Dissolution and Liquidation of a Godo-Kaisha

Procedures for Dissolution and Liquidation of a Godo-Kaisha

In order to dissolve a Godo-Kaisha (limited liability company), two steps shall be taken which are (1) a dissolution procedures and (2) a liquidation procedures. A limited liability company shall be dissolved upon completion of liquidation.

Statutory Reasons for Dissolution

A Godo-Kaisha is dissolved for the following reasons. The most common reason for dissolution is “by consents of all members”. Therefore, this article explains about the case in particular.

(i) The expiration of the duration provided for in the articles of incorporation;
(ii) The grounds for dissolution provided for in the articles of incorporation having arisen;
(iii) The consent of all partners;
(iv) The absence of all partners;
(v) A merger (limited to cases where such Company is liquidated as a result of the merger);
(vi) A ruling for commencement of bankruptcy procedures; or
(vii) A judgment ordering the dissolution under the provisions of paragraph (1) of Article 824 or paragraph (1) of Article 833.

Unlike a Kabushiki-Kaisha (a joint stock company), a Godo-Kaisha does not have a deemed dissolution system.

Dissolution due to ” The absence of all partners”

I am sometimes asked for advice on dissolution procedures due to the withdrawal of one partner (due to death or merger). Unlike a Kabushiki-Kaisha, a Godo-Kaisha shall be dissolved when all partners withdrawal from the company. In such case, a court-appointed liquidator shall be responsible for the resignation of the partners, dissolution, and registration of the liquidator, which will be costly and time-consuming.

In order to prevent such a situation, it is advised for a Godo-Kaisha with has only one partner to consider eliminating the statutory reasons for leaving the company by stipulating the following items in its Articles of Incorporation.

Article XX (STATUTORY WITHDRAWAL AND SPECIAL PROVISIONS)
(i) In cases of death mergers (limited to cases where a relevant partner that is a juridical company is liquidated as a result of the merger), the heirs or other general successors of such partners may succeed to the equity interest of such partners.
(ii) The partners of the Company shall not withdraw due to some or all of the grounds listed in Article 607, Paragraph 1, Items (v) through (vii) of the Companies Act.”

General Overall Procedures

Step 1 Dissolution Procedure

(1) Decision of dissolution by consent of all partners and application for public notice in the Kanpo (Official Gazette)
(2) Appointment of a liquidator (and a representative liquidator) by a decision of a majority of all partners or executive partners
(3) Application for registration

Phase 2: Liquidation procedures

(4) Preparation of investigation of the status of assets, etc., and report them to the partners
(5) Beginning of creditor protection period (at least 2 months from a date of publication of notice of dissolution in the official gazette and individual notice to known creditors)
(6) Filing of tax returns with the tax office (within 2 months of dissolution)
(7) Ending of the period for creditor protection procedures
(8) Payment of debts
(9) Distribution of residual assets
(10) Obtainment of the approval of all partners
(11) Application for registration of completion of liquidation
(12) Submission of notification of change to the tax office, etc.

Note: For tax filing procedures, please consult with a tax accountant.

Dissolution by consent of all partners

The date of dissolution does not necessarily have to be the same as the date of consent of all partners, but can be set within two weeks of the decision (resolution to dissolve with a deadline). However, if this period is longer than two weeks, the application for registration may be rejected.

If the partners is an entity, it is the representative director who shall give his/her consent (not an executive manager).

For Your Information: According to the Legal Affairs Bureau, setting a dissolution date more than two weeks in advance shall be regarded as setting the duration of the existence of the company, so the application for registration shall be filed and publicly announced in the registration.

Appointment of a liquidator (and a representative liquidator)

When a Godo-Kaisha is dissolved, the current partners shall automatically resign. Therefore, the registrations of the executive partners and the representative partners are eliminated by the registrar at the same time the registration of dissolution is recorded.

A liquidating company shall have at least one “liquidator” who executes the business on behalf of the executive partners.

In most cases, the current executive partner is appointed as a liquidator, but it is also possible for a third party (employee, lawyer, etc.) to serve as the liquidator. Unlike a Kabushiki-Kaisha, an entity can also be the liquidator. In such a case, one or more persons must be appointed to execute manager, as is the case with an executive partner.

