Company liquidation is a formal procedure for company closure whilst legally dismissing future obligations for directors and shareholders. Unless criminal activities are at stake, or a court is able to pierce the corporate veil, directors and shareholders are not personally responsible anymore after the liquidation of the company. Deficiencies and mistakes can have severe consequences and should therefore be avoided. Restoration is not always possible turning liquidation, responsibility and liability into hot items.
A company is an isolated legal entity. Separation of the legal entity and its shareholders limits liability. This, however, does not mean that a company with assets, activities and liabilities can just be closed with discharge of responsibilities of the shareholders and beneficial owner. Company liquidation should prevent beneficiaries to be held responsible or liable for acts or omissions by the company. As such, appropriate and professional guidance postulates a corporate liquidation to follow the rules and forestall challenges.
In offshore jurisdictions and the more traditional locations for incorporation, company and insolvency law determine the procedures for corporate liquidation. Rules often include a format for distribution of assets, both when the company insolvent or wind down voluntary. A creditor hierarchy decides on the priority of claims and thus distribution of assets. Emptying the corporate bank account and the mere transfer of assets to the personal sphere of the beneficiary might result in a taxable event.
To justify outgoing payments, beneficiaries can issue a loan to themselves. Crucial elements of a loan agreement are a market rate interest, and the loan repayment. During a liquidation procedure, the corporate administrator or liquidator needs to collect on outstanding credits and realize the corporate assets. As such, loans to the beneficial owner and intercompany loans can be collected.
Solutions for professionals willing to liquidate their (offshore) company depend on the jurisdiction of incorporation and corporate registration. Furthermore, the activities of the company, the corporate structure and the assets and liabilities can decide on the directions for corporate liquidation. Professionals who need to secure their position and close or liquidate their company can contact us to discuss their needs. An initial consultation is always free of charge.