News
25.10.2023

FAQ: company’s “hibernation” mode

Many companies, while in the process of restructuring, experience a phase of reduced activity – this phase is often called “hibernation mode”. Often the “hibernation” phase precedes the liquidation phase.

In this review, we have collected answers to the most frequently asked questions about “hibernation” mode.

What is a company’s “hibernation” mode?

“Hibernation” mode is not an official legal term and represents the transfer of a company into an inactive state (suspension of business activities) while maintaining the existence of a legal entity.

What is important to consider when putting the company into “hibernation” mode?

  • the company is still required to submit tax returns (including zero reporting) and pay taxes;
  • the company must still have a CEO;
  • the company must still have a legal address;
  • for a company in “hibernation” mode, in any case, it will be necessary to plan liquidity to pay current (minimum) payments, which means the company will in any case have a (minimum) turnover on the account: expenses for maintaining accounting and tax records, software, wages, rent.

Is documentation required for “hibernation” mode?

Documentation for “hibernation” mode is not required. However, in some cases, in order to approve the procedure, the participants may prepare a resolution to suspend the company’s activities. Such a resolution can be submitted to government bodies if requested, a local act (order) can be issued on its basis, etc.

Is it necessary to notify government authorities about the “hibernation” mode?

As a general rule, it is not necessary to send a notification to put a company into the “hibernation” mode.

However, when planning activities, it is important to take into account that the company must notify government authorities of other specified circumstances (if any).

So, for example, in the event of a reduction in staff when the company is put into the “hibernation” mode, the employment service must be notified 2 months in advance.

Is it necessary to notify counterparties about the “hibernation” mode?

As a general rule, it is not necessary to send any special notifications to counterparties.

However, if the company has existing open obligations, then it will be necessary to notify counterparties of the planned suspension or reduction in business activity. Please also note that the “hibernation” mode does not relieve the company from its obligations under agreements with counterparties and does not exclude the company’s liability for violation of such obligations.

And what to do with the personnel?

It must be remembered that the “hibernation” mode is not a reason for non-payment of wages or dismissal of employees.

In this regard, it will be necessary to resolve personnel issues with the employee.

For a limited period of time, under certain circumstances, the company may impose a formal business interruption, reduce staff, or otherwise terminate employment contracts. However, in any case, it will be necessary to plan this process carefully to avoid the risks of violating labor laws.

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Contacts: 

Maria Matrossowa

Yulia Belokon

Deputy Project leader swilar OOO

yulia.belokon@swilar.ru +7 495 648 69 44 (ext. 309)

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On October 24, a checklist seminar was held entitled “Main tax changes, suspension of SUDAT, new FSBU, HR electronic document management. Convergence of HGB IFRS and RAS taking into account the new standards.” Tatyana Rolzing (Vorontsova), leading expert-consultant on taxation at ELKOD LLC and external consultant of Sterngoff Audit, discussed current issues of applying new FSBU: issues of applying FSBU 6/2020, FSBU 26/2020, as well as FSBU 25/2018 for rent and leasing and the transition to FSBU 14/2020 in 2023.

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DIT. Suspension. Mitigation. Comments. Consequences.

Daria Pogodina

 

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Daria Pogodina spoke at an online seminar organized by Sterngoff Audit with a report on “DIT. Suspension. Mitigation. Comments. Consequences”. As part of her speech, the speaker analyzed the current state of the system of restrictive measures in relation to transactions with foreign entities, explained the legal nuances and possible consequences for companies. The report aroused great interest, as it touched upon issues that are critical for international business.

 

Evgenia Chernova presented a report at the same seminar on “Accounting for intangible assets under FASB 14/2022, IAS 38 and HGB: differences and convergence”. The speaker compared approaches to accounting for intangible assets in the Russian, international and German systems, focusing on the differences in recognition, valuation and write-off. Participants received practical recommendations on unifying accounting and preparing reports in transnational structures.

 

Evgeniya Chernova spoke at a meeting of the Finance Committee with a report on the topic “Expansion of the list of offshore jurisdictions. Mitigation. Comments. Consequences.” As part of her speech, the speaker analyzed the latest changes in the list of offshore jurisdictions, explained approaches to applying the new rules, and discussed potential tax and legal consequences for Russian companies. Particular attention was paid to possible measures to reduce risks and adapt business practices to the changed conditions.

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