Temporary act on transparency turbo liquidation (tijdelijke wet transparantie turboliquidatie)
At a certain stage it may be desirable to cease a company’s business activities and liquidate the company. A Dutch company can be dissolved by a resolution of the general meeting to that effect. After its dissolution, the company’s assets must be liquidated. The company ceases to exist after the statutory liquidation procedure is completed. If the company does not have any assets at the time of its dissolution, the company immediately ceases to exist. Suppose a company has no assets at the time of its dissolution. In that case, the company can be liquidated relatively quickly and easily compared to the statutory liquidation procedure by monetizing the company’s assets and using the proceeds to settle the company’s debts. After the assets are monetized and the proceeds are used to settle the debts, the general meeting can dissolve the company, which then immediately ceases to exist.
There are concerns that the current Dutch legislation is used in a fraudulent way to liquidate a company without accountability and leaving creditors unsatisfied. It is expected that more companies will use the option to liquidate the company following the COVID-19 outbreak and the decrease of aid measures since the end of the lockdown. On July 12, 2022, a legislative proposal “Temporary act transparency turbo liquidation (Tijdelijke wet transparantie turboliquidatie)” was presented to prevent abuse of this relatively quick and easy way to liquidate a company. The legislator aims to prevent abuse by increasing transparency, improving the legal protection of creditors, and combating abuse more effectively. The legislative proposal provides an accountability and disclosure obligation for the company’s management board, a right of access for the company’s creditors, and a ban on management under civil law (bestuursverbod).
Under the legislative proposal, the company’s management board must file certain documents that provide financial accountability if the company is dissolved and immediately ceases to exist because it does not have any assets. The management board should file the following documents with the Dutch trade register within fourteen days after the company’s dissolution:
- a balance sheet and an income and expenditure statement for the financial year in which the company is dissolved and for the previous financial year if no annual accounts have yet been published for that year;
- a written explanation stating the reason for the absence of assets and, if applicable, how the company’s assets are liquidated and the proceeds distributed and why one or more creditors were not or not fully paid; and
- annual accounts if any disclosure obligations have not yet been met.
After the above documents are filed, the management board is obligated to notify the company’s creditors without delay.
If the management board does not comply with its accountability and disclosure obligations, the company’s creditors will have a right to inspect the company’s books. These creditors can exercise this right by appealing to the subdistrict court in the district where the company has its registered office. In doing so, creditors may gain insight in the company’s financial situation and assess whether any irregularities took place in the run-up to dissolution. This allows creditors to better explore recovery procedures.
Furthermore, the subdistrict court can impose a ban on management on a managing director who fails to comply with the accountability and disclosure obligation, provided that the company leaves creditors unsatisfied. The district court may also impose such a ban if the managing director deliberately substantially harms creditors. Such a ban may furthermore be imposed if the managing director has been involved in bankruptcy (faillissement) or dissolution whereby the company immediately ceased to exist at least twice in the two years prior, and he can be blamed for this. However, only the Public Prosecution Department (Openbaar Ministerie) can request the district court to impose such a ban.
The provisions of the act do not have retroactive effect. The date of dissolution determines the law applicable to the managing directors of the companies involved.
The act is temporary and expires after two years of its entry into force. However, the legislative proposal allows for extending its validity for another two years after the initial two years have elapsed. It is not yet known when the legislative proposal will be adopted and implemented.
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