The current winding-up regime means that a legal entity automatically ceases to exist if it no longer has any benefits at the time of the liquidation (dissolution). In practice, this means that, in the case of a legal entity that has no income (assets) at the time of dissolution, the board of directors declares this to the Chamber of Commerce. The legal entity then immediately ceases to exist and is therefore ‘turbo-liquidated’. On 14 March last. the Senate has passed the bill ‘Temporary law on transparency of turbo liquidation’. With this bill, the legislator wants to prevent abuse of the ‘turbo liquidation’ and better protect the creditors of the legal entity to be dissolved.
If a legal entity no longer has any assets, the board can choose to dissolve and terminate the legal entity in a quick and easy way (turbo liquidation). The bill makes a number of changes to the current rules for dissolving and terminating the legal entity because the current system would have insufficient safeguards against abuse. In practice, the undesirable situation often occurred that a director worked towards a scenario in which the legal entity no longer had assets at the time of dissolution and creditors of the legal entity remained unpaid. In the future, those creditors also had too little information to assess whether the (turbo) liquidation had taken place in the right way.
The bill tries to (somewhat) eliminate this information gap and thus strengthen the position of creditors by increasing transparency and preventing abuse. For example, the board of the legal entity to be liquidated must file the following documents with the Trade Register within 14 days of dissolution:
- a balance sheet and a statement of income and expenses relating to the financial year in which the legal person was dissolved and the preceding financial year if no annual accounts have yet been published for that year;
- a description of:
- the cause of the lack of benefits at the time of dissolution;
- the manner in which the income of the legal entity has been monetised and the proceeds have been distributed;
- the reasons why a creditor or creditors have remained wholly or partly unpaid; and
- the annual accounts of previous financial years for which publication was required (if applicable, an auditor’s report must also be provided).
On the basis of this information, creditors could check for themselves why they have not been (fully) paid. Incidentally, the previous information must also be filed if all creditors have been paid.
If a legal entity is ‘turboliquidated’ and creditors have remained (partially) unpaid, the Public Prosecution Service can request the court to impose a civil administrative ban on the directors. This prohibition may be imposed if the director has failed to comply with the proposed filing obligation, has deliberately disadvantaged one or more creditors in the run-up to the dissolution or has been involved in bankruptcy or dissolution at least twice before, leaving debts in the legal entity and being personally seriously reproached. The civil administrative prohibition means that a director may not function as a director or supervisory director of any legal entity for a maximum of five years. The civil administrative prohibition is intended to prevent directors from continuing or repeating undesirable activities in new cases. It is also in line with the bankruptcy law and can count in the assessment of whether there is recidivism.
Temporary nature
The legislator expects that (many) entrepreneurs, in the aftermath of the COVID-19 pandemic, may or may not be forced to close their business in the coming years. The legislature wants to help them. A structural change in the law would probably be mustard after the meal (takes at least 2 years) and the legislator has therefore opted for a temporary legislative amendment of in principle 2 years.
For further information, please contact:
Sjef Bartels, Partner
Labré advocaten, Amsterdam
e:ln.erbal@sletrab.fejs
t: +31 20 3052030
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