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Liquidation

Liquidation is one of the ways a company can terminate its existence in the Federation of Bosnia and Herzegovina (FBiH). The liquidation procedure is always conducted when the company is terminated by a decision of the company's shareholders meeting, or as a result of a decision of a competent court (for example, when a company is issued a decree on prohibition of work, or when a company's registration in the commercial registry is declared null and void by the competent court).

The liquidation procedure for companies with limited liability and joint stock companies is almost identical under FBiH law.

In the case of voluntary liquidation, the company's shareholders meeting is obliged to make a resolution on liquidation and opening the liquidation procedure before the competent court. By this resolution, the company's shareholders meeting also appoints the liquidation manager. The law requires that the liquidation manager is a member of the company's corporate structure, which usually means a member of management such as the general director. Upon application by an interested party (such as a creditor or a shareholder) the court may appoint a guardian of the company in addition to the liquidation manager.

In a voluntary liquidation, no time limits are prescribed by law for an application, but the shareholders meeting may specify a time limit in the resolution appointing the liquidation manager.

On the date of entry into the register, the mandate of the management and other bodies of the company formally ceases and their powers and responsibilities transfer to the liquidation manager.

The liquidation manager has the duty to announce in at least one daily FBiH newspaper that the liquidation is in process, calling creditors to register their claims no later than three months (six months in the case of a limited liability company) after the day of the final announcement. The announcement must be made three times after the day the shareholder resolution on liquidation was passed, at intervals of 15 to 30 days.

In cases of a court-initiated liquidation, the procedure is ex officio initiated by either the competent court or competent administrative authority.

The liquidation manager must terminate all the company's business transactions, collect all claims, cash the remaining assets and pay all the company's obligations. When the assets are cashed, rights of third persons in the company's assets, such as rights of separate recovery under the Law on Pledges, must be honoured.

From the proceeds of cashing the remaining assets of the company, the liquidation manager must subsequently pay court fees, salaries and the necessary expenses of the liquidation manager. After this payment and as soon as enough funds are obtained from cashing the assets, the claims of creditors have to be paid in proportion with their parts in claims.

No later than one calendar year after the date of the third announcement of the liquidation process, the founders of the company will be paid from the remaining assets, in accordance with the company's articles of association.

After payment to the founders, the liquidation manager has to schedule a final company shareholders meeting to present the company's final accounts. After this meeting, the liquidation manager must submit an application for the registration of the company's closure in the court register. The court subsequently closes the liquidation procedure, and releases the liquidation manager of their duties. The closure will be published in the Official Gazette of FBiH. After publication in the Official Gazette, the registration court orders the removal of the company from all public registers.

Although the Law on Liquidation provides a rather simple liquidation procedure, it does not stipulate the exact timescale necessary for completion of the liquidation process. It only gives the timeframe within which it is necessary to undertake certain steps in the process. In practice, the liquidation procedure lasts a long time, especially given the general overburden on competent courts and high number of pending liquidation procedures. For companies in liquidation, this means that they are not able to completely cease their legal existence although in reality their business operations are fully terminated. Given that the legal framework is in place, the solution to this problem would be to increase the efficiency of the procedure in practice.

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