The Influence of Asset Insufficiency on the Termination of a Legal Entity’s Activities

The paper examines the grounds and procedure for terminating the activities of legal entities that do not have enough property (assets) to satisfy the claims of creditors, i.e., when they are in a financial crisis. The author destinguishes insolvency and lack of property of legal entities, entailing different legal consequences upon termination of their activities. It is recognized that the termination of the activities of insolvent legal entities in the insolvency procedure depends on their bankruptcy as a prerequisite for the introduction of the procedure, their ability to be reorganized, and the possibility of financing the procedure by interested creditors. The author concludes that it is possible to terminate the activities of a legal entity during the insolvency procedure or beyond this procedure as part of a reorganization in the form of a merger that allows transferring the debt of the reorganized person to its successor. The author states that the liquidation of non-competitive legal entities can be carried out exclusively in the course of ordinary liquidation, regulated under the rules of the Civil Code of the Russian Federation. The paper highlights the procedure for ordinary liquidation and the procedure for bankruptcy proceedings, the procedure for excluding an inactive legal entity from the register, the ground for the application of which is, among other things, the absence of property, the inability to impose liquidation costs on the founders (participants). The author concludes that the Federal Law dated 26 October 2002 No. 127-FZ «On Insolvency (Bankruptcy)» is contradictory in terms of regulating the grounds for terminating the proceedings and introducing bankruptcy proceedings for the absent debtor, as well as Art. 21.1 of the Federal Law dated 8 August 2001 No. 129-FZ «On State Registration of Legal Entities and Individual Entrepreneurs»; the author proposed to exclude Art. 230 of the Federal Law «On Insolvency (Bankruptcy)».

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