May 14, 2024

Application of English Law Concepts in the Liquidation Process of Georgian Companies

Before the amendments to Georgian corporate law, two types of procedures were envisaged: voluntary and compulsory. The liquidation process did not entail the dissolution of companies. The adoption of the New Entrepreneurs Law introduced the concept of dissolution from English law, which implies the initiation of liquidation.
What does dissolving a company mean? To dissolve a company, also known as 'striking off', essentially means removing the name of the business from the official register at Companies House. After dissolution, the company ceases to legally exist.
I. Partnership AgreementIn this case, a partners' meeting is required. The participation of 3/4 of the participants in the vote is sufficient to make a decision on dissolution.
II. Court DecisionIf a court rules that a partner has committed serious violations, that partner can be prevented from unilaterally dissolving the company. This restriction can be written into the company's legal documents. However, the affected partner still has the right to buy out their share at a fair price. This protection is rooted in Anglo-Saxon law and allows partners to seek legal action against a partner or director for breaches of their duties.
III. Failure to Comply with the Law on the Minimum Number of PartnersFailure to comply with the requirement of a minimum number of founders or participants to create a specific legal entity, such as a joint-stock company (JSC).

Company Liquidation
Registering the dissolution of a company initiates the liquidation process. During the company's liquidation, it is designated as "in liquidation." All organs, except the director, retain their powers. Management rights are transferred to the liquidator. The liquidator is obligated to notify creditors of the company's liquidation through electronic government portals - the Tax Service and the State Registry.
During liquidation, the liquidator must fulfill all obligations to creditors. The liquidator has the right to enter into transactions necessary for the effective completion of the liquidation process.
Annulation of Registration in the State Registry

After completing all stages, an application is submitted to cancel the company's registration from the public state registry. The process of removing the company from the registry takes 1 business day.

On average, companies without tax or creditor debts are liquidated within 5 months from the registration of dissolution in the public registry.

Currently, company liquidation consists of three stages: registration of dissolution, liquidation, and removal of the company from the registry. Dissolution is a complex process that requires careful planning and execution. At Rokhvadze & Partners, we are always ready to assist with liquidation of any complexity.