Closing your business in the Netherlands
Changes in an organization, the market or the economic environment may create the need or necessity within businesses to rationalize their corporate structure or liquidate certain entities that have served their purpose. In case an organization decides to close down their group entities, it needs to be mindful of the actions to be undertaken in respect of its assets, its (contractual) obligations and its employees, among other things. Depending on the circumstances surrounding your business, the suitable procedure for the termination of your business entities should be determined.
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.
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.
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.