Background and current arrangement

The turbo liquidation is an accelerated and simplified way of ending the existence of a legal entity. This remedy is open to legal entities that no longer have any assets at the time of dissolution. As of the decision to dissolve the legal entity by the general meeting, the legal entity ceases to exist and the board of directors must report this to the trade register of the Dutch Chamber of Commerce. Subsequently, the legal entity is deregistered from the trade register, whereby the Chamber of Commerce does not check whether the legal entity still has debts, and the procedure is completed.

The disadvantage of the turbo liquidation is that this procedure offers fewer safeguards for any remaining creditors, which can encourage abuse. If the legal entity still has debts, the creditors are often left behind without recourse on the legal entity, in particular because they do not have access to a recent financial position of the legal entity in the event of turbo liquidation. This is different with the regular liquidation procedure.

For that reason, the turbo liquidation has been under fire for some time and the legislator already indicated in 2019 that it wanted to change the statutory regulation. Due to the COVID-19 pandemic, the rollout of that change took a little longer, but in June 2021 a draft bill was presented for consultation. This timing is partly prompted by the expectation that a significant number of entrepreneurs affected by the crisis will want to terminate their business in the short term via a turbo liquidation. The regulation of the draft bill is temporary in nature and will apply until two years after the introduction of the law. The bill also provides for the option of extending the regulation if it is desirable to introduce the measures on a structural basis.

Intended changes

To prevent abuse of the turbo liquidation regulation, the bill contains two core measures.

1. Within ten days after the dissolution of the legal entity, the board of directors must file the following documents with the trade register:
   
   1. a balance sheet and a statement of income and expenditure relating to the financial year in which the legal entity was dissolved;
   2. a written statement of reasons for the lack of assets at the time of dissolution and, if applicable, the default of creditors
   3. a final distribution list, if creditors have been paid prior to the dissolution of the legal entity; and
   4. insofar as the legal entity is obliged to publish its annual accounts, the annual accounts of previous financial years.

   Immediately after these deposits, the board of directors must notify the creditors thereof, unless it does not have the information required for this

2. The court can prohibit the (former) directors of the legal entity from exercising the position of director. As a result, they can no longer be director of a legal entity for a maximum period of five years. This is possible if they:
   
   1. have not complied with the filing obligation;
   2. deliberately significantly disadvantaged one or more creditors in the run-up to the turbo liquidation; and
   3. were repeatedly involved in a dissolution without assets, leaving behind debts, unless they are not personally at fault.

Conclusion

Various parties have advised on the bill during the consultation period. The general tenor of these recommendations is that on the one hand parties are positive about the introduction of the bill, but on the other hand they also think that the bill does not go far enough in parts. They also recommend that the changes are made permanent. Whether that will eventually happen or whether the bill will be introduced in a different form remains to be seen.

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Het bericht Temporary turbo liquidation transparency act  verscheen eerst op CB Law Practice.

Starting a business

Although several formal procedures and requirements must be observed when starting a business in the Netherlands, the legal formation process is relatively easy and straightforward. With the appropriate professional support, businesses can expand rapidly and with relative ease.

As a starting entrepreneur, you need to determine which legal structure best suits your organization and its activities. It is important to choose a structure with the right fit, as this determines the liability for your business debts and tax obligations. If you run your business as a private firm, you will be personally liable for your business debts. If you operate your business through a public or private limited liability company, you will be subject to corporate taxation.

If you are an experienced entrepreneur or professional working within a multinational organization, you may already be familiar with the entity formation process in the various countries. You may have less need for advice on legal forms and their pros and cons, but need a quick and hands-on approach when setting up a new entity within your company’s corporate structure.

This blog will broadly discuss the key, mostly legal, aspects of starting a business in the Netherlands.

Legal forms, formation process and timing

Dutch corporate law offers a range of options to entrepreneurs to conduct their business. These options can mainly be divided into the following categories.

1. Forms of enterprise without legal personality. These enterprises have no corporate existence and cannot independently bear rights and obligations and enter into agreements in their own name. Their assets and liabilities are legally owned by the private persons behind these businesses. Available options are the:
   1. Private firm (eenmanszaak).
   2. General partnership (vennootschap onder firma).
   3. Professional partnership (maatschap).
   4. Limited partnership (commanditaire vennootschap).

