Accounting Semi-Senior at RSM Poland
Commencement of the winding-up procedure in a nutshell
One of the events that initiates the process of company liquidation is the adoption of a resolution by the shareholders to wind up the company (Art. 270 of the Polish Commercial Companies Code.) From that point on, the “in liquidation” indication is added to the name of the entity, the management board ceases to exist and a liquidator is appointed in its place. Moreover, any existing commercial power of attorney /prokura/ expires and the company is obliged to notify the appropriate authorities about the new state of affairs. The accounting books of the company in liquidation should be set up and an opening balance of the company in liquidation should be prepared for that day.
Despite the liquidation process being in progress, the company still has a legal personality and full legal capacity. The company maintains its books and records and is still required to file tax returns. The remaining organs of the company including the supervisory board or the audit committee, the shareholders' meeting remain active during the process of liquidation, however, the activities of the company are no longer aimed at further development but its dissolution.
What should be kept in mind as far as the accounting books are concerned?
When compiling data to be included in the financial statements as at the day proceeding the commencement of the liquidation process, one should remember about the following:
- conducting an inventory;
- valuating company assets and liabilities (Art. 29 of the Polish Accounting Act) as at each balance sheet day, starting from the day preceding the commencement of liquidation;
- writing-off past-due liabilities into other operating revenues;
- creating a provision for the anticipated costs and losses resulting exclusively from the liquidation of the entity (Art. 29 of the Polish Accounting Act) such as any fees for modifying entries in the National Court Register, costs of archiving, costs of liquidation services. Their value should be updated at each subsequent balance sheet day and the difference resulting from the valuation and provisioning impacts the revaluation reserve (fund).
What is worth knowing about the opening balance sheet?
An opening balance sheet of the company in liquidation should be created as at the day of the commencement of the liquidation. This balance sheet may be the closing balance of the company at the day preceding the commencement of the liquidation. However, it does not always have to be that way. A difference may arise in the event of the valuation of assets that will be recognized in the opening balance at fair value rather than at book value. In addition, a difference may arise in the company's equity capitals, since all equity capital will be combined. Hence, there is a possibility that the assets and equity capital entered into the balance sheet as at the day preceding the commencement of the liquidation will differ from the assets and equity capital entered into the opening balance sheet of the company in liquidation.
And what about the financial statements?
The first one to be prepared is a financial statement as at the day preceding the commencement of the liquidation (no later than 3 months since the balance sheet date). This statement and the subsequent ones will consist of: an introduction, balance sheet, profit and loss account and additional information. What is also worth mentioning that the company will no longer be subject to an audit by a statutory editor (Art. 64 of the Polish Accounting Act.)
The following information should be included in the financial statement:
- the statement was not prepared on a going-concern basis, assuming the company will no longer continue its activities;
- the individual components of assets and liabilities are reported after taking the effects of the valuation carried out in accordance with Art. 29 of the Polish Accounting Act into account;
- the statement covers less than one year due to the decision to liquidate the company (if this is the case);
- comparative data in the profit or loss account and the summary information are not comparable;
- assets and liabilities recorded in the balance sheet as at the day preceding the commencement of the liquidation are balanced against the assets and liabilities as at the end of the previous financial year (Art. 46(1)(a) of the Polish Accounting Act.) The profit and loss account drawn up as at the day preceding the commencement of the liquidation is balanced against the previous financial year. Additionally, a profit and loss account for the corresponding period of the previous financial year may be presented. Additional information should advise about: changes in equity, provisions and liabilities secured on the entity's assets.
From an accounting point of view, it is best to commence the liquidation on the first day of the month (and especially on the first day of the entity’s financial year.) This helps to avoid dividing one month (or year) into two consecutive accounting periods.
End of year financial statements
In the following years, when preparing subsequent financial statements of the company in liquidation, the entity will, in principle, benefit from similar simplifications as in the case of the financial statements as at the day preceding the liquidation. Similarly, the valuation of the assets and liabilities and updating the value of the provisions is required. However, these statements will differ from the standard annual accounts. As mentioned previously, according to Art. 36(3) of the Polish Accounting Act, the components of equity capital of the entities put into liquidation are merged into one initial capital. For the above reason, under equity capital in all the subsequent statements, the company discloses only the initial capital and net profit (loss.)
Each statement that will be drawn up from the day the company is put into liquidation must be signed by the liquidator and submitted to the competent registry court. In addition, for each reporting period, a report on the liquidator's activities should be prepared starting from the day of the commencement of the liquidation.
The closing date of the liquidation proceedings is the day preceding the distribution of the assets remaining after all creditors have been paid off among the shareholders (Art. 288 § 1 and Art. 476 § 1 of the Polish Commercial Companies Code) and a liquidation report - the final financial statement is prepared as of the same date. It is characterized by the fact that the liabilities and provisions in liabilities amount to zero, while the balance sheet total reflects the value of assets remaining after liquidation. The report is further subject to approval unless the general meeting of shareholders is not held due to a lack of a quorum. The agenda of the general meeting, during which the final financial statement is approved by the shareholders, must, without fail, include adopting a resolution on selecting the company in liquidation’s record-keeping body and a resolution on completing the process of liquidation. The liquidator should announce the liquidation report at the registered office of the company and submit it to the registry court together with the request to remove the company from the National Court Register.
The process of liquidation is, no doubt, a complicated one and many important aspects, such as valuations, provisions, appropriate reports and proposals for reporting changes cannot be omitted. Sometimes these procedures last for several months and sometimes even for several years. However, upon receipt of the entry with the deletion of the company from the National Court Register, we can assume that the company’s liquidation process has been successfully completed.