Dissolution and Liquidation Procedures of a Kabushiki-Kaisha

Statutory Reasons for Dissolution

In order to liquidate the company, we need to get through two steps which are (1) the dissolution procedure and (2) the liquidation procedure.A company is closed only after the liquidation procedure is completed.
A Kabushiki Kaisha shall be dissolved for the following reasons.
The most common method of dissolution among these (excluding mergers) is dissolution by a resolution of the general meeting of shareholders. Therefore, this article explains about the case in particular.

The expiration of the duration provided for in the Articles of Incorporation (such duration is a registered matter)
The grounds for dissolution provided for in the Articles of Incorporation (such event is a registered matter)
A resolution of a shareholders meeting
A merger (limited to cases where such Stock Company is liquidated as a result of the merger)
A ruling to commence bankruptcy procedures
Judgment that orders the dissolution pursuant to the provisions of paragraph (1) of Article 824 or paragraph (1) of Article 833
NOTE: In the case of a joint stock company, if registration is not filed for 12 years, the company may be deemed to be dissolved.

General Procedures

Details of each procedure are written below.
Note 1: Determination of agenda and convening of a shareholders’ meeting shall be made at a Board of Directors’ meeting or Directors’ meeting (after the date of dissolution: a Board of Liquidators’ meeting or Liquidators( meeting) prior to each shareholders’ meeting.
Note 2: For tax filing procedures, please consult with a tax accountant.

Phase 1: Dissolution Procedures

(1) Resolution at a general meeting of shareholders:
Matters to be resolved: Dissolution of the company (special resolution) and appointment of Liquidator and Representative Liquidator (ordinary resolution)
(2) application for public notice in the Official Gazette
(3) Application for registration

Phase 2: Liquidation procedures

(4) Preparation of investigation of the status of assets, etc., and approve them at shareholders’ meeting.
(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) Approving liquidation reports, etc. at shareholders’ meeting
(11) Application for registration
(12) Submission of notification of change to the tax office, etc.

Resolution at a general meeting of shareholders

A. Dissolution Date

The date of dissolution does not necessarily have to be the same as the date of the resolution of the general meeting of shareholders. It can be set within two weeks of the resolution. However, if this period exceeds two weeks, the application for registration will be rejected.

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.

B. Appointment of Liquidator and Representative Liquidator

When a Kabushiki-Kaisha is dissolved, Directors shall automatically resign. Therefore, the registrations of Directors and a Board of Directors are eliminated by the registrar at the same time the registration of dissolution is recorded.
*Auditors do not resign from their positions due to the dissolution and continue to serve as auditors of liquidating companies.
A liquidating company shall have at least one “liquidator” who executes the business on behalf of the Directors.
The order of priority for selecting a Liquidator is as follows.
In most cases, the current Directors are appointed as liquidators at the same time as the dissolution is resolved at the shareholders’ meeting. In such cases, all or one of the Directors may become liquidators. If more than one liquidator is appointed, one or more of them may be appointed as the Representative Liquidator. (If there is only one liquidator, that person shall be the Representative Liquidator.)

Those who are specified in the Articles of Incorporation
Those who are appointed by a resolution of the general meeting of shareholders
Current Directors
Those who are appointed by the court

Duties of Liquidators

The duties and responsibilities of Liquidators and Representative Liquidators are generally similar to those of Directors. 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.

Application for registration of dissolution, Liquidator and Representative Liquidator

The liquidating company shall apply for registration of dissolution, Liquidator and Representative Liquidator within two weeks of the date of dissolution. At this time, the registration of Directors, a Board of Directors, etc., which cannot be established in a liquidating company, will be eliminated.

*Although it is not necessary to apply for the registration of dissolution and the Liquidators at the same time, in most cases they are filed together, as there is no merit in filing them separately.

Documents Required for Registration

The following documents are required when dissolution is resolved at a general meeting of shareholders and only one Liquidator (=Representative Liquidator) is appointed.

Minutes of the general meeting of shareholders
List of shareholders
Articles of Incorporation
Assumption of office
Reregistration Form of Corporate Seal
*Even when a current Representative Director becomes a Representative Liquidator, it is necessary to re-register a company seal.
Certificate of private seal or signature of the Representative Liquidator

Preparation of investigation of the status of assets, etc., and approve them at shareholders’ meeting.

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

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 have them approved at the general meeting of shareholders.
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.
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.
NOTE: Some financial institutions request a Representative Liquidator himself/herself to come to bank and may not allow proxy to get through the account closing procedures.

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, and (2) send a written notice to known creditors individually.
Creditors who have been disqualified from the liquidation may receive repayment only if there are still assets available after the liquidation company has distributed the remaining assets to the shareholders.
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 before the resolution of dissolution at the general shareholders’ meeting.

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.

Important: 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 shareholders by a decision of Liquidators or a resolution of a Board of Liquidators’ meeting.

Matters to be resolved (in the case of cash distribution*)
(1) Type of residual assets
(2) Matters concerning the allocation of residual assets to shareholders
*Although it is possible to distribute the property in kind, in most cases properties are converted into money because of the complexity of the procedure. The distribution ratio (for a company issuing only common shares) depends on the number of shares each shareholders hold.

Approving liquidation reports, etc. at shareholders’ meeting

After all the above liquidation procedures are completed, a report on liquidation procedures and a financial statement are prepared and approved at the general meeting of shareholders.