   The formation of enterprises without legal personality does not require a notarial deed or the involvement of a Dutch notary. They can be established by means of the mere registration in the trade register of the Dutch Chamber of Commerce (in case of the private firm) or a private formation agreement (in case of the partnerships). Depending on the type of partnership, subsequent registration with the Dutch trade register is mandatory. The formation and registration process of these forms of business generally varies from one to three weeks, assuming relatively straight forward partnership agreements.

   The main disadvantage of these forms of businesses is that there is no distinction between your private and business property. If your business runs up debts, your creditors are entitled to claim your private assets in addition to your business assets. If your business goes bankrupt and you can’t personally cover its liabilities, this will result in your personal bankruptcy as well. Depending on the matrimonial property regime applicable to you, this may also apply to any assets you share with a spouse.

2. Forms of enterprises with legal personality (legal entities). These businesses can legally own assets in their own name and enter into legal obligations (agreements). The following alternatives are available.

   1. Private limited liability company (besloten vennootschap).
   2. Public limited liability company (naamloze vennootschap).
   3. Foundation (stichting).
   4. Association (vereniging).
   5. Cooperative (coöperatie).

   One of the key features of businesses with legal personality is that, by establishing the business as a legal entity, you and your private assets are in principle protected from your business debts. The most commonly used legal form with legal personality in the Netherlands is the private limited liability company, or: the Dutch B.V.

   The above legal entities are established by means of the execution of a notarial deed of incorporation before a Dutch notary. The deed of incorporation will contain the entity’s bylaws. The formation and registration process generally takes two to three weeks – assuming a relatively straight forward formation – but can be done quicker if urgent. Upon formation, certain information regarding (i) the legal entity itself, (ii) its officials and (iii) its enterprise, must mandatorily be filed with the Dutch trade register. The registered information must be kept up-to-date. Any changes or amendments regarding the legal entity, its enterprise and its officials must be notified forthwith upon their occurrence to the Dutch trade register.

Taxation and financial statement obligations

Your new business also need to be registered with the Dutch Tax Authorities. Businesses without legal personality are subject to VAT (depending on the circumstances), income tax and payroll tax (if there are employees). Depending on the circumstances, several attractive tax breaks may be available. Legal entities are subject to VAT (depending on the circumstances), payroll tax (if there are employees) and corporation tax. VAT and corporate tax registration automatically follows the legal entity registration with the Dutch trade register.

Annually, within six months after the end of the financial year of a legal entity (or within five months in case of private and public limited liability companies), financial statements must be drawn up and deposited for inspection by its members or shareholders at the office of the legal entity and adoption. Under circumstances, this term can be extended up to a maximum period of ten months. Within eight days following adoption of the financial statements, the financial statements must be filed with the Dutch trade register. In any case, no later than twelve months after the end of the financial year, the legal entity must have filed its financial statements with the Dutch trade register. Depending on net assets, net turnover and the number of employees, the financial statements may need to be audited by a certified public accountant (register accountant).

Legal support

Whether you are a starting entrepreneur or a seasoned professional, we can assist you with tailor-made advice or support. We have the local knowledge to help you navigate the legal formalities of Dutch business formation. We are strongly positioned in the Netherlands as corporate and business advisor and are legal advisor to many of the world’s leading corporations on the complex issues of today’s integrated global market. Whether you want to set up in the Netherlands, just want to streamline your Dutch operations or require more information regarding any of the topics of this blog, our lawyers will be happy to assist you.

Contact

Het bericht Starting a business in the Netherlands verscheen eerst op CB Law Practice.

This blog will broadly discuss the corporate legal aspects of termination of the legal existence of a legal entity, in particular of that of a public or private limited liability company (naamloze of besloten vennootschap) (hereinafter referred to as the Company). The procedure for the dissolution and liquidation of other legal entities, such as the association (vereniging), cooperative (coöperatie) and foundation (stichting), is largely similar, but may differ on certain points.

Dissolution

In order to end the life cycle of a Company, its general meeting needs to resolve on its dissolution. To the extent that the Company’s bylaws contain specific provisions in respect of the liquidation process, those provisions must be observed in addition to the applicable general provisions of the Dutch Civil Code. Forasmuch as the Company has assets that need to be liquidated after dissolution, the term ‘in liquidation’ must be added to its legal name. This addition must be included in all documents and correspondence sent on behalf of the Company following its dissolution, so that outsiders and counterparties know that the Company is in the process of liquidation and can take this into account. The absence or presence of assets at the time of dissolution – and in case of assets, their ratio compared to the Company’s debts – determines the applicable procedure towards the closure of the Company’s business.

