Consultation on Temporary turbo liquidation transparency Act
On 28 June 2021 the Minister of Legal Protection presented the preliminary draft of the Temporary turbo liquidation transparency Act (the Bill) for consultation. The preliminary draft bill aims to implement temporary amendments to the statutory rules concerning the so-called turbo liquidation as included in Book 2 of the Dutch Civil Code. The proposed amendments mainly concern the introduction of an obligation for directors to draw up a financial account and the possibility of imposing an administrative ban for directors in the event of abuse. The aim is to increase confidence in the turbo liquidation regulations and to make the turbo liquidation a more accessible instrument for entrepreneurs who wish to terminate their business.
Under current law a legal entity ceases to exist immediately if, at the time of its dissolution, it has no assets. Since no liquidation procedure needs to be followed in this case, this is in practice referred to as a 'turbo liquidation'. For the purposes of implementing a turbo liquidation it is not important whether the legal entity still has debts. In addition, since there is no obligation for the directors of the legal entity to render account, there is a risk that creditors will be prejudiced if the entity is would up by way of a turbo liquidation. The purpose of the Bill is to prevent such abuse.
The Bill introduces an obligation for the management board of a legal entity to file the following documents with the trade register of the Dutch Chamber of Commerce within 10 working days after the dissolution of the legal entity has been registered in the trade register:
- a balance sheet and a statement of income and expenditure for the financial year in which the legal entity was dissolved;
- a written statement clarifying the absence of assets at the time of dissolution and, if applicable, why the creditors have remained unpaid;
- a final distribution list, if prior to the dissolution of the legal entity, creditors have been paid in connection with the liquidation of the assets of the legal entity; and
- any missing annual accounts for the financial years prior to the financial year in which the legal entity was dissolved.
The management board will have to inform the creditors about these filings as soon as these have been made.
In addition, the Bill introduces the possibility for the court to impose, at the request of the public prosecutor, an administrative ban on directors who are involved in a turbo liquidation whereby the aforementioned obligation to file documents is not complied with, or whereby creditors are prejudiced in some other way. Such a ban may be imposed for a maximum period of 5 years.
Period of 2 years
For the time being, it is intended that the proposed act will be introduced for a period of 2 years, as it is mainly considered necessary now that, as a result of the COVID-19 crisis, it is expected that many entrepreneurs will terminate their businesses and wish to make use of the turbo liquidation. However, it is not ruled out that this 2-year period will be extended, or that the proposed act will become permanent, if this would be desirable.
The consultation period will run until 27 July 2021.