Dissolving is not ending: grounds for dissolution, liquidators, registration and the opening balance sheet

Two partners have run a small web agency as a UG for six years. One is moving abroad, the other has accepted a salaried job. The business account holds 38,000 €, and they know of no unpaid invoices. Their plan: transfer the money half each and have the company struck off at the register court. Between that plan and the deletion stand a resolution, two filings, a public call to creditors and a full year of waiting.

Three phases: dissolution, winding-up, deletion

In everyday speech a GmbH is "dissolved" when it disappears. The statute draws a sharper line. Dissolution is only the event that changes the company's purpose: it is no longer meant to advertise, sell and grow, but to turn its assets into cash, pay its debts and hand whatever is left to the shareholders.

Dissolution is followed by the winding-up, which the GmbH Act calls liquidation. Only at its end comes deletion from the commercial register under § 74 GmbHG. As a rule more than a year lies between these points, because before any distribution to shareholders the blocking year of § 73 GmbHG must expire, which the second module covers.

Throughout this time the company continues to exist. § 69(1) GmbHG provides that, until the liquidation is completed, the general provisions on the legal relationships of the company and its shareholders keep applying, unless the liquidation chapter or the very nature of a liquidation requires otherwise.

The place of jurisdiction is also preserved, up to the point when the assets have been fully distributed (§ 69(2) GmbHG). Anyone suing the dissolved company therefore still sues where it had its seat when it was dissolved. Contracts, bank accounts and the tax number carry on until the winding-up brings each of them to an end.

The grounds for dissolution in § 60 GmbHG

§ 60(1) GmbHG lists seven grounds on which a GmbH is dissolved. They fall into two groups. Some originate with the shareholders or their articles of association, the others with a court or an authority. For the day-to-day reality of a small business, it is mainly the first group that matters.

• No. 1: expiry of the period for which the company was to exist under its articles of association
• No. 2: a resolution of the shareholders
• No. 3: a court judgment or a decision of an administrative court or administrative authority in the cases of §§ 61 and 62
• No. 4: the opening of insolvency proceedings
• No. 5: final rejection of the opening of insolvency proceedings for lack of assets
• No. 6: final finding by the register court of a defect in the articles of association
• No. 7: deletion for lack of assets

Under § 60(2) GmbHG the articles of association may lay down further grounds for dissolution, such as the death of a shareholder or the end of a licence. Anyone drafting or taking over articles should therefore check whether they contain a ground that occurs without further action and sends the company into winding-up.

This course follows a solvent company whose shareholders want to stop. The grounds in numbers 4 and 5 lead into insolvency law, which has its own rules on administrators, the estate and paying creditors. The course on insolvency deals with that path; the end of this module only shows where the two meet.

The dissolution resolution and its majority

The most common ground is a resolution under § 60(1) no. 2 GmbHG. It requires a majority of three quarters of the votes cast, unless the articles of association provide otherwise. The articles can therefore move the threshold, for example by requiring unanimity. Without such a clause, the statutory three-quarters majority applies.

Votes are counted by stake, not by heads. § 47(2) GmbHG grants one vote for every euro of a share. And what counts are the votes cast, not all the votes in existence. A shareholder who stays away from the meeting or does not take part counts neither for nor against, which can shift the outcome considerably.

Unlike an amendment of the articles, which § 53(3) GmbHG requires to be notarially recorded, § 60 prescribes no particular form for the dissolution resolution itself. Form comes in through the filing with the commercial register, which § 12(1) HGB requires to be submitted electronically and publicly certified.

A UG is treated no differently. Under § 5a GmbHG it is a GmbH founded with share capital below the statutory minimum, hence the special addition to its name. The special rules of § 5a concern capital, the reserve and calling meetings, not dissolution. For other differences, see the course on GmbH versus UG.

If the majority is not reached, a minority is left with the action for dissolution under § 61 GmbHG. It requires that achieving the company's purpose has become impossible or that other important grounds lie in the company's circumstances. Only shareholders whose shares together amount to at least one tenth of the share capital may bring it.

The action is brought against the company, not against the fellow shareholders, and the regional court at the company's seat has exclusive jurisdiction (§ 61(2) and (3) GmbHG). For a small two-person GmbH this route is costly and slow. Above all it shows how much a well-drafted dissolution clause in the articles is worth.

Who winds up: managing directors, appointees or court nominees

Except in insolvency, § 66(1) GmbHG has the existing managing directors carry out the winding-up. They become liquidators on dissolution, without any separate resolution being needed. The articles of association or a shareholder resolution may, however, entrust the winding-up to other persons, for example a shareholder who has more time.

