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The government expects that as a result of covid-19, a significant number of entrepreneurs will want to end their business in the short term using the turbo liquidation. The government fears abuse and has drafted a proposal to protect the position of creditors and to increase transparency on this scheme. This proposal has been submitted for consultation.
Dissolution of a legal person
Legal persons can be dissolved. Dissolution occurs, for example, after the liquidation of a bankruptcy or may, subject to conditions, be effected by order of the Chamber of Commerce. It also frequently happens that a legal person takes the decision to dissolve on its own initiative. After the decision to dissolve has been made, for example, by the board of directors (in the case of a foundation) or shareholders (in the case of a private limited liability company), the legal entity continues to exist in so far as this is necessary for the liquidation of its assets. This liquidation is carried out by a liquidator. The legal entity ceases to exist when the liquidator has finished and all assets have been distributed. If there are no assets, there are also no assets to liquidate and there is no role for a liquidator. In that case, the time of dissolution coincides with the decision to terminate the legal entity. This is also called the turboliquidation. From one moment to the next the legal person ceases to exist, without creditors being informed. Because of the lack of supervision of such a dissolution, abuse is lurking.
Temporary Turbine Liquidation Transparency Act
With the bill Temporary Act on Transparency of Turbine Liquidation the Minister aims to protect the position of creditors. According to the new rules, in the event of a dissolution without income, the board of directors must deposit a balance sheet and a statement of income and expenditure with the commercial register within 10 working days. This must be accompanied by a written statement of the reasons for the lack of assets at the time of dissolution and the non-payment of creditors. If creditors have been satisfied prior to the dissolution, a final distribution list must also be filed. In addition, the latest financial statements must be filed and finally, creditors must be notified promptly after this information is filed. Currently, all of these requirements do not apply.
The idea is that, as a result of the new rules, creditors will be better able to assess whether assets have been withdrawn from the legal entity prior to the resolution to dissolve it.
Penalties for liquidation in violation of the new law
The (temporary) law not only provides additional rules, there are also sanctions. At the request of the public prosecutor’s office, the court can impose an administration ban in the event of a dissolution without income in the following cases:
- If the board has not filed the documents mentioned above;
- If the board has prejudiced creditors;
- If the board has been involved in a dissolution without income at least twice before in the 2 previous years.
Looking for a corporate law attorney?
At this time, it is not known when the Temporary Turboliquidation Transparency Act will actually be filed and take effect. Would you like to know more about the dissolution of a company or turboliquidation? Please feel free to contact Rob Steenhoek at LVH Advocaten. He specializes in corporate law and will be happy to assist you.