The dissolution and liquidation of an association or foundation is a less familiar procedure than the liquidation of a company, although its rules are in some respects stricter. The most important one: assets remaining after liquidation can never pass to a natural person. This article walks through the procedure step by step, as governed by Government Ordinance no. 26/2000 on associations and foundations.

When an association or foundation is dissolved

Associations are dissolved by operation of law, or by decision of the district court or the tribunal, as the case may be. Foundations are dissolved in a similar manner — by operation of law or by decision of the district court.

In addition, an association may also be dissolved by resolution of its general assembly. This is the most frequent situation in practice: the members decide to cease activity. In that case, the resolution of the general assembly is filed with the district court in whose jurisdiction the association has its registered office.

Dissolution does not mean that the legal entity disappears. It opens the liquidation stage, during which the assets are realised, the creditors are paid, and whatever remains is transferred onward under special rules.

Appointment of the liquidator

Liquidators may be appointed in two ways: by court decision, ex officio, or by resolution of the general assembly.

In practice, where dissolution is voluntary, the general assembly appoints the liquidator and sets the fee. Where dissolution is ordered by the court, the appointment is made ex officio.

First obligations after taking office

Once in office, the liquidators have the following immediate obligations:

• Inventory and balance sheet. The liquidators draw up an inventory of the assets and prepare a balance sheet establishing the exact position of the entity’s assets and liabilities.
• Custody of the records. The registers and documents of the association or foundation pass into the liquidators’ custody.
• Liquidation register. The liquidators keep a register of all liquidation operations, in date order.

One feature specific to this procedure: the liquidators carry out their mandate under the supervision of the censors. Unlike the liquidation of a commercial company, where control is exercised mainly by the shareholders and by the Trade Registry, here the censors have a supervisory role of their own.

Paying creditors and realising the assets

The liquidators collect the receivables of the association or foundation and pay the creditors. If the available cash is insufficient to cover the debts, the assets are sold by public auction in order to pay the claims.

The order matters: no amount is distributed further before the debts owed to creditors have been settled.

What happens to the remaining assets: the rule that surprises most often

This is the feature that most clearly distinguishes the liquidation of a non-profit entity from that of a commercial company.

Assets remaining after liquidation cannot be transferred to natural persons. They may be transferred exclusively to legal entities governed by private or public law having an identical or similar purpose.

The rationale is straightforward: the patrimony of a non-profit entity was built up for a declared purpose of general or collective interest, not for the enrichment of its members. When the entity ceases to exist, that patrimony must remain dedicated to a comparable purpose.

In practice this means that the articles of association or the statute should indicate who receives the remaining assets — and if they do not, the matter is settled by a resolution of the competent body, adopted before dissolution. As a subsidiary solution, the Civil Code provides for allocation by the court to a legal entity with a similar purpose; and if no legal entity accepts the transfer, the assets pass to the administrative-territorial unit in whose jurisdiction they are located.

Closing the liquidation: the memorandum, the balance sheet and the challenge period

After the liquidation has been completed, within 2 months, the liquidators file with the court:

• a memorandum;
• a journal register;
• a balance sheet, declaring the liquidation operations.

These documents are posted at the door of the court.

The balance sheet may be challenged within 30 days of posting. Any interested person may file a challenge with the district court.

If the 30-day term expires without any challenge being filed, the balance sheet is deemed finally approved. Only then will the liquidators hand over to those entitled the assets and amounts remaining from the liquidation, with the authorisation of the district court. Only after this step are the liquidators considered discharged from their mandate.

Striking off

Once the liquidation is complete, the liquidator applies for the entity to be struck off the register held at the court registry.

From the date of striking off, the association or foundation ceases to exist as a legal entity. This is the moment that effectively closes the procedure.

How long it takes and what it costs

The actual duration depends on three factors: whether there are assets to realise, whether there is pending litigation, and the state of the accounting records. An association with no assets, no debts and up-to-date accounts can be liquidated in a few months. One with real estate, litigation or incomplete records may take more than a year.

The liquidator’s fee is set after assessing the specific situation: the number of members, the assets to be realised, pending litigation and the state of the accounting records. However simple the procedure may appear, a liquidation conducted properly does not come in under 15-20 billable hours — notifications, publications, dealings with the court and with the tax authority, preparing and filing the liquidation balance sheet, and the striking off.

Common mistakes

• Assuming that the remaining assets go to the members. They do not. This is the clearest prohibition in GO 26/2000 and the one most often ignored.
• Missing the 2-month deadline for filing the balance sheet. Without filing and posting, the challenge period does not start running, so the liquidation cannot be closed.
• Applying for striking off before the challenge period has expired. The balance sheet is not finally approved and the liquidators are not discharged.
• Bringing the accounting records up to date only at the very end. It costs more and delays the whole procedure. The inventory and the opening balance sheet must be done properly.

Applicable legal framework

• Government Ordinance no. 26/2000 on associations and foundations;
• the Civil Code, articles 245-249, on the dissolution and liquidation of private-law legal entities;
• Accounting Law no. 82/1991 and Order of the Ministry of Public Finance no. 2861/2009 on the organisation and conduct of inventory taking.

Prepared by Florin Daniel Barbu, attorney at law and insolvency practitioner, member of the Board of INPPI, on the basis of the course material “Liquidation outside insolvency”, delivered within the UNPIR trainee education programme, October 2024.