The Temporary Transparency of Turbo-Liquidation Act and mitigating the risk of abuse
On 15 November 2023, the Temporary Transparency of Turbo-Liquidation Act entered into force. This law is intended to increase confidence in turbo-liquidation. To that end, it introduces a number of measures designed to reduce the risk of turbo-liquidation being abused.
In connection with turbo-liquidation, the bill amends Book 2 of the Dutch Civil Code, the Bankruptcy Act, and the Economic Offences Act.
Section 2:19(4) of the Dutch Civil Code provides that a legal entity can cease to exist if it has no remaining assets at the time of dissolution. The dissolution resolution must be filed with the Trade Register.
A quick refresher
Turbo-liquidation is the voluntary dissolution of a legal entity that has no assets. Whether or not a company has debts is, under the current rules, no obstacle to turbo-liquidation. Directors are not required to account for outstanding debts in a turbo-liquidation, nor is there any obligation to inform creditors of it. The risk of abuse is therefore considerable.
What is changing?
The Temporary Transparency of Turbo-Liquidation Act introduces several provisions to mitigate the risk of abuse. Three core measures are introduced. First, a notification and disclosure obligation is introduced for the board. The (former) board must now make a number of financial documents public, including the annual accounts and the balance sheet, and must (where applicable) inform creditors of these in writing. In addition, creditors are given a right to inspect the dissolved company’s records if the statutory requirements have not been complied with. In the event of non-compliance, the Public Prosecution Service can impose a director’s disqualification on the former board.
The Minister for Legal Protection feared an increase in abuse of turbo-liquidation. Due to entrepreneurs’ COVID-related debts, an increase in turbo-liquidations was expected, along with an increase in unlawful turbo-liquidations. This temporary law is intended to address that. In principle, the new scheme will apply for two years, although the law also allows for that period to be extended if there is an intention to make its measures permanent.
This temporary law marks an important step towards more careful turbo-liquidations. It increases transparency, and creditors will in future have the means to inspect certain parts of the records if they have been harmed by an unlawful turbo-liquidation.
Alongside the (new) turbo-liquidation route, a legal entity can, incidentally, still cease to exist by following the regular dissolution procedure, or as a result of a legal merger or demerger.
Do you have questions arising from this article about turbo-liquidation, or the consequences of this new temporary law for your company? Please contact our corporate law attorney, Harry Voermans.
