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Temporary law on transparency turboliquidation

On June 28, the preliminary draft “Temporary Act on Transparency Turboliquidation” was released for consultation. This bill aims to (temporarily) amend the regulations on turboliquidation....

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On June 28, the preliminary draft “Temporary Act on Transparency Turboliquidation” was released for consultation. This bill aims to (temporarily) amend the regulations on turboliquidation. The amendments concern the introduction of a financial accountability obligation for directors and the possibility to impose a civil-law management ban in case of abuse. The consultation deadline is July 27, 2021.

Turbo liquidation

A legal entity is dissolved by a resolution of the general meeting of shareholders. This will be followed by liquidation of the company. If no income is expected at the time of dissolution, no liquidation will follow and the legal entity will cease to exist immediately. This is also known as “turboliquidation”. In the absence of a financial accountability obligation for the board, turboliquidation is generally viewed rather critically – especially by unpaid creditors. Partly because of the risk of abuse, Minister Dekker already announced measures by letter of October 7, 2019, to further formalize the regulations regarding turboliquidation (Parliamentary Papers II 2019/20, 29 911, no. 253). However, this had not yet resulted in a concrete bill.

Preliminary draft

The corona crisis is now concrete reason to take measures after all. This is because it is expected that many entrepreneurs affected by the outbreak of the COVID-19 virus will want to end their businesses in the short term by means of turboliquidation. The government wants to facilitate this, but recognizes that this increase also brings an increased risk of its abuse. The proposal therefore contains measures to improve the legal protection of creditors in turboliquidation and prevent abuse.

Financial accountability

The bill provides for an obligation of the board to render financial account for the dissolution of the legal entity and any prior actual liquidation by preparing and filing:

  • a (final) balance sheet and a statement of income and expenditure for the financial year in which the legal entity was dissolved;
  • a written explanation showing the cause of the absence of assets and the existence of any debts; a
  • a final distribution list insofar as debts have been paid with the remaining income; and
  • unpublished financial statements for all prior fiscal years.

The final distribution list will have to show that debts have been paid according to the legal order of priority. It contains the total preferential claims, claims secured by pledge, mortgage or lien and unsecured claims and the amounts paid to these categories. After these filings are made, the board must promptly notify any creditors.

Administration ban

In the event that unpaid creditors remain after dissolution, this bill additionally allows directors to be banned from management by civil law if they:

  • failed to comply with the proposed filing requirement;
  • deliberately caused significant prejudice to one or more creditors in the run-up to the dissolution; or
  • been repeatedly involved in a dissolution without assets leaving behind debts, unless they are not personally blamed for this.

The board ban may be imposed for up to five years and will prevent them from serving as a director or supervisory board member of other legal entities.

Temporary arrangement

The proposed measures are part of the support and recovery package in the context of the COVID-19 outbreak. The associated special budget is by its nature temporary and available for two years. For this reason, for the time being, the proposed measures are also temporary in nature and are in principle valid for two years. However, the bill contains the possibility of extending the applicability of the measures by royal decree. This could meet the desire for a structural formalization of turboliquidation.

This contribution was written by mr. Jeroen van der Pouw Kraan, affiliated with the Corporate and Insolvency Law practice groups.