Legal

Deleting a branch of a foreign company from the Commercial Register

Katrin Mustasaar
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Contents

Up to 30 December 2021, according to subsection 390 (4) of the Commercial Code it was required that a branch of a foreign company has to be liquidated before deletion from the Commercial Register, with all of the stages necessary for liquidation to be followed: notification of creditors, satisfaction of creditors’ claims, preparation of a final balance sheet, etc.

From 31 December 2021, the wording of this subsection has changed, however, and foreign companies can decide whether to delete the branch from the register with or without liquidating it. At present the company also has the option of immediately submitting a deletion application.

In fact, the previous obligation to liquidate the branch did not have a justification, because a branch is not an independent legal subject or legal person and when transactions are conducted through a branch, the foreign company is always one of the parties. Thus, deletion of the branch from the Commercial Register has no bearing on the transactions conducted through it.

If a foreign company decides to liquidate the branch before deleting it, liquidators must be appointed and the provisions of the General Part of the Civil Code Act pertaining to liquidation of legal persons must be applied.

As to whether to choose liquidation or immediately apply for the deletion of the branch from the Commercial Register, the foreign company will have to consider that thoroughly, namely taking into consideration that liquidation proceedings are more time-consuming and costlier for a company: it will take at least eight to nine months. However, liquidation is governed by specific legal norms, due to which deletion with preceding liquidation may be clearer for the person carrying it out. On the other hand, it is not prohibited to apply the principles established for liquidation in the case of deletion in the absence of liquidation. For example, a question that comes up in the case of deletion without liquidation is how the retention and keeping of the branch’s documents are regulated? The provisions established for liquidation could serve as the basis here.

As a branch is not a separate legal person – the foreign company is the legal entity – the internal relations between branch and the foreign company are not regulated by law. The branch is presumed to have economic activity in Estonia, so requirements for accounting and financial reporting have also been established. Thus, if the foreign company prefers deletion without prior liquidation, the branch’s accounting along with the valid contracts and other documents must be reviewed so that none of the branch’s receivables and liabilities are left up in the air by the time the deletion application is filed.

For more details about actions to take when deleting a branch from the Commercial Register, ask Grant Thornton Baltic’s legal advisers, who are there for clients at every stage of deletion, whether with or without prior liquidation.

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