Upon my return from my journey to the British Isles, during which I tried to explain and highlight what the bankruptcy procedure situation is in Spain, I had a visit from someone with a question which took me back to 2007. The question brought up by the client is, what happens if the company director leaves the company inactive without liquidating it nor dissolving it nor calling a creditors meeting.

It´s a question which took me back to the year 2007 because it´s such a long time since anyone asked this in such a naive and sincere way. The answer, obviously, has different aspects and depends, of course, on the situation of the company.

In all cases, if the company has ceased trading, the first thing to be done is to terminate its activity both with the tax office (model 360) and Companies House (equivalent). The latter can be done through a public notice of termination of its activity.

Secondly, if the company has no debts, nor outstanding payments nor obligations to complete any deals, it can certainly be left inactive.

However, if the company has debts, the director´s obligation is to take a decision which allows him to limit his liability while complying with commercial regulations. And adherence to these regulations fulfills the obligations of Articles 360 and also of the Companies Capital Law. These demonstrate, among other things, that a decision should be taken when the company has experienced losses which reduce the net assets to lower than half the social capital, or, when the latter is below the legal minimum. In these cases, the Company Director should call partners to a Meeting with the aim of agreeing an increase in capital to either restore the assets or reach the minimum social capital or reduce the capital to offset against losses, with the objective of ensuring that the resulting capital is greater than the legal minimum. Or call a creditors meeting. The consequences of not doing this are laid out in article 367 of Company Capital Law and are not the personal liability of the administrative body.

And then, obviously, comes the next question. Very easy. If your company owes money to the tax office and they are taxes, Companies House (equiv) can make a claim against the company and against the personal assets of the administrators, seize accounts, house, car, salary, etc. This is clear. The same can happen if money is owed to a creditor or to Social Security.

How can all this be avoided? In the first place, by being a good manager and not allowing the company to get into a situation of insolvency. If through bad luck and non-payment by third parties, etc. this situation unfortunately does occur it´s necessary to apply the above either increase capital or reduce it or call a creditors meeting. As always, everything needs money, but in addition, as always, action taken in time can save a lot of problems.

See you later!

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