Turbo liquidation in the Netherlands: Better protection for creditors
An empty BV can be quickly dismantled through a so-called turbo liquidation. Turbo liquidation works like this: If there are no more assets, the BV can be dissolved by a simple shareholders’ decision. The dissolution is then registered in the trade register and the BV now no longer exists. The government wants to change this in 2020. How does turbo liquidation work now and what are the proposed changes?
How does turbo liquidation work now?
A BV without activity can be dissolved in the following ways:
|1.||No assets, no debt||Turbo liquidation|
|2.||No assets, but debt||Turbo liquidation|
|3.||Assets, no debt||Normal dissolution procedure: deposit final balance, newspaper announcement and a 2 month waiting period|
|4.||Assets and debt, but assets greater than debt||Normal dissolution procedure: deposit final balance, newspaper announcement and a 2 month waiting period|
|5.||Assets and debt, but debts greater than assets||Bankruptcy must be filed.|
It may come as a surprise that a BV with debts can still be terminated by turbo liquidation. Isn’t turbo liquidation therefore disadvantageous for creditors?
The biggest issue arises mainly when emptying the BV while there are still debts. With the important question being: is emptying the BV unlawful towards creditors?
If there is evidence that the BV was deliberately emptied to avoid debts, the directors could be held liable. Creditors can also request the ‘reopening’ of the liquidation procedure if there are indications that the BV was not really empty.
Ensure there are no more assets
Are you planning to carry out a turbo liquidation? Then make sure there really are no more assets in the BV. If there is, for example, still an amount to be paid out by the tax authorities then it cannot just be liquidated. A deposit that is repaid at the end of a lease is also relevant. As long as there are still assets or income to be expected, no turbo liquidation can be carried out.
Furthermore, the general rules for fraudulent legal actions apply: Actions intended to disadvantage creditors can be rescinded and lead to directors’ liability. Simply moving assets within your own group can therefore lead to problems, and it is unwise to perform actions without the necessary legal documentation. For example: paying out a bank balance to a shareholder is a distribution that requires a shareholders’ decision. If no shareholders’ resolution has been drawn up, it is obvious that unlawful actions have taken place. The correct procedure must therefore be followed, or there will be a risk that the transaction is later annulled, for example by a bankruptcy receiver.
As is shown in the table above, turbo liquidation is not possible if there are still assets in the company. In such cases, bankruptcy proceedings may be required if the debts exceed the assets. Bankruptcy proceedings are time consuming and costly. It will come as no surprise that in these cases usually no dissolution procedure is started.
How will turbo liquidation work in the future?
There are currently two procedures: the turbo liquidation and the normal dissolution procedure.
In the normal procedure a ‘final balance’ must be drawn up and be made available for inspection at the Chamber of Commerce (KVK) for two months. This must also be announced in a national newspaper. Only after two months have passed will the BV definitely be dissolved.
In case of turbo liquidation, there is currently not obligation to announce the liquidation and to disclose financial information. The turbo liquidation is therefore seen as a procedure that can lead to abuse: A BV is quickly dissolved and the creditors know nothing about it. Because the company no longer exists, creditors can only try to get their money back through expensive legal procedures. Often times there is hardly any financial information available about the company. If the BV is dissolved in the middle of a financial year, no annual accounts have been published yet. Creditors won’t know what the situation was before the dissolution, and whether there might have been assets previously diverted to enable turbo liquidation.
A better position for creditors
The government believes that the position of creditors should be improved by requiring that a company announce the turbo liquidation beforehand and disclose financial information of the BV at the same moment. The government has proposed that the following obligations be imposed:
- A final balance sheet and annual accounts must be drawn up and filed with the Chamber of Commerce.
- An explanation is to be included as to why there are no more assets.
- A ‘general announcement’ must be made stating that a turbo liquidation is taking place and that the final balance sheet and annual accounts are available for inspection at the trade register.
- All annual accounts for previous years must be filed before the BV can be dissolved.
Under the current law, the closing balance only has to be drawn up in the regular dissolution procedure, and not for a turbo liquidation. Under the new law, the ‘general announcement’ will likely be an advertisement in a national newspaper, just like is the case now for the regular dissolution procedure.
What is striking in the new law is the obligation to publish annual accounts at the same time as the dissolution. In practice this doesn’t happen at the same time: If the dissolution takes place before the end of the financial year, the annual accounts will only be drawn up after the end of the financial year, oftentimes after the company has already been dissolved and deregistered.
The Dutch government announced in October 2019 that a preliminary draft for the legislative amendment will be drawn up in 2020. This will then be published for consultation.
Do you want to turbo liquidate a BV or do you have any questions about turbo liquidation? Please contact the corporate law specialists at Crowe Peak. We’re here to help.