Risks of voluntary liquidation – 5+1 critical accounting, tax and administrative areas

1. Communication and structured planning – when the process is not prepared with sufficient consideration

In practice, it often occurs that the decision to initiate liquidation has already been made and the related legal steps have already been taken, while the accountant is only informed afterwards about the initiation of the process.

The lack of prior communication and coordination typically leads to the following:

• no flexibility remains to optimise timing, which may later result in rushed execution to meet deadlines,
• roles and responsibilities are not clearly defined, increasing the need for coordination,
• the timing of the company’s closure does not align with the client’s business plans.

Experience shows that liquidation can be carried out most efficiently if the client informs the accountant in advance about their plans and a structured timeline is established jointly, involving legal advisors as well, clearly defining tasks and deadlines.

2. Determining the start and closing dates of the liquidation – a seemingly technical issue with significant administrative consequences

An insufficiently considered choice of dates can significantly complicate the accounting tasks related to liquidation. If the start date of the liquidation is not set to the first day of a period, fragmented reporting periods will arise, which:

• increase the number of tax returns to be prepared,
• make period closing more complex from an accounting perspective,
• result in unnecessary additional administrative workload.

Similar considerations apply to the determination of the closing date, which, from an accounting perspective, is typically handled most efficiently when aligned with the last day of a reporting period.

3. Differences in administrative practices between the tax authority and the company court – when the return is “incorrect”, although everything was compliant

At the closing stage of a liquidation, it may occur that the dates recorded by the company court do not match those appearing in the tax authority’s systems. As a result, tax returns may be flagged as erroneous, even if the process has been fully compliant.

In practice, the solution in such cases is to contact the tax authority (NAV), and where relevant the competent local municipality, and provide clarification via “e‑paper” explaining the reason for the discrepancy.

These situations are not necessarily avoidable, however, if we are aware of them, they do not lead to unexpected disruptions, and the required reconciliations can be handled more quickly and efficiently.

4. Settlement of liabilities prior to closing the liquidation – intercompany items must also be considered

Although a liquidation can be formally closed even if outstanding liabilities remain, in practice it is important to consider their nature.

While obligations towards shareholders may be handled more flexibly, liabilities towards external parties – particularly tax authorities or related companies – typically require actual cash coverage in the closing balance sheet. For example, a liability towards the tax authority cannot be settled by assigning a receivable.

If liabilities towards non-shareholder parties are not resolved in time, they may lead to tax risks or a delay in the closure process, therefore it is advisable to review and settle these items before preparing the closing financial statements.

5. Capital increase in the context of liquidation – when substance prevails over form

Although there is no legal prohibition on carrying out a capital increase during or prior to liquidation, such transactions may involve tax risks. The tax authority evaluates transactions based on their economic substance and may reclassify them accordingly. This is particularly relevant where capital increase is used to settle a shareholder’s loans, or when a shareholder loan is contributed in kind as a non‑cash contribution.

In such cases, there is a risk that the transaction may be reclassified at the company under liquidation as a waiver of liabilities, which may result in corporate income tax obligations.

In practice, it is therefore advisable to assess such decisions from a professional perspective in advance, to avoid unexpected consequences during the process.

+1. Employees in passive status – “hidden” accounting and labour law obligations

Even in a company that appears to be inactive, it may occur that financial obligations related to employees in passive status remain outstanding. These may typically include:

• accrued but unused leave,
• severance obligations.

 

In practice, it is therefore essential to identify employees in passive status already at the beginning of the liquidation, as this may give rise to both accounting obligations, e.g. the recognition of provisions in the financial statements closing the business activities and labour law obligations.

Early identification helps ensure that these items are handled in a planned manner and do not create bottlenecks towards the end of the process.

Professional experience in accounting support for voluntary liquidations

In recent years, we have provided accounting and tax support in numerous liquidation processes of varying complexity, including standard and simplified liquidations, branch closures, as well as the liquidation of foreign entities with Hungarian tax residency.

Our experience shows that most issues arising during liquidation are identifiable and manageable in advance, provided that the process is considered not only from a legal perspective but also from an accounting and tax perspective.

The support we provide covers the entire lifecycle of the liquidation. As part of this:

• we assist in structuring and optimising the timing and scheduling of the process,
• we perform the related accounting and tax compliance tasks,
• we support the identification and management of key risk areas,
• and, if required, we are also able to provide a liquidator, ensuring that the process is handled in a coordinated and integrated manner.

 

This approach ensures that liquidation is not treated as a series of isolated tasks, but as a transparent and well‑controlled process.