Shareholders whose shares together reach at least one tenth of the share capital may apply to the court, for important reasons, to appoint liquidators (§ 66(2) GmbHG). Under the same condition the court may remove them. Liquidators not appointed by the court may also be removed early by a shareholder resolution (subsection 3).

For the choice of liquidators, § 66(4) GmbHG refers to the disqualifications in § 6(2) sentences 2 to 4. Among others, nobody may act as liquidator who has been convicted of certain intentional offences, such as delaying an insolvency filing, insolvency offences or false statements. The bar lasts five years from the date the judgment became final.

Also barred is anyone prohibited by judgment or enforceable administrative decision from practising a profession or trade, insofar as the company's objects coincide with it, and anyone under a guardianship consent requirement in financial matters. The liquidator must expressly deny these obstacles when the appointment is filed.

Filing, publishing, calling on creditors

Under § 65(1) GmbHG the dissolution must be filed for entry in the commercial register. The exceptions are cases the court already knows about: the opening of insolvency proceedings or its rejection, and a defect in the articles established by the court. There it enters the dissolution and its ground of its own motion.

Together with the dissolution, the first liquidators and their powers of representation must be filed, and this is still done by the managing directors (§ 67(1) GmbHG). Any later change is filed by the liquidators themselves. The documents of appointment must be attached, as originals or publicly certified copies (subsection 2).

In the filing, the liquidators declare that no disqualification stands in the way of their appointment and that they have been informed of their unlimited duty to provide information to the court (§ 67(3) GmbHG). Certification takes place before a notary and, under § 12(1) HGB, may also be done by video communication.

In parallel, § 65(2) GmbHG asks two things of the liquidators: they publish the dissolution in the company's official gazettes, and in that same notice they call on creditors to come forward to the company. Under § 12 GmbHG the official gazette is the Federal Gazette, the Bundesanzeiger, plus any further media named in the articles.

This call to creditors is not a formality. The day it is published starts the blocking year of § 73 GmbHG, and before that year ends nothing may be distributed to the shareholders. Whoever delays the publication extends the whole winding-up by exactly that delay.

What liquidators do and how they present themselves

§ 70 GmbHG sets out the mandate in a single sentence: complete current business, discharge the obligations of the dissolved company, collect its receivables and convert its assets into money. For this purpose the liquidators represent the company in and out of court, just as the managing directors did before.

New transactions are not forbidden, but they are tied to a purpose. Liquidators may enter into them insofar as they serve to complete pending business (§ 70 sentence 2 GmbHG). A trade business may therefore buy materials to finish a job already under way, but should not take on large new contracts unrelated to the winding-up.

Externally, liquidators sign in the form set when they were appointed. Where nothing was specified, all liquidators must act together (§ 68(1) GmbHG). Appointing two liquidators without granting sole representation forces them to sit down together for every bank transfer and every notice of termination.

When signing, an addition indicating the liquidation must be attached to the company name (§ 68(2) GmbHG); the abbreviation "i. L." is widely used. Business letters must also state that the company is in liquidation, alongside the particulars otherwise required on GmbH letters (§ 71(5) GmbHG).

Most of the managing directors' duties stay with the liquidators. § 71(4) GmbHG refers, among others, to the bookkeeping duty in § 41, to the duty of care and liability in § 43(1), (2) and (4), and to calling the shareholders' meeting under § 49(1) and (2).

The same provision also refers to § 15b of the Insolvency Code, which restricts payments once the company is unable to pay or over-indebted. A liquidation therefore does not release anyone from watching solvency. If it turns out along the way that the assets will not cover all creditors, the rules explained in the course on insolvency apply.

Opening balance sheet and annual accounts during the winding-up

For the start of the liquidation the liquidators draw up an opening balance sheet together with a report explaining it (§ 71(1) GmbHG). For the close of each year an annual financial statement and a management report follow. The winding-up does not replace financial reporting; it adds an extra set of accounts at the beginning.

The opening balance sheet and the annual accounts are adopted by a shareholder resolution, which also decides on discharging the liquidators (§ 71(2) sentence 1 GmbHG). The rules on annual financial statements apply accordingly to the opening balance sheet and its explanatory report.

One valuation rule changes. Fixed assets are to be valued like current assets insofar as their sale is intended within a foreseeable period or they no longer serve the business (§ 71(2) sentence 3 GmbHG). The balance sheet thereby moves closer to what the realisation of the assets can actually be expected to yield.

Where an audit would be mandatory, the court may waive it if the company's circumstances are so clear that an audit does not appear necessary in the interest of creditors and shareholders (§ 71(3) GmbHG). The decision can be appealed. Size classes and disclosure are explained in the course on annual accounts.