By now it is more than clear that COVID-19 is having a major impact on business. It is expected that COVID-19 will also cause entrepreneurs to use the turbo liquidation in order to dissolve their company.
As a result of COVID-19, the Minister for Legal Affairs wants to make a temporary amendment to Book 2 of the Dutch Civil Code regarding the turbo liquidation. The aim of this ‘Temporary Act on the transparency of turbo liquidation’ is to increase transparency regarding turbo liquidation, to improve the legal protection of creditors and to combat its abuse more efficiently.
As the name suggests, the turbo liquidation is a quick way to dissolve a company. In order to make use of this form of dissolution, it is required that the company no longer has any assets at the time of dissolution. So there is no liquidation of her assets. In case of a turbo liquidation, the shareholders’ meeting decides to dissolve the company. The board will register with the trade register that the legal entity has ceased to exist and requests a deregistration of the company with the trade register.
Disadvantage for creditors
A turbo liquidation does not require a settlement procedure. Due to the increasing popularity of the turbo liquidation, creditors are increasingly disadvantaged. There is no legal obligation to publish the dissolution of a turbo liquidation. As a result, creditors are often not familiar with the dissolution of the company. After such dissolution, a creditor may only request the reopening of the liquidation. The creditor will have to demonstrate a sufficient interest in reopening the liquidation procedure and that there is an uncleared benefit or that a liquidation balance has been paid to an entitled party that can be recovered.
Temporary change in law
The Minister for Legal Affairs proposes to impose transparency requirements on the turbo-liquidation of legal entities, so creditors have more guarantee.
The proposal includes the following measures:
- the board of managing directors should draw up a closing balance. This will have to be provided with a statement of directors indicating why the benefits are lacking. The closing balance with the administrative declaration must be deposited with the trade register (within 14 days after the dissolution);
- the annual accounts of all preceding financial years should be disclosed before deregistration of the legal entity from the trade register. These annual accounts should provide an insight into the financial situation of the legal entity;
- the board of managing directors must ensure a (written) general publication of the turbo liquidation to the creditors. This disclosure should also indicate that the closing balance and the annual accounts are available at the trade register.
This improvement is urgent due to an expected increase in the use of turbo liquidation in the short term, as a result of the economic consequences of COVID-19. As indicated earlier, the proposed measures are for the time being of a temporary nature and will be apply for two years. The legislative proposal nevertheless contains the option of extending the applicability of the measures by Royal Decree.