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  • Corporate law
  • 07-07-2023

On 15 November 2023, the Temporary Transparency of Expedited Liquidation Act enters into force, initially for a period of two years. Expedited liquidation (also known as 'turboliquidation') concerns the dissolution of a legal entity with no assets, at its own initiative. The temporary Act aims to increase transparency in the case of an expedited liquidation and to improve the protection of creditors. A disclosure obligation will be introduced for the management board, there will be a right of inspection for creditors, and a director disqualification may be imposed by the Public Prosecution Service.

Scope and background of expedited liquidation
Expedited liquidation is an option for every legal entity under Book 2 of the Dutch Civil Code that has no assets and opts for dissolution at its own initiative. These legal entities may be a public limited liability company ('naamloze vennootschap' or 'nv'), private limited liability company ('besloten vennootschap' or 'bv'), association, cooperative, mutual insurance association, and foundation. Expedited liquidation may be suitable for the termination of a legal entity if the entity has no debts or if the debts can be paid from the assets, and the entity can be effectively liquidated prior to dissolution. The consequence of expedited liquidation is that if a legal entity has no assets, it ceases to exist immediately, without liquidation steps or the need to file for bankruptcy. Therefore, it is susceptible to abuse in practice, as entities with no assets but with debts can also utilize expedited liquidation. To limit this vulnerability to abuse, the legislator has decided to introduce the new temporary law.

Other measures
This Act introduces three measures:

  1. Filing obligation: the board of the legal entity is obliged to disclose several financial documents and to inform any creditors thereof in writing.
  2. Right of inspection: creditors are given the right to inspect the retained records of the dissolved legal entity if the board has not complied with the accountability requirement.
  3. Director disqualification: if debts are left behind, the Public Prosecution Service will be enabled to impose a director disqualification and to have the dissolution without assets included in the assessment of repeat infringement.

Filing obligation
In the event of dissolution of a legal entity with no assets, the board must file the following documents with the Chamber of Commerce within 14 days of dissolution:

  • a balance sheet and a statement of income and expenditure for the financial year in which the legal entity was dissolved and the previous financial year if no annual accounts have yet been published for that year at the time of dissolution;
  • a description of:
    i.    the cause of the absence of assets;
    ii.    if relevant, the way the assets of the legal entity were converted into cash and the proceeds have been divided; and
    iii.    if applicable, the reasons why a creditor or creditors have remained unpaid in full or in part;
  • the annual accounts for the financial years preceding the financial year in which the legal entity was dissolved. 

Immediately after these filings have taken place, the board must notify the creditors thereof in writing.

Right of inspection
If the accountability requirement has not or not properly been complied with, creditors may inspect the records of the dissolved legal entity with the authorisation of the subdistrict court. To obtain such authorisation, creditors must sufficiently specifically substantiate their interests. Failure to file in good time will not constitute non-compliance. However, if creditors incurred costs for gaining access in the period in which the documents had not been filed, the board may be required to compensate these costs.

Director disqualification
In the case where debts remain, this act also enables the imposition of a director’s disqualification. This regulation is in line with the director disqualification under civil law (the existing and related regulation in the Bankruptcy Act) and pertains to the following: 

  • the disqualification may be imposed at the request of the Public Prosecution Service;
  • the disqualification may be imposed if the (former) director:
    - has failed to comply with the filing obligation; or
    - deliberately performed or omitted to perform acts prior to the dissolution without assets, as a result of which one or more creditors have been significantly prejudiced; or
    - has repeatedly been involved in bankruptcies of legal entities or in dissolutions without assets leaving behind debts, and the (former) director can personally be blamed for this. This expansion of repeat infringement was also implemented in the Bankruptcy Act.
  • the disqualification may be imposed for a maximum period of five years;
  • the disqualification constitutes an impediment to the performance of a position as a director or supervisory director at other legal entities. An appointment contrary to the disqualification is null and void.

Follow-up steps
The temporary Act will enter into force on 15 November 2023 and will then apply for two years, i.e. until 15 November 2025. However, the Act provides for the possibility of extension if it is decided within the two-year period to implement the measures permanently. We will update this blog as soon as there are new developments.

 

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