January 27, 2023

In the last blog in the series about the role and position of the director of a BV, we wrote briefly about turbo liquidation and the administrative risks associated with it. In this blog I will pay more detailed attention to this form of business termination and the impending Temporary Act Transparency Turbo Liquidation .

Read more: jpost

Dissolution and liquidation

A legal entity, such as a BV, can be dissolve in six different ways. This is regulate in Article 2:19 paragraph 1 of the Dutch Civil Code (BW). One of those ways is a decision to that effect by the general meeting (of, for example, a BV).

After the dissolution, the legal entity continues to exist for as long as this is necessary for the liquidation of the assets. The words in liquidation are then add to the name of the legal entity . Unless another liquidator is appoint by a court or the article of association designate other liquidator, the director of the legal entity are the designate person to liquidate. Liquidation can mean selling assets, collecting accounts receivable, saying goodbye to employees and ending agreements. 

The proceeds must be distribute among the creditors according to the legal hierarchy. This must take into account, among other things, the legal position of any pledgees and/or mortgage holders, the preferential position of the Tax and Customs Administration and creditors with possible privileges. If any capital remain after that, it can be divide among those who are entitle to it according to the article of association. Usually this is/are the shareholder(s). Are there more debts than assets? Then bankruptcy must be file , unless all know credito agree to liquidation outside bankruptcy. 

Turbo liquidation & COVID-19

What if a legal entity already has no assets at the time of dissolution and there is therefore no more assets to liquidate? In that case, Article 2:19 paragraph 4 of the Dutch Civil Code stipulates that the legal entity immediately ceases to exist at the time of dissolution. This is call turbo liquidation. This method of business termination can be abuse. For example, a director can decide to realize the assets, transfer the proceeds to a private account and proceed to dissolve the empty/emptied BV. check. 

The government expects that many entrepreneurs will make use of the turbo liquidation as a result of the corona crisis. After all, it is a quick and relatively simple way of closing a business that can prevent bankruptcy. Due to the possibility of misuse, there is a need to increase confidence in the use of this instrument. The government wants to achieve this by improving the legal protection of creditors. The Temporary Turbo Liquidation Transparency Act is intend to achieve this.

In the preliminary draft – which went into consultation at the end of June 2021 – it is propose to add two new articles after Article 2:19a DCC: 19b and 19c. These articles apply in the event of dissolution pursuant to the aforementioned article 2:19 paragraph 1 and paragraph 4. Article 19b should entail the following obligations for the director, namely the filing of:

  • a closing balance;
  • a written substantiation of the reasons for the lack of benefits;
  • a final distribution list if creditors have been paid prior to the dissolution; and
  • under certain circumstances (an) annual statement(s).

Article 19c then regulates, among other things, the consequences for a director who has not complied with the aforementioned obligations: the Public Prosecution Service can then request the court to impose a director’s disqualification. It has also been propose to make the violation of these obligations a criminal offence.  The internet consultation ended at the end of July 2021. However, the legislative process is still in the preparatory phase and it is still unclear when this law will enter into force. 

Need advice?

For questions about company termination and/or more specifically dissolution and liquidation, please feel free to contact us. We are happy to help you and can advise you on the do’s and don’ts .

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