Posted on: 08-03-2020

Turbo liquidation

Written by:

Hein Kernkamp

Dissolution of legal persons in the Netherlands

A Dutch legal entity can be dissolved by means of a resolution to dissolve, which is taken by the general meeting of shareholders (in case of an NV or BV) or the board (in case of a foundation).

If there are still benefits, a liquidator must be appointed and a formal liquidation phase will commence. The liquidator then settles the current obligations, according to the requirements set by law, such as the liquidator's registration in the trade register (2:23 paragraph 4 of the Dutch Civil Code) and the formalities that the liquidator is required to meet, such as accountability. Only after completion of the liquidation procedure does the legal person cease to exist. If the debts exceed the benefits, the liquidator must apply for the bankruptcy of the legal person. The liquidation procedure is therefore a complex procedure, but also with safeguards.

What is a turbo liquidation?

Turbo liquidation is the dissolution of a Netherlands legal person without liquidation pursuant to Article 2:19 paragraph 4 of the Dutch Civil Code. Since 1994, the law provides for the possibility of a rapid dissolution without formal settlement phase. If there are no known assets at the time that the decision to dissolve is taken, the legal person ceases to exist at that time (Section 2:19 (4) of the Dutch Civil Code).

turbo liquidation

What are the advantages of a turbo liquidation?

No liquidator needs to be appointed because there are no benefits and nothing can be settled. When applying the turbo liquidation, the law does not set any further requirements for accountability for the absence of income or the absence of debts. The board only reports to the Chamber of Commerce that the legal person has ceased to exist and requests deregistration from the trade register. The turbo liquidation is therefore seen as a quick, simple and inexpensive way to cancel a legal entity.

What is the preferred method of liquidation of a Dutch BV?

In the vast majority of cases that a decision to dissolve is taken, there is a turbo liquidation. In 2018, around 33,000 of the 37,000 liquidations registered with the Chamber of Commerce were turbo-liquidated.

Abuse of the turbo liquidation

In by far the largest case of turbo liquidations, it is a matter of simply and inexpensively cleaning up inactive legal entities. That was precisely the purpose of the new scheme introduced in 1994, which was intended to prevent fraudulent persons from abusing an empty company they had purchased. On the one hand, therefore, the goal of the legislator has been achieved and the system works well.

But for individual creditors it can be extremely frustrating that the counterparty disappears overnight, while it is only possible to guess at the precise circumstances and whether there are no unlawful withdrawals or other malpractices.

Damage to creditors

An important question for creditors is whether there were still benefits present, whether no unlawful acts have been committed and whether recovery would have been possible or not. Creditors certainly are not empty handed here. For example, they can be successful in filing a claim if it appears that:

  • benefits have been withheld
  • assets were withdrawn from the estate prior to the turbo liquidation, or
  • if there was selective payment to related creditors.

There is quite a lot of case law in which the application of a turbo liquidation leads to personal liability of directors, who thereby or prior to the liquidation text : have acted unlawfully towards these creditors).

For example, turbo liquidation with concealment of benefits results in unlawful behavior on the part of the director. However, affected creditors must prove or at least make it plausible that there has been unlawful action and that they have been disadvantaged. That is sometimes difficult.

Creditors can also request the court to reopen the liquidation, even if no liquidation has taken place (Section 2: 23c paragraph 1 of the Dutch Civil Code). This rarely happens. The major problem facing creditors is the lack of actual knowledge about what happened and whether assets are present or not. The minister announced by letter in 2019 that he will come with a proposal for an amendment of the law.

The intended measures

In the minister's plans, in future the board will be obliged to draw up and deposit a final balance sheet, accompanied by a board statement explaining why benefits are lacking. If applicable, these documents are accompanied by a final distribution list.

The final balance sheet relates to the financial year of the turbo liquidation and must be filed with the trade register. The board must also arrange for a general announcement of the
dissolution without liquidation and the final balance sheet with the annual accounts must be made available for inspection at the trade register of the Chamber of Commerce.

Finally, before the deletion of the legal person in the trade register, the annual accounts for all previous financial years will have to be made public. However, it is not that far yet. For the time being, turbo liquidation is not only fast and cheap, but also a scheme that is being abused by some. Nevertheless creditors can file claims successfully.

Discuss your case with us

Our lawyers regularly advise and litigate on turbo liquidations of Dutch BV's and other legal entities. Do you have a question about the legal status of a Dutch company? Call us to make an appointment for a non-binding informative meeting, in which we can indicate what we can do for you. It is not without reason that our motto is: "Your problem, our concern."

More information?

Hein Kernkamp will gladly help you further.

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