Minister of Legal Affairs, Sander Dekker, wants to put an end to the malpractices related to the so called “turbo liquidation” of legal entities. The Tax authority observed several inconsistencies based on figures from the period 2010-2016, with one in five turbo liquidations. The Minister will propose a legislative amendment that will make turbo liquidations more transparent towards creditors.
Turbo Liquidation
In 1994, the possibility of a turbo liquidation was created for legal entities who have no assets at the time of dissolution. In case of a turbo liquidation, the shareholders’ meeting decides to dissolve the company. The board provides the trade register that the legal entity has ceased to exist and requests a deregistration of the company with the trade register. A turbo liquidation does not require a settlement procedure. The turbo liquidation is often advised by accountants, lawyers and tax specialists because it is a fast and inexpensive way to dissolve a company. Figures from the trade register show that 88% of the companies (B.V. ‘s) and 95% of the foundations have been dissolved in this way since 2013.

Parliamentary history and the legal text show that the turbo liquidation has been introduced for companies that have no assets at the time of dissolution. Nothing is said about the existence of debts. A company may therefore proceed with a turbo liquidation if it has only debts. It is very likely that at that time the minister was not prepared for this possibility in the introduction of the legislative amendment. The purpose of the legislative amendment was to prevent misuse of companies (B.V.’s) and to ensure that the trade register was cleaned up.

Position of creditors
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.

It is often difficult for creditors to provide sufficient prove that an uncleared benefit exists on behalf of the company. They have insufficient information and in addition they have no insight into the administration of the dissolved legal entity. If a company revives, this revival is not registered in the commercial register. As a result, other creditors are often unaware of the reopening of the liquidation and the possibility of involving the company in legal proceedings. The above-mentioned points out that the current legislation does not provide sufficient guarantees for creditors.

Legislative amendment
It is assumed that fraudsters are increasingly transitioning from classical fraudulous bankruptcy to the misuse of the turbo liquidation possibility. Minister Dekker is working on a legislative amendment which should provide greater certainty to creditors and more transparency. Currently, creditors often find out over time that they are unlikely to get their money back. Therefore, the minister is taking the following preventive 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;
  • 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 general publication of the turbo liquidation. This disclosure should also indicate that the closing balance and the annual accounts are available at the trade register.

These measures should increase the transparency towards creditors. It is ultimately up to the creditors themselves to assess whether, following this information, they are going to court. It is not, however, the intention, by means of legislative amendment, to make the turbo liquidation impossible for companies with only debts. A preliminary draft of the legislative amendment is likely to be offered for consultation during 2020.