Unlike a Kabushiki-Kaisha, a Godo-Kaisha does not need to appoint a representative liquidator (although it is possible to do so), and in principle, all liquidators have the right of representation.

Persons who may act as liquidators

Current executive partners
Those who are specified in the Articles of Incorporation
Those who are appointed by the consent of a majority of the partners (or execute partners in cases where execute partners are specified in Articles of Incorporation); or
Those who are appointed by the court (only when the above three are not applicable).

Duties of a liquidator

The duties and responsibilities of Liquidators and Representative Liquidators are generally similar to those of executive partners. On the other hand, duties specific to Liquidators include the following:

Investigation of the company’s financial situation
Conclusion of ongoing contracts, collection of claims, and payment of debts
Distribution of residual assets
Preservation of financial document, etc.

The liquidator is required to report monthly on the status of the liquidation upon the request of any partners.

Application for registration of dissolution and Liquidator

The liquidating company shall apply for registration of dissolution and registration of the liquidator (and representative liquidator). At this time, the registrations of execute partners, representative partners, etc., which cannot be established in a liquidating company, will be eliminated.

Documents Required for Registration

The following documents are required in the case of a dissolution with the consent of all partners and the appointment of a liquidator (individual).

1. Written consent of all partners
2. Written consent of a majority of the executive members (only when the articles of incorporation specify executive partners)
3. Letter of Assumption of office
4. Reregistration Form of Corporate Seal
*Even when a current execute partner becomes a Representative Liquidator, it is necessary to re-register a company seal.
5. Certificate of private seal or signature of the liquidator
6. power of attorney (addressed to a judicial scrivener)

Preparation of investigation of the status of assets, etc.,

A Liquidator shall perform the following duties without delay after assuming his/ her office.

1. Investigate the status of the company’s assets: Preparing an inventory of the company’s assets and a balance sheet as of the date of dissolution, and notify each partners.
2. Completion of current duties E.g.) Disposal of remaining inventory, realization of assets, completion of performance of ongoing contracts, termination of office lease contracts, etc.
3. Collection of claims: Receiving payment of claims held by a company from debtors.

*Cancellation of the bank account shall be done when the liquidation procedure is completed and the account is no longer used. If it is necessary to close the account early due to circumstances such as returning home country, etc., please do not forget to inform debtors a new remittance account information.

Creditor Protection Procedures

A liquidation company shall inform all creditors of the fact that it has been dissolved and that they will be disqualified from the liquidation if they do not file their claims within 2 months. For this purpose, a liquidation company shall (1) publish the above information in the official gazette. In addition, liquidation company shall (2) send written notice to known creditors individually.

*Known creditors will not be disqualified from the liquidation even if the notice period has expired.

It takes around 10 business days from the time of application for publication in the Official Gazette to the time of publication. Therefore, in practice, it is often necessary to apply for it prior to the decision to dissolve the company.

Important: A liquidating company cannot complete its liquidation until this two months protection period (starts from the day following the date of publication and the date of the notification receipt by creditors) ends.

Payment of debts

Once the creditor protection procedure period has expired and the creditors and the amount of their claims have been fixed, payments are made to the creditors.

Imporatnat: During the creditor protection procedure period, repayments may shall not be made to any creditors. Thus, if it is necessary to make repayments, a “petition for permission to pay debts” shall be submitted to the district court with jurisdiction over the location of the head office.

Distribution of residual assets

If there are still residual assets after the payment of debts to creditors, those assets shall be distributed to partners. It is possible to distribute the assets in kind, but in most cases, the liquidator will convert the assets into cash due to the complexity of the procedure.

Unless otherwise stipulated in the Articles of Incorporation, the distribution ratio is determined according to the value of each partners’ investment.

Financial Report and Approval

After all of the above liquidation procedures are completed, calculations related to the liquidation are made and approved by the partners. Although there are no legal provisions regarding the specific details of the calculations related to liquidation, it is understood that a written statement that clarifies the disposition of assets is sufficient. If the partners do not object to these calculations within one month, they are deemed to have approved them. (except in the case of misconduct in the performance of the liquidator’s duties).