Dissolution without liquidation of assets – turbo liquidation

If the Company no longer has any assets on the date of its dissolution, the Company will cease to exist as of that date. Whether the Company still has debts at the time of dissolution is irrelevant in this regard. The Company’s general meeting must appoint a custodian of the Company’s books and records, who will keep the Company’s records for the statutory period of at least seven years. Subsequently, the Company can be deregistered from the trade register of the Dutch Chamber of Commerce. If the Company no longer has any assets on its dissolution date, but still has debts, then caution is advised, because there is a risk that unpaid creditors will still apply for the Company’s bankruptcy even once the turbo liquidation has been completed. That is because Dutch court can still declare a dissolved legal entity bankrupt if: (i) facts and circumstances evidence that it is sufficiently plausible that there are still assets left in the legal entity and (ii) the other requirements of bankruptcy have been met.

Dissolution – insufficient assets and (liquidation outside of) bankruptcy

If the Company still has assets at the time of its dissolution, a liquidator needs to be appointed. The liquidator will have to prepare an inventory of the Company’s assets and liabilities and determine whether its assets are sufficient to cover all debts. If there are insufficient assets to settle the debts, the liquidator must either (i) file for the Company’s bankruptcy or (ii) reach an agreement with the Company’s creditors to continue the liquidation outside of bankruptcy. If the creditors are willing to agree to liquidation outside of bankruptcy, they are generally willing to accept limited recourse of their claims against the Company. That is usually because their recovery position does not improve in case of bankruptcy. If the assets are sufficient to cover all debts, then the Company will continue to exist until all of its assets are liquidated. The regular liquidation procedure will then apply.

Dissolution with liquidation of assets – regular liquidation

If the Company still has assets at the time of its dissolution and all existing debts can be settled from the assets, then the Company will not automatically cease to exist as per the dissolution date. It will remain in existence for the sole purpose of the liquidation of its assets. During the liquidation process, the appointed liquidator will be responsible for e.g. the sale of all available assets, collection of all receivables and settlement of all outstanding debts (including tax liabilities). If it is foreseen that assets will remain after settlement of the debts, the liquidator will distribute the difference to the shareholders at the end of the liquidation procedure as outlined below (under certain conditions advance liquidation distributions are also possible).

To this end, the liquidator draws up liquidation accounts (rekening en verantwoording), specifying the balance and composition of the Company’s expected liquidation surplus. If the Company has more than one shareholder, the liquidation surplus needs to be split amongst the shareholders. The liquidator must then prepare a plan of distribution (plan van verdeling), specifying the legal basis and ratio of distribution to the shareholders. The liquidation accounts and plan of distribution must be filed for public inspection with the Dutch trade register. Following public disclosure, the liquidator must place an advertisement in a daily national newspaper announcing that the Company is being liquidated and that liquidation accounts and a plan of distribution are available for inspection.

From the day after publication, creditors or other interested parties have two months to object to the liquidation accounts and plan of distribution. Any objections can be submitted to the competent Dutch district court. Provided that no objections are filed, the liquidator may distribute the liquidation surplus to the shareholders once the waiting period has elapsed. The Company will cease to exist as soon as the liquidation of all assets has been finally completed and no further assets are known to the liquidator. This date must be communicated to the Dutch trade register, which will subsequently deregister the Company. The custodian appointed by the Company’s general meeting must keep the Company’s books and records for the statutory period of at least seven years.

Legal support

Do you intend to discontinue your Dutch business operations or liquidate certain group entities and would you like advice regarding possibilities and timing? We have the local knowledge to help you navigate the legal formalities of the closure of your business. We are strongly positioned in the Netherlands as corporate and business advisor and are legal advisor to many of the world’s leading corporations on the complex issues of today’s integrated global market. Whether you want to exit the Netherlands, just want to streamline your Dutch operations or require more information regarding any of the topics of this blog, our lawyers will be happy to assist you.

Contact

Het bericht Closing your business in the Netherlands verscheen eerst op CB Law Practice.