwise provided by law, the articles of association or the articles of association; if the liquidator is not appointed without undue delay, the court shall appoint him; only a natural person may be a liquidator."

According to Section 73 of the Commercial Companies Code, "the liquidator shall notify all known creditors of the company's entry into liquidation. At the same time, he is obliged to publish that the company has entered into liquidation, with an invitation to the company's creditors and other persons and bodies affected to submit their claims or other rights within a time limit which may not be shorter than three months". Pursuant to Article 769 of the Commercial Companies Code, "the obligation to publish the information provided for by this Act is fulfilled by its publication in the Commercial Gazette".

The legislation distinguishes between dissolution of a legal entity with liquidation and without liquidation. Liquidation is compulsory, except in cases where the law provides otherwise (e.g. a legal entity dissolving with a legal successor or in certain situations related to bankruptcy resolution).

The above-mentioned statutory provisions, in conjunction with the above-mentioned facts as established by the Court of Appeal from the documents filed in the register file, mean that, in accordance with Article 68(3)(a) of the Commercial Companies Code and the above-mentioned part of the articles of association, the company in question was dissolved on the expiry of the period for which it was established, namely on 31 December 1997, and at the same time the company in question entered into liquidation pursuant to Article 70(1) of the Commercial Companies Code. There were no situations in which the law provides that liquidation is not required. Following the company's entry into liquidation in connection with its dissolution on 31 December 1997, a liquidator should have been appointed in accordance with Article 71(1) of the Commercial Companies Code (and, of course, a petition for its entry in the Commercial Register, including the endorsement 'in liquidation' in the company's business name) and a proper liquidation process should have been carried out as a statutory procedure for the liquidation of companies, including the obligations laid down in Article 73 of the Commercial Companies Code. The Court of Appeal emphasises that the statutory procedure for the liquidation of a commercial company, in its minimalist formal scope, must be carried out even in those companies which are not aware of the existence of any obligations to potential creditors (because the obligations of creditors may arise, for example, from the breach of legal obligations, etc.).

As it is clear from the submitted application - the text under the heading 'Other facts (legal grounds for cancellation)', the appeal and the documents attached thereto, the appellant has not even claimed, let alone proved, that a proper, i.e. lawful, liquidation process of the company in question (including, inter alia, the liquidation of the company in question) has taken place. The liquidator (who is not even registered in the Commercial Register and it has not been alleged that he was appointed to his post) was the person authorised to do so.) In other words, if the procedure laid down by law for the liquidation of companies was not followed, the liquidation could not have been properly completed as a prerequisite for a successful application for the removal of the company in question from the commercial register.

For the above reasons, the Court of Appeal upheld the order of the Court of First Instance in the contested judgment as substantively correct pursuant to Section 219 of the Civil Procedure Code.

Note: The above-mentioned conclusions are also applicable under the legislation in force as of 1 January 2014. According to Article 168(1) of the Civil Code: 'A legal person shall be dissolved by legal action, by expiry of time, by a decision of a public authority or by the achievement of the purpose for which it was established, and for other reasons laid down by law.' According to Section 168(2) of the Civil Code, "After the dissolution of a legal person, its liquidation is required, unless its entire assets are acquired by a legal successor or if the law provides otherwise." According to Section 171(a) of the Civil Code, "A legal person shall be dissolved on the expiry of the period for which it was established." However, the law does not provide for any exception for non-asset-bearing commercial corporations (so-called empty shells) in the sense of Section 168(2) of the Civil Code, in that such entities may, after their dissolution, directly file a petition for their deletion from the public register without liquidation (cf. also Section 82(1) of the Civil Code). This means that also for these legal entities, all steps in the liquidation process must be taken (Section 187 et seq. of the Civil Code), otherwise the registration court cannot grant their application for deletion (similarly, the High Court in Olomouc ruled in its resolution of 23 April 2015, Case No. 8 Cmo 84/2015, resolution of 2 June 2015, Case No. 8 Cmo 147/2015, and resolution of 22 December 2015, Case No. 8 Cmo 357/2015).

In the insolvency context, it should be noted in particular what I have already written in Petrov, J., Výtisk, M., Beran, V. et al. Civil Code. Commentary. 1st edition. Prague: C. H. Beck, 2017, p. 261, marg. no. 4 and 5, namely that in practice complications arise especially for non-wealthy legal persons in liquidation and in bankruptcy (§ 200 of the Civil Code), for which it is not possible to proceed according to § 82(1) of the Civil Code. Newly, an insolvency petition cannot be rejected because the debtor's assets will not be sufficient to cover the costs of the insolvency proceedings, even if this is obvious (Section 144 InsZ). After the insolvency petition has been filed by the insolvency liquidator, the court usually imposes an obligation on the legal entity to pay a deposit for the costs of the insolvency proceedings, which the debtor does not have the means to pay, and as a result the insolvency proceedings are then dismissed by the court with reasons, The purpose of the insolvency proceedings is not to create conditions for the dissolution of non-functional legal entities, but to resolve the debtor's bankruptcy and threatened bankruptcy by one of the methods provided for by law, which presupposes that there are assets in the estate from which the claims of creditors could be at least partially satisfied (High Court in Prague, no. 3 VSPH 1689/2014-A-14). If the liquidator of the debtor is unable to pay the advance (otherwise the costs of the insolvency proceedings would be borne by the State, see DZ to Act No. 294/2013 Coll., p. 89), the court shall discontinue the proceedings and the liquidator shall complete the liquidation of the legal entity outside the insolvency proceedings (High Court in Olomouc, No. 2 VSOL 467/2013-A-13), usually per analogy to § 201-204 of the Civil Code. Completion of liquidation and deletion of the debtor from the public register are not conditional on the implementation of insolvency proceedings (Supreme Court, Case No. 5 Tdo 1300/2014).