Any company, regardless of its legal form, has a specified term stipulated in its Articles of Association (MoA) or a term that expires on the date of expiry of its purpose. Further, the company's term expires if it is unable to follow through on its tasks and maintain its obligations. A company also materializes if its assets expire, one of its partners dies, is interdicted, goes bankrupt, becomes insolvent or withdraws or if a court decision is issued to liquidate the company. When the Company expires based on one of these reasons it is liquidated. Now, an important question arises: How to Liquidate your Company in Egypt?
The company's articles of association stipulate the method of liquidation, failing which the provisions of law concerning liquidation shall apply. In this regard, Law 159 of 1981 and the Civil Code set out provisions applicable to the liquidation of companies.
Cases of company liquidation in Egypt:
- Company liquidation/dissolution is appropriate in any of the following events: :
- Expiry of the term as specified in the company's articles of association;
- Expiry of the purpose for which the company was established;
- The loss of all or part of the company's capital, making it impossible for the company to continue carrying out its business;
- Issuance of a court ruling to dissolve and liquidate the company;
- The merger of the company into another entity, resulting in the dissolution of each of them and the formation of a new company;
- The death of one of the partners or the separation or withdrawal of one of them (in the case of partnerships).
- Interdiction, bankruptcy, or insolvency of one of the partners.
- In the situation where all shares of the partners are possessed by one person, requiring that the company shall turn into a sole proprietorship.
- Partners dispute about the dividends or the presence of fraud or deception in the company's financial statements
First: Definition of Liquidation: Liquidation is an inventory of all rights, obligations, and debts related to the company that can be claimed vis-a-vis the partners or third parties, to determine the company's net assets and their distribution among the partners through apportionment after meeting the dues owed by the company and paying off the company's debts and selling the company's movable and immovable properties.
A question arises: Does the company have the legal personality of the company under liquidation?
The Egyptian legislator stipulates that the company enjoys the legal personality until the completion of liquidation, to the extent necessary for its liquidation (the company's personality does not remain except to the extent necessary to complete the liquidation). This means that the company's assets remain owned by it during the liquidation, the personal partners' creditors do not have to compete with the company's creditors during the liquidation stage, and the partners may not arrange an official mortgage on their shares or demand the recovery of their shares in the capital. This is due to fact that the company exists during that period, where the capital of the company is the general guarantee for the creditors.
Company's legal personality during the liquidation period results in the following:
- The company retains its trade name during the liquidation period, but with the addition of the phrase (" a company under liquidation") next to the name of the company, to be able to file lawsuits in the name of the company.
- The company retains its headquarters and nationality, to be able to communicate with the Directors or Liquidators at the company's headquarters at that address, otherwise, every notice other than its domicile shall be considered null and not invoked against the Liquidator.
- During the liquidation period, the company retains its financial liability, because it is considered the general guarantee of the company's creditors.
- The company shall be declared bankrupt if it ceases to pay its debts during the liquidation period.
What is a "Liquidator"?
The Liquidator is the person or persons entrusted with the liquidation of the company for the account of a legal person.
Who appoints the Liquidator?
The Liquidator shall be appointed by the majority of the partners in the event of an agreement among them. If the partners do not agree on appointing the Liquidator, the court shall appoint him at the request of one of them.
Article 139 of Egyptian Law 159 of 1981 stipulates about the appointment of the Liquidator, that:
"The General Assembly shall appoint the Liquidator and determine his fees, provided that his appointment is made by the shareholders, partners, or third parties. If a court decision is issued to dissolve or nullify the company, the decision shall provide for the method of liquidation, appoint the Liquidator and determine his fees on the understanding that the Liquidator's work shall not expire by the death of one of the partners, or their going bankrupts, insolvency or interdiction even if the Liquidator has been appointed by them."
Liquidator's mission, responsibilities, and limits:
The Liquidator's mission is limited to preserving the company's assets and rights, as he performs all the tasks agreed upon in his appointment letter and he is personally responsible for any activities outside the scope of that business before third parties without having to refer to the company.
The Liquidator collects the rights of the company due from third parties.
