Company Liquidation in Serbia (and why compulsory liquidation is not a good idea)

Thousands of companies are incorporated in Serbia every year, but a significant number also cease to exist through bankruptcy proceedings, liquidation, or structural changes. A business can also be exited through the sale of an existing company or a transfer of shares. Unlike incorporating a company in Serbia, which is in most cases a relatively straightforward process, company liquidation in Serbia requires careful preparation and strict adherence to statutory deadlines.

The liquidation procedure has frequently been exploited for various forms of abuse, causing serious harm to creditors and undermining commercial certainty. Company owners preferred to allow their companies to be compulsorily liquidated, or even deliberately engineered compulsory liquidation, rather than going through voluntary liquidation, thereby circumventing the rules designed to protect creditors and third parties.

In response, the legislature introduced amendments to the law to prevent abuse and protect creditors, by imposing unlimited liability on controlling members of compulsorily liquidated companies for the company's obligations, and by preventing controlling members of a compulsorily liquidated company with outstanding tax liabilities from incorporating a new company in Serbia. Amendments to the Corporate Income Tax Law also changed the rules on the liability of members of a liquidated company for the company's tax obligations. We address both sets of changes below.

In Serbian law, the liquidation procedure is governed by the Companies Act.^[1] Given that the process is conducted before the Serbian Business Registers Agency (hereinafter: APR), and that it raises numerous accounting and tax questions, a thorough knowledge of the Companies Act alone is not sufficient. Various other statutes and secondary legislation apply throughout the process.

Key distinction: in compulsory liquidation, the controlling member of an LLC and the controlling shareholder of a joint-stock company are jointly and severally liable without limit for the company's obligations even after its deregistration, for as long as any debt remains. In voluntary liquidation, the members' liability is capped at the value of the liquidation surplus they received.

Types of liquidation: when is liquidation voluntary and when compulsory?

Serbian law provides for two types of liquidation:

• Voluntary liquidation occurs when the members of the company independently decide to cease operations and wind up the company.
• Compulsory liquidation occurs independently of the members' wishes and is initiated by APR on grounds explicitly set out in the Companies Act.

Understanding the difference between the two types is essential for managing the process correctly and avoiding additional costs. The legal consequences that each type carries are also markedly different.

Everything you need to know about voluntary liquidation

Voluntary liquidation commences on the date of registration of the Liquidation Decision, adopted by the company with the requisite majority of members' votes, together with the publication of the notice of commencement of liquidation.

The notice of commencement of liquidation is published on the APR website for a period of 90 days. The purpose of the notice is to call upon the company's creditors to notify the company of any claims they hold against it, so that the company can settle those claims and proceed to deregistration. The deadline for creditors to file their claims is 30 days from the end of the 90-day notice period (unless the company in liquidation changes its registered address in the meantime, in which case the deadlines start running again from the beginning). In addition, the company is required to notify certain creditors individually.

At the commencement of liquidation, the company appoints a liquidator, who manages all affairs relating to the liquidation and any ongoing business that must be concluded before the process is complete. Upon the liquidator's appointment, all other legal representatives of the company cease to have authority to act on its behalf. In practice, a company may fail to appoint a liquidator, in which case all statutory representatives automatically become liquidators and represent the company jointly, unless otherwise agreed.

The liquidator is subject to extensive reporting obligations throughout the liquidation, keeping both the members and the creditors informed of the current state of the company's assets, the estimated time required to complete the process, and the steps that have been taken.

Given that successful completion of the liquidation requires the preparation of documentation in accordance with the applicable accounting and auditing regulations, the role of the accountant is significant alongside that of the liquidator. The accountant is responsible for preparing all extraordinary financial statements during the liquidation, including the Opening Liquidation Balance Sheet. This statement is designed to show the financial position of the company in liquidation and gives creditors a clear picture of the likelihood of recovering their claims from the company's assets.

One of the key issues in the liquidation process is the correct handling of creditors' filed claims. The company is required to record received claims in a separate list, classifying them as either accepted or disputed. If the company disputes a claim, it must notify the creditor accordingly, which gives the creditor the opportunity to bring proceedings before the competent court to establish the validity of the claim.

Since a company in voluntary liquidation is solvent and capable of covering all its liabilities, it is common for a surplus to remain after all creditors have been settled. This liquidation surplus is distributed to the members in accordance with the resolution on the distribution of the liquidation surplus.

Once all liabilities have been discharged, the company is ready for the completion of the liquidation process.

