Fast-track liquidation is the quickest way to end a business. It is also known as turbo liquidation. The new temporary law ‘Tijdelijke wet transparantie turboliquidatie’ (Temporary act transparency fast-track liquidation) takes effect from 15 November 2023. This means creditors can easily monitor the liquidation process.
What is turbo-liquidation?
Turbo-liquidation, also known as fast-track liquidation, is a way to end a legal entity in the Netherlands. For example, a private limited company (BV), a public limited company (NV), a cooperative, a mutual insurance society, a foundation, or an association. You cannot use a fast-track liquidation to end a sole proprietorship (eenmanszaak) or a general partnership (VOF). In 2022, some 50,000 legal entities were dissolved. Nearly 90% of these cases were resolved by fast-track liquidation.
A turbo-liquidation takes place when a company is closed down on its own initiative, in a situation where there are no more assets on the entity’s balance sheet. The company then ceases to exist immediately, regardless of whether it still has debts at that time. Usually the company is ’emptied’ prior to the dissolution: assets are liquidated, debts are paid, agreements and other legal relationships are settled, and any surplus is paid out. Any current account relationships with shareholding directors (“DGA’s”) or existing pensions must be settled as well, at this point.
What are assets?
Assets include various items within a business, such as:
- money in the bank;
- inventory and stock;
- property; and
- shares in other companies.
Claims are also assets. This applies to claims you are sure will be paid. But also, to claims you could collect. For example, money you only get after you speak to a debtor or take legal action. Examples of claims are:
- an amount you are owed from debtors;
- a deposit that you get back after a rental period; and
- an amount you will get after cancelling an agreement.
The term ‘assets’ covers more than you might think. Therefore, be very careful when deciding if your business still has any assets.
Does your company have debts?
Turbo-liquidation is possible even if a business still has some debts. Please be advised that if there are significant debts, it may be better to file for bankruptcy. In a bankruptcy, you appoint a trustee who has experience in handling debts correctly.
What will be the new turbo-liquidation rules?
The new law is temporary. It will be valid for 2 years after it takes effect. It is possible that a permanent law will be introduced in the future.
The new Temporary Act imposes the additional condition of a transparency obligation in the event of a turbo liquidation. Pursuant to this transparency obligation, the former board must file the following additional information with the Netherlands Company Register (Kamer van Koophandel) within 14 days of the dissolution date:
– A balance sheet and a statement of income and expenditure relating to the financial year in which the legal entity was dissolved.
– The annual accounts for the financial years preceding the financial year in which the legal entity was dissolved, insofar as these have not been previously published by the legal entity.
– A description of
(a) the cause of the lack of assets at the time of dissolution,
(b) the manner in which the assets of the legal entity have been realized and the proceeds distributed and
(c) the reasons why a creditor is wholly or partially unpaid.
– After the board has filed the deposit, it must notify any remaining creditors in writing.
If there are grounds to assume that these obligations have not been met, directors may be confronted with a fine of up to €22,500 or six months (conditional) imprisonment. Furthermore, creditors may seek access to the records of the dissolved company to substantiate their claims against the company’s directors for personal liability. The bill also makes it possible to impose a management ban on the previous directors of the company, if they:
– have not complied with the proposed deposit obligation,
– in the run-up to the dissolution deliberately disadvantaged one or more creditors, or
– have repeatedly been involved in a dissolution with debts.
This is all intended to protect the creditor’s position, increase transparency and prevent abuse of the turbo liquidation possibility.
What are the risks for a turbo-liquidation?
Turbo-liquidation may seem like a quick and simple process, but it also has risks. If it turns out that there were assets in the legal entity after the dissolution decision, a creditor may ask the court to reverse the termination and still liquidate. This is also the case if the fast-track liquidation was applied incorrectly, either intentionally or unintentionally. Creditors can also apply for the bankruptcy of the already terminated legal entity.
In some cases, creditors can hold a former director personally liable via legal action. The director must have acted unlawfully with intent. For example, by prioritising certain creditors when others should have been paid first. This means the order of priority among creditors was not considered. Another example is when a director intentionally hides assets and still continues with the fast-track liquidation.
The new law also carries risks for business owners. In certain situations, the Public Prosecution Service can request a ban on directorship. If this happens, the director is forbidden from holding any directorial positions for a maximum of 5 years. Intentionally failing to comply with the new accountability requirements can also lead to criminal liability.
If you do not carry out the turbo-liquidation properly, this could be a risk for you as a director.
Bolder Launch is an expert in all that you need to know about the new temporary law ‘Tijdelijke wet transparantie turboliquidatie’ (Temporary act transparency fast-track liquidation).
In case you are interested to consider the turbo dissolution procedure in the Netherlands, in whatever form, we are happy to describe in more detail how we can be of assistance!
Bolder Launch does not provide financial, tax or legal advice and the information contained herein is meant for general information purposes only. We strongly recommend that before acting on any of the information contained herein, readers should consult with their professional advisers. Bolder Launch accepts no liability for any errors or omissions in the information, or the consequences resulting from any action taken by a reader based on the information provided herein.
