The Italian Civil Code provides for specific reasons upon occurrence of which the company must be liquidated. In general terms, the occurrence of the expire of the duration time (if the company was set up for a definitive period of time), the reduction of the corporate capital for losses below the minimum required by the law or the impossibility of functioning (ie a deadlock situation) require the directors to call a shareholders' meeting to resolve upon the liquidation if no corrective action is taken (such as the extension of time, a further injection of funds to cover the losses and the like).
If no corrective action is taken the following steps have to be taken by the directors and/or the company to wind up and liquidate the company.
(1) Shareholders' meeting
A Shareholders' meeting must be held in front of a Notary Public resolving:
(a) to put the company into liquidation;
(b) to appoint the liquidator(s) and grant them the necessary powers to carry out the liquidation activities;
(c) to establish the rules according to which the liquidation will be implemented and carried out (with reference for instance to management of the interim period, the sale of going concerns, the sale of specific assets and the like).
(2) Filings of the resolutions under (1) above
Certified copies of the resolution appointing the liquidator(s) (as well as any further act entailing a change in the person(s) of the same) must be filed at the Companies' Register. Please note that from the date of such registration, company's Directors shall cease from their office. The directors shall have prepared an updated financial situation of the Company and shall hand it over to the liquidators upon registration of the liquidation resolution.
(3) Liquidation activities - Payment of creditors
The Liquidator(s) has to carry out all the activities useful and necessary for the liquidation of the company.
During the liquidation phase, the liquidator(s) cannot take any new business transactions for and on behalf of the company. This prohibition does not include transaction specifically aimed at liquidating the company's assets.
The liquidators also may, and indeed must, continue to fulfill existing contractual obligations of the company until cancellation, appear in court and enter into judicial settlements.
Finally, unless limited by the shareholders in the liquidation resolution, the liquidators may - and in practice shall attempt to - sell the company's assets in bulk.
The liquidators may not assign or distribute any assets to the shareholders until either all the creditors of the company have been paid or the sums necessary to pay them have been set aside. This does not preclude, however, the liquidators from selling the company's assets to the shareholders at fair market value and setting aside the proceeds for the benefit of the creditors.
If the available funds are not sufficient for the payment of the company debts, the liquidators shall request the shareholders to make new capital injections (or in the alternative shall request the shareholders to contribution that part of the corporate capital subscribed to but not yet paid in, if any). Should the shareholders not accept, they have to file a petition for bankruptcy with the court.
(4) Final balance sheet of liquidation
After completion of the liquidation, the liquidators shall draw up a final balance sheet of liquidation reflecting each shareholder's share of assets, if any.
The balance sheet, subscribed by the liquidators and accompanied by the auditors' report is filed with the Registry of Enterprises.
Unless a shareholder files a motion in court to challenge the balance sheet within three months of the date of its filing with the Registry of Enterprises, the balance sheet is deemed approved.
In order to shorten the above term, the shareholders may express their approval in writing.
Upon approval of the final balance sheet of liquidation, the liquidators shall request cancellation of the company from the Registry of Enterprises.
Notwithstanding cancellation of the company from the Registry of Enterprises, creditors whose claims have not yet been satisfied can seek to enforce their claims against the shareholders proportionally to the sums which have been attributed to them by the final balance sheet.
Upon completion of the liquidation and the distribution of the assets the company's books and records shall be filed with and kept for ten years in the Office of the Registry of Enterprises.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.