Status of the company during the liquidation process in Legal perspectives.

  • 17th Aug 2017

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During the past few weeks, I have explained the instances wherein a company could be dissolved due to the occurrence of any of the conditions stipulated in the Commercial Companies Law. The dissolution, legally speaking, leads to the liquidation of the company. This leads to an important question: what is the status of the company during the liquidation process?

As a rule of law, during the liquidation process, the company retains its legal corporate entity to the extent required for the formalities. However, the term “in liquidation” shall be added to the name of the company. This is a very important legal requirement so that all third parties dealing with the company will be aware of the fact.

However, dealing with the company is left to the discretion of third parties who are supposed to bear all the consequences that could result due to their subsequent transactions.

Liquidation requires the appointment of a liquidator to be in charge of the affairs of the company and the process. However, before the appointment of the liquidator, the managers or the board of directors shall manage the affairs of the company with third parties.

They should maintain the power to run the affairs of the company up to the time of appointing the liquidator. The different bodies within the company shall perform their routine duties within the liquidation process that are not part of the authorised duties of the liquidator.

The liquidation shall be implemented and performed according to the provisions of the articles stipulated in the Commercial Companies Law. However this is the rule unless the memorandum of understanding of the company allow for specific rules to be applied.

Moreover, the partners at the time of dissolving the company could agree on a certain specific method regarding the liquidation. In such cases where there is such an agreement, it should be followed because it indicates the will of the concerned partners.

Who appoints the liquidator? The liquidation process could be discharge by one liquidator or more. This depends, of course, on the volume of work they are supposed to perform and, also, the size of the company, its functions, etc.

The liquidator could be an individual or a company specialised in such matters and having the necessary technical know-how. The liquidator(s) could be appointed by the partners, or by the general assembly of the company or by the competent court due to any reason it sees appropriate.

The functions and duties of the liquidator shall be specified in the appointment letter or court order. It is important to mention that as a rule, and in all events, the functions shall not be terminated by the death of the partners or their insolvency or bankruptcy. This rule applies even if the liquidator has been appointed by the partners.

At the time of appointing the liquidator it is always advisable to look for a qualified and competent person to undertake the liquidation process. Appointing an efficient and capable liquidator will guarantee good and prompt results for all concerned parties.

A. Warsama Ghalib is legal advisor to the Central Bank. The views expressed above are his own.

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