What if the company does not have sufficient assets to settle its creditors?

During the liquidation process, close attention must be paid to the state of the company's assets and its ability to discharge its liabilities to creditors. If an analysis of the Opening Liquidation Balance Sheet indicates that the company is over-indebted, i.e. that its assets are insufficient to cover all creditors' claims, the question of how to proceed arises. In that case, the liquidator is required to file a petition with the competent court, within the statutory time limit, for the commencement of bankruptcy proceedings.

Compulsory liquidation: grounds, procedure and consequences

Compulsory liquidation is a procedure initiated by APR when a company fails to meet certain statutory obligations or finds itself in circumstances that prevent it from continuing to operate. The purpose of initiating this procedure is to sanction non-compliance with the legal requirements applicable to the company's status.

The grounds for initiating compulsory liquidation may be either remediable or irremediable in nature.

Remediable grounds are those where the company has the opportunity to take the necessary steps within a specified period to correct the deficiency.

For example, if the company is left without its sole legal representative and fails to register a new one, or fails to register a new registered address (where the registration application for a change of registered address has been rejected), it may remedy these deficiencies and thereby avoid the commencement of compulsory liquidation proceedings. The Companies Act provides that in such cases a notice concerning the company against which grounds for compulsory liquidation have arisen is published on the business register website, after which the company is given a further period of 90 days to remedy the deficiency.

Once the 90-day period has expired without the company remedying the relevant grounds, APR issues ex officio an act initiating compulsory liquidation proceedings, placing the company in "compulsory liquidation" status on the register website for a continuous period of 60 days. Following the expiry of that period, APR issues an act of deregistration within a further 30 days.

Irremediable grounds, on the other hand, are those for which there is no legal or factual basis for remedy.

For example, if the company has been subject to a final and binding order prohibiting it from carrying on its business activities, if the registration of the company's incorporation has been declared void by final judgment, or if the company has failed to submit its annual financial statements for two consecutive business years, such grounds inevitably lead to compulsory liquidation.

In the case of compulsory liquidation on irremediable grounds, APR publishes a notice concerning the company against which irremediable grounds for compulsory liquidation have arisen for a period of 30 days prior to initiating the procedure. Once that period expires, APR issues ex officio an act initiating compulsory liquidation and the company is placed in "compulsory liquidation" status on the register website for a continuous period of 60 days. After the expiry of that period, APR deregisters the company within a further 30 days.

The assets of a deregistered company become the property of its members in proportion to their shareholdings in the company's share capital.

Compulsory or voluntary liquidation: which is the better option for the company?

Given everything described above, the question arises whether it is worth conducting voluntary liquidation and incurring the unavoidable costs involved, rather than deliberately failing to comply with certain obligations that trigger compulsory liquidation and allowing APR to wind up the company quickly and efficiently.

Example: Most DOO knowingly fails to submit its annual financial statements within the statutory deadline, thereby meeting the irremediable ground for compulsory liquidation. APR then initiates compulsory liquidation proceedings and ultimately deregisters the company from the register.

Given the frequency of this and similar situations in practice, the legislature decided to intervene. Under the current Companies Act, in the case of compulsory liquidation the controlling member of a limited liability company and the controlling shareholder of a joint-stock company (members holding more than 50% of the share capital) are jointly and severally liable without limit for the company's obligations even after its deregistration. In the case of voluntary liquidation, by contrast, the members are jointly and severally liable for the company's obligations following deregistration, but only up to the value of the liquidation surplus they received. In both cases, their liability is time-limited to three years from the date of the company's deregistration from APR.

Why compulsory liquidation is a bad idea

Compulsory liquidation of a company in Serbia can have significant consequences for the controlling member, both in terms of liability to creditors and in terms of future business activity in the country.

As described in the previous section, the controlling member of a limited liability company and the controlling shareholder of a joint-stock company that have been deregistered through compulsory liquidation are personally and unlimitedly liable for the company's obligations even after its deregistration from the register.

Beyond financial liability, the controlling member may face further restrictions. Under current legislation, a person who was the controlling member of a company that has been compulsorily deregistered while leaving unsettled tax obligations will be prevented from operating a new company incorporated in Serbia. All outstanding tax liabilities remain on the debtor's tax records indefinitely. Initially, the controlling member of the deregistered company will encounter no obstacle to registering a new company with APR and commencing operations. The reason is that APR has no access to tax liability records. However, APR is required by law to forward all data relating to the newly incorporated company to the Tax Administration, which then proceeds to revoke the company's tax identification number (PIB). Revocation of the PIB means that the company cannot file tax returns or issue invoices or fiscal receipts. Revocation of the PIB also results in the freezing of the company's bank accounts, rendering the newly incorporated company unable to operate.

