Negative capital, danger of mandatory liquidation

31. August 2011. / Uncategorized

 

Pursuant to the newly enacted Serbian Company Law becoming applicable as of 1st Feb 2012 (the “Law”), Serbian Business Registry Agency (the „BRA“) will automatically initiate mandatory liquidation of the company if, inter alia, the liabilities of the company are higher than the assets of the company (as recorded in the annual financial statements) and the company has failed to remedy consequently created “negative equity” within the statutory deadline of 6 months.

Therefore, the companies having this problem would be well advised to address and remedy it as soon as possible.

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The conclusion above is based on the provisions of the Law pursuant to which if the registered share capital of a company is decreased below the minimal required statutory amount (whereas this amount varies depending on the form of the company), the company would need to increase it to the statutory required amount within 6 months, or the mandatory liquidation will be initiated by the BRA. The Law also requires that the registered share capital must be decreased to the value of the net assets, if (based on the annual financial statements) the net assets value is below the value of the registered share capital. Simultaneously, the new Law provides the assets definition (i.e. all rights/things that company owns), net asset (i.e. the difference between the assets and the liabilities) and the registered share capital (i.e. the monetary value of the inscribed contributions of the company members as registered before the BRA). Therefore, in case where the liabilities of the company are higher than its assets, the mandatory liquidation will be initiated.

The same obligation exists for companies with the similar consequences (including the mandatory liquidation) under the current Company Law; however the wording of the current law is not very clear, which is probably one of the reasons this mandatory norm was not applied accordingly in practice. However, it would be reasonable to be expected that BRA will commence to initiate mandatory liquidations as of 1st Feb 2012.

Courtesy of

 

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