Temporary turbo liquidation transparency act
On June 28, 2021, the preliminary draft bill ‘Temporary turbo liquidation transparency act’ was submitted for consultation. This bill aims at a (temporary) amendment to the turbo liquidation procedure. The changes concern the introduction of a financial accountability obligation for directors of legal entities and the possibility to impose a civil law ban on directors in case of abuse. The consultation ran until July 27, 2021.
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.
To prevent abuse of the turbo liquidation regulation, the bill contains two core measures.
- Within ten days after the dissolution of the legal entity, the board of directors must file the following documents with the trade register:
- a balance sheet and a statement of income and expenditure relating to the financial year in which the legal entity was dissolved;
- a written statement of reasons for the lack of assets at the time of dissolution and, if applicable, the default of creditors
- a final distribution list, if creditors have been paid prior to the dissolution of the legal entity; and
- 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
- 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:
- have not complied with the filing obligation;
- deliberately significantly disadvantaged one or more creditors in the run-up to the turbo liquidation; and
- were repeatedly involved in a dissolution without assets, leaving behind debts, unless they are not personally at fault.
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.