The Liquidator may not claim against the partners for the remainder of their shares unless the liquidation process requires the same, provided that equality between them shall be observed.
The Liquidator deposits the amounts he receives in the account of the company under liquidation within 24 hours from the date of receipt.
The Liquidator may not compel creditors to pay their debts if the debt is not due.
The Liquidator shall collect the debts that are due.
The Liquidator shall deduct the amounts necessary to pay off the disputed debts before the apportionment takes place.
The Liquidator, in agreement with the Board of Directors or the Director, shall conduct an inventory of the company's assets and obligations and draws up a detailed list and budget to be signed by the Liquidator and the Directors or Members of the Board of Directors.
The Liquidator may request from the partners the books and documents used by the company to determine through them third parties' debts and rights.
The Liquidator may sell the company's movable or immovable properties, by public auction or by any other method agreed upon under his appointment letter, provided that the value of the company's assets is estimated at the time of liquidation and not at the time of the occurrence of the reason for dissolution or liquidation.
The Liquidator may not sell the company's assets in bulk except with the permission of the General Assembly or the Assembly of Partners, as the case may be.
The Liquidator may not initiate new disposals unless they are necessary for the liquidation process, i.e. necessary to complete works before the dissolution of the company.
If the Liquidator undertakes new actions not necessary for liquidation, he shall be personally responsible for these actions, and if there are multiple Liquidators, they shall be jointly responsible.
The Liquidator is responsible before the company if he mismanages its affairs during the liquidation period, and he is also claimed for compensation for the damage caused to the shareholders, partners, or third parties due to any errors on his part.
The Liquidator represents the company before the courts and in the agreements of conciliation and arbitration.
If there are several Liquidators, collective consent is required for the legitimacy of their actions, unless otherwise stipulated in their appointment letter. This condition is not invoked against third parties except on the date of the liquidation being entered in the Commercial Register.
The Liquidator shall provide all the information requested by the partners on the status of the liquidation. Each partner has the right to review the liquidation accounts, the documents indicating them, and the results of the liquidation process, to the extent that this does not harm the interest of the company and does not result in delaying the liquidation process.
Every 6 months, the Liquidator submits a temporary account for the liquidation activities to the General Assembly or the Assembly of Partners.
The Liquidator must complete the liquidation within the period specified for liquidation in his appointment letter.
The Liquidator submits a final account of the liquidation work to the General Assembly or the Assembly of Partners, and by certification of this final account, the liquidation process ends.
After that, the Liquidator enters the end of the liquidation in the Commercial Register and applies for the removal of the Company's name in the Commercial Register.
Company Liquidation Provisions in Egypt
The Egyptian legislator has not stipulated a specific period for the completion of the liquidation procedures unless the company's articles of association stipulate a specific period that must be taken into account when liquidating a company, however, if the company's articles of association do not stipulate a specific period for conducting the liquidation, the liquidation period shall be the period required to complete the liquidation process.
The liquidation period may be extended based on a decision of the General Assembly after the Liquidator submits a report indicating the reasons for the extension.
If the liquidation period is based on a court ruling, it may not be extended without the court's permission.
The Liquidator's fees shall be specified in his appointment letter; otherwise, the court shall specify it.
Announcement of liquidation and dissolution:
The name of the Liquidator, the agreement of the partners. The method of liquidation shall be published in the company's Commercial Register, the Companies' Journal, and the Business Newspaper. The announcement of liquidation shall not be reliable except on the date of publication in the company's Commercial Register.
The dissolution of the company and the appointment of a Liquidator shall result in the expiration of the capacity of its Director in representing the company. The Liquidator shall be considered the holder of the right to represent the company before the judiciary and to protect the rights of the partners.
Any debt arising in the course of the liquidation process shall be performed from the company's funds in priority over other debts.
The company's books and documents shall be kept for 10 years after the company's deregistration in the registry office within whose jurisdiction the company's head office falls unless the General Assembly or the Assembly of Partners appoints another place for keeping them.
Dismissal of Liquidator:
The liquidator's dismissal shall be in such manner in which he was appointed. The court may dismiss the Liquidator at the request of one of the shareholders or partners and for reasons that require his dismissal.
