If the business activities of a legal entity are discontinued, it must be considered how the legal entity will be wound up. If there are no more assets at all, a turboliquidation can take place. This is dissolution without the appointment of a liquidator. The legal entity then ceases to exist immediately. A resolution for dissolution is passed and the board notifies the Commercial Register of the end of the legal entity’s existence (Article 2:19 paragraph 4 BW).
Turboliquidation can also take place if the legal entity is still indebted to creditors. However, unpaid creditors can revive the legal entity by filing for bankruptcy or by reopening the liquidation (Art. 2:23c BW). This will require proof that the legal entity still has a possible benefit. Without a possible benefit, there is no interest in reviving the legal entity. After all, it is then clear that there is nothing to distribute among the creditors.
The ‘s-Hertogenbosch Court of Appeal recently issued a judgment on the request to reopen a liquidation. This is interesting because it shows the options available to a creditor facing a debtor who has been dissolved. The following was the case.
Turboliquidation of the debtor
A construction company built and delivered a home to a client under a construction contract. Defects were found upon delivery. The construction company was held liable. The client had an expert report dated July 13, 2021, which showed that repair costs were estimated at €87,653. The client had a draft subpoena prepared to claim damages. Before this summons could be issued, the construction company was dissolved by turboliquidation on Aug. 12, 2021. The principal was thus faced with a no longer existing debtor.
Procedure for reopening liquidation in court
The principal (hereinafter “creditor”) applied to the court for the reopening of the liquidation. The court held that although it was plausible that the creditor had a claim, due to the lack of benefit, the application should be rejected, due to lack of interest.
Appeal proceedings on reopening liquidation
The creditor has appealed. The creditor points out that the 2018 and 2019 annual figures show that the construction company still had significant cash and cash equivalents and positive equity. It further points to the circumstances that (i) the construction company’s shortcomings were serious (ii) the extent of damages was substantial and (iii) the turboliquidation was carried out with the knowledge that the creditor wished to initiate proceedings.
The construction company raises a defense, claiming that there were no more assets at the time of dissolution. In doing so, no financial data are shown at all.
The Court met the creditor and held:
“Unlike the court has considered in paragraph 3.3. of the contested decision, the court of appeal is of the opinion that it follows from the text of article 2:23c paragraph 1 BW that (in this case) it is sufficient that [appellant] et al. make it plausible that they have a claim on [respondent]. They do not also have to make it plausible that there is a possible benefit. Paragraph 1 of article 2:23c DCC states that the court may reopen the liquidation “if (…) another creditor or person entitled to the balance arises or (emphasis added by the court) the existence of a profit appears.”
And further:
“Although the court of appeal is of the opinion that [appellant] et al. do not also have to prove that there is a benefit, reopening the liquidation is of course of little use if ultimately there can be no payment of (part of the) damages to [appellant] et al. because [respondent] has no benefits. This could mean that [appellant] et al. have no interest in reopening the liquidation. However, this consideration does not prevent reopening in this case either. To this end the court of appeal considers as follows.”
Has the presence of assets been demonstrated?
The Court then considered that the creditor had made it plausible that assets were still present at the construction company at the end of 2019. It is impossible to ascertain what happened to the assets thereafter. However, the Court believes that the creditor cannot be required to further substantiate a claim to the extent that data necessary for such substantiation is in the domain of its counterparty. It would have been more up to the construction company to provide further data to support its position (that there were no more assets) as part of the dispute.
Thus, the Court considers it sufficiently plausible that at the time the construction company was dissolved, there was still some income and reopens the liquidation.
Temporary law on transparency turboliquidation
On Nov. 15, 2023, the Temporary Tuboliquidation Transparency Act will enter into force. This law aims to improve the legal protection of creditors.
Under the new law, in the event of a dissolution without assets, the board must file a balance sheet and a statement of assets and liabilities for the fiscal year in which the company was dissolved with the trade register within 14 days. This must include a description of (i) the reason for the lack of assets at the time of dissolution, (ii) (if applicable) the manner in which the company’s assets were disposed of and how the proceeds were distributed, and (iii) (if applicable) the reasons why a creditor or creditors remained wholly or partially unpaid. Also, all financial statements must be filed with the Chamber of Commerce.
Immediately after these documents are filed, the board of the company must notify the unpaid creditors in writing.
Conclusion
In the ruling under discussion, the Court helped the creditor somewhat by considering that it would have been up to the debtor to show that there were no more assets.
If the Temporary Law on Transparency Turboliquidation is enacted, creditors should be able to find more information about what happened at a dissolution (or, in other words, how the condition, in which there are no more assets, arose). This could work, but there is still a risk that a malicious debtor could file inaccurate information. The Chamber of Commerce is not going to check the filed information for accuracy. So a creditor who believes that the dissolution is unjustified will have to initiate a request for reopening the liquidation or a bankruptcy petition himself.
Looking for a business law attorney?
If you would like to learn more about corporate dissolution, turboliquidation, petition for reopening of liquidation or bankruptcy filing, please contact Peter de Graaf.
