21.05.2020
Imbalance as a cause of dissolution
An asset imbalance as cause of dissolution arises when, company’s losses within a financial year reduce equity below the company's share capital value. (We will see later what net worth/equity means).
Por
Claramunt Julián, Leticia A company can rectify these situations in different ways, increasing/reducing the share capital or filing for bankruptcy.
Voluntary dissolution of the company is another alternative. If the assets imbalance cannot be corrected by increasing or reducing the capital, the dissolution of the company is a legal obligation.
What is net worth? (Owner’s equity)
Net Worth = Capital (+) Reserves (-) Accumulated Losses
The net worth constitutes the company’s assets deducting all its liabilities (Article 36 of the Commercial Code). It includes all contributions made by the owners that are not considered as liabilities. As well as the cumulative result and/ or any other concurring variation.
Net equity is the amount that is classified as such in accordance with the criteria used to prepare the Company’s annual accounting. Increased by the not required subscribed share capital. In addition to the equity face value and the premiums issued, recorded as liability.
Insolvent company as part of a group of companies
Corporate tax act allows for taxation as a single taxpayer to all the entities that make up a group. Companies that at the end of the tax period have asset imbalance cannot be part of the group of companies. This exclusion does not require the Board to agree on their dissolution. These imbalance companies can continue under this tax regime if the unbalanced situation is overcome by the end of the financial year.
The situation of imbalance shall occur at two different times. At the closure of the current tax period and at the closure of the next period, when annual accounts must be approved. The entity under those two situations will be excluded from the tax group. The exclusion will have retroactive effects to the first imbalance situation.
In short, the Corporate Tax Act provides for a one-year waiting period to re-establish this asset imbalance.
Si te ha interesado este artículo no dudes en leer:
When it is mandatory to apply for a declaration of insolvency?
Restoring the balance
Directors must call for general meeting within the two following months since they became aware of the situation. Any owner can ask to the directors for a general meeting if she considers the existence of any dissolution cause. If the general meeting does not agree on the dissolution and the balance is not restored, starts a new two months’ period. During this period, they may file for the judicial dissolution or the company’s bankruptcy.
The company can restore the balance of its assets through the following actions:
- Increasing the share capital.
- Reducing the share capital.
- Simultaneous increase and reduction of capital. The share capital is reduced to 0 and simultaneously increased to an amount equal or higher than the legal minimum.
- Obtain financing through a participative loan.
- Owners’ contributions.
Consequences of not restoring the imbalance
Any company should file for bankruptcy as settle in Article 2 of the Bankruptcy Act. This article settles when a company is under an insolvency situation.
In the event that none of previously mentioned actions are adopted by the directors then, they could be jointly liable. (If they do not call for a General Meeting, file for the judicial dissolution/bankruptcy, or do it after the deadline).
If this article has been of interest, we also suggest you to read the following article published on our website:
The dissolution of a Company due to the paralysis of its corporate bodies.
