The Minister of Legal Protection of the Netherlands, Franc Werwind, introduced the Turbo Liquidation Transparency Act to the House of Representatives. The reason for the need for a new law is the possibility of abuse of the accelerated liquidation procedure. Some companies liquidated in this way leave behind debts. Currently, about 88% of closed joint-stock companies (Beslotenvennootschap (BV)) in the Netherlands are liquidated using this procedure. Due to the economic impact of COVID-19 and the general economic volatility, the number of such liquidations is expected to increase. The full text of the document in Dutch can be read here to register:.
What is turbo liquidation?
Turbo liquidation is a simplified legal mechanism for the liquidation of a company registered in the Netherlands. The legal basis for using this method is provided by clause 4 of Art. 2:19 of the Civil Code (Burgerlijk Wetboek).
The turbo-liquidation mechanism is the simplest - the general meeting of shareholders decides on the liquidation of the company. In the case when the liquidated legal entity does not have property, profits and balances in the accounts, the company simply ceases to exist and is excluded from the Register of the Chamber of Commerce (Kamer van Koophandel (KvK)). When using this method, no liquidator is appointed. Turbo liquidation saves effort and money, but opens up potential opportunities for fraud.
What does the new law propose?
The new law aims to combat abuse and protect the rights of creditors of companies in liquidation. The method of combating fraud is openness in the liquidation of legal entities. The board of companies will be required to deposit in the state registers in which the legal entity is registered (primarily in the Register of the Chamber of Commerce), documents for which the company is financially responsible. During the liquidation of the company, creditors will be able to access this information with the permission of the district court.
If a company is liquidated without full settlement of obligations, its directors may be deprived of the right to engage in management activities if they:
- failed to fulfill obligations to repay the debts of the company;
- deliberately put one or more creditors at a disadvantage:
- have repeatedly participated in the liquidation of companies without profit, with the abandonment of debts or by the method of bankruptcy and charges have been brought against them personally.
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