Compulsory liquidation of a company with outstanding tax liabilities therefore not only creates financial exposure for the controlling member, but can also severely restrict their future business activities in the country.

Can a liquidation already under way be discontinued?

Although company liquidation is generally regarded as the final step in a company's existence, it is possible for the process to be discontinued and for the company to resume trading. This option is available only under certain conditions, however.

The key condition for discontinuing the liquidation is that all of the company's creditors have been fully settled, regardless of whether their claims were disputed or accepted. A further condition is that the company has not terminated any employee's employment contract on grounds of liquidation.

Setting clear and precise objectives, monitoring the financial position closely, and planning for all possible scenarios can therefore make a significant contribution to avoiding difficulties during the liquidation process.

Tax obligations of company members following completion of liquidation

Following the National Assembly's adoption of amendments to the Corporate Income Tax Law^[2] that are relevant for taxpayers subject to liquidation proceedings, and which have applied from 1 January 2025, we address below some of those amendments and their practical implications.

The newly introduced provision establishes that the members of a company that has ceased to exist as a result of liquidation are jointly and severally liable for the payment of corporate income tax assessed in a tax return filed after the completion of the liquidation proceedings. This liability is capped at the value of the assets individually received by each member within the liquidation process.

The effect of this provision is that the members are jointly and severally liable only for the company's tax obligation as assessed in the specific tax return filed in connection with the completion of the liquidation. Members are not liable for all outstanding tax obligations of the liquidated company, only for the specific obligation assessed in that return. Their liability is additionally capped at the value of the assets they individually received in the liquidation (i.e. the liquidation surplus they received).

Liquidation, as one of the ways in which a company's business may cease, requires careful preparation and meticulous execution in accordance with the applicable legislation. Throughout the process, it is essential to observe the statutory deadlines, properly notify creditors, and attend carefully to tax and accounting matters. For more information on the costs associated with operating a business in Serbia, see our article on the costs of incorporating and running a company in Serbia.

Frequently asked questions about company liquidation in Serbia

How long does voluntary liquidation in Serbia take?

A minimum of approximately six months, and in practice often longer. The liquidation notice alone runs for 90 days, and creditors then have a further 30 days from the end of that period to file their claims. This is followed by the settlement of creditors, the preparation of the required accounting and tax documentation, and the formal completion of the process. The timeframe also depends on the number of creditors involved and the complexity of the company's asset position.

What are the costs of liquidating a company?

The costs include APR registration fees for the liquidation decision and the deregistration, accountancy fees for the extraordinary financial statements required during the process, and, where a lawyer is engaged, legal fees. The APR fee for each registration of a change during the liquidation of an LLC is RSD 4,000. A detailed overview of fees payable to APR is available in our article on the costs of incorporating and running a company in Serbia.

Can a foreign national initiate the liquidation of an LLC in Serbia?

Yes. A foreign founder or member of a company may initiate voluntary liquidation of an LLC in Serbia under exactly the same conditions as a domestic founder. The decision to commence liquidation is taken by the general meeting of the company with the requisite majority of votes. A foreign member may authorise a lawyer to represent them throughout the entire process.

Does company liquidation affect employees?

Yes. Upon the commencement of liquidation, employees may be dismissed on grounds of liquidation. However, if you subsequently wish to discontinue the liquidation and resume trading, the condition for doing so is that no employee has been dismissed on grounds of liquidation. The dismissal procedure must be complied with in every case.

What is the difference between liquidation and bankruptcy?

Company liquidation in Serbia is only available for solvent companies, i.e. those with sufficient assets to cover all their liabilities. Bankruptcy is the procedure applicable to insolvent companies whose liabilities exceed their assets. If the liquidator in the course of voluntary liquidation determines that the company's assets are insufficient to settle all creditors, they are required to petition for the commencement of bankruptcy proceedings.

Company liquidation in Serbia is a legally regulated procedure that requires careful preparation. The difference between the voluntary and compulsory routes is not merely procedural: the consequences for the controlling member are fundamentally different. Engaging lawyers and professional advisors will not only ensure compliance with the applicable legal requirements but will also allow the process to be completed with minimal risk and cost. If you are considering initiating liquidation proceedings or are contemplating selling your company instead, our corporate law team can guide you through the entire process.

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