The party that appoints the Liquidator is the one who has the right to dismiss him (whether he has been appointed by the partners or the court).
Every decision to dismiss the Liquidator must include the appointment of a replacement.
The dismissal of the Liquidator is entered in the Commercial Register and the companies' Journal and shall not be taken into account by third parties, except the date of the publication thereof.
Statute of limitation for legal actions against the Liquidator:
Article 154 of Egyptian Law 4 of 2018 stipulates as follows:
"Legal actions brought against Liquidator for committing an error in the liquidation process shall not be accepted after the lapse of 3 years from the date of occurrence or from the date on which it was known unless this error results from fraud or deception; in which case, the right to file a claim may not lapse until 15 years passed from the date on completion of liquidation."
The following two stages shall be followed for companies' liquidation, certification, and registration:
Stage 1: Appointment of Liquidator and publishing his name in the company's Commercial Register which includes the following procedures:
- The minutes of the meeting of the Assembly of Partners, the extraordinary General Assembly of the company or the decision of the owner of the one-person company (as the case may be) shall be submitted, indicating the status of the company under liquidation, the Liquidator's duties, the liquidation period, and the Liquidator's fees.
- The fact that the company is under liquidation shall be announced in the Companies Journal and the Business Newspaper.
- Representatives of the administrative authorities in charge of (Customs - Taxes - Insurance) are notified that the company is under liquidation, and those authorities must provide the Authority with a response within 120 days from the date of their notification, and the expiry of that period without a response is considered as releasing the company under liquidation from debt.
4- Announcement of liquidation; indicating the name of the Liquidator and the period of liquidation in the company's Commercial Register.
Stage 2: Completion of the company's liquidation process, which includes the following:
- The Minutes of the Meeting of the Assembly of Partners or General Assembly of the company, or the Decision of the Owner of a One-person Company (as the case may be) shall be submitted including:
The final account of the liquidation as approved by the Liquidator;
An acknowledgment by the Liquidator that the liquidation process has been completed, that he has fulfilled the company's obligations, and that he has distributed the liquidation outcome to the partners or shareholders;
Submitting evidence of announcement of liquidation in the Companies Journal and the Business Gazette.
Acknowledgment by the partners or shareholders approving the outcome of the liquidation process, and handing over all their rights to them;
An acknowledgment by the Liquidator that he is legally responsible for the outcome of the liquidation procedures;
Acknowledgment by the Liquidator of the place of keeping the books and documents for 10 years;
A request to the Authority to approve the deletion of the company's entry under liquidation from the company's Commercial Registry.
A declaration from the Liquidator after receiving a response to the notifications sent to the representatives of the administrative authorities in charge of (taxes - customs - insurances).
- The Authority shall submit to the authorized person, agent, or the person concerned, and on his responsibility, a letter addressed to the competent commercial registry office approving the deregistration of the company under liquidation from the company's commercial registry.
- The Commercial Registry shall deregister the company.
Consequences of Liquidation:
The dissolution and liquidation of the company shall result in the removal of the company's legal personality.
Converting the company's assets into cash, to start the process of apportionment among the partners;
Recovery of Creditors' rights in priority over partners' debts;
The partners' receiving their rights, equivalent to the value of the shares contributed by him/it to the capital as indicated in the articles of association, or equivalent to the value of the share at the time of its delivery if its value is not stated in the Articles.
If the partner has provided an in-kind share to the company for ownership, such as a car or real estate, it shall not be permissible for him to redeem it in particular, but to recover its value only, even if it is still present in the company.
If, after the apportionment process ends, a surplus exists, after paying the company's debts and the shares of the partners, it shall be considered as profits for liquidation and shall be apportioned among the partners under the share of each of them in the profits as agreed upon in the company's articles of association, and in the event of disagreement, the profits are distributed in proportion to the share of each partner.
If the company has made losses (that is, after the company's creditors have fulfilled their rights and there is not enough left to pay the partners' shares), then these losses shall be apportioned under the ratios agreed upon in the company's articles of association. A partner has a percentage of losses equal to his share of the company's capital.
Finally, we wish that this article clarified the provisions on how to liquidate your company in Egypt?
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.