Interim measures for more transparent expedited liquidation!

Expedited liquidation
On 28 June 2021 the draft was published of the Expedited Liquidation Transparency (Interim Measures) Act (de Tijdelijke wet transparantie turboliquidatie). Expedited liquidation refers to the dissolution (at their initiative) of legal entities without assets as defined in Section 2:19 of the Dutch Civil Code (DCC). The first paragraph of that Section stipulates that legal entities are dissolved by a resolution of the general meeting. That is different only for foundations: foundations are dissolved by a resolution of the board, unless the articles of association provide otherwise. The fourth paragraph of Section 2:19 DCC reflects the essence of the expedited liquidation: If at the time of dissolution the legal entity no longer has assets, it will cease to exist. The time of dissolution coincides with the discontinuation of the legal entity. The board must notify the expedited liquidation to the trade register of the Chamber of Commerce.

Reason for draft bill
The legislator expects that a substantial number of entrepreneurs who have been hit by the Covid-19 pandemic likely want to use the expedited liquidation procedure to discontinue their business shortly. They can thus prevent their debts from increasing and avoid bankruptcy. This expected rise in the use of this procedure will (temporarily) increase the risk of abuse of the expedited liquidation procedure, or so the legislator believes. The proposed scheme, therefore, is aimed at protecting the position of creditors, increasing transparency and discouraging abuse. The legislator wishes to boost confidence in expedited liquidation as a manner of discontinuing companies. This will make the scheme more accessible to entrepreneurs and facilitate its use.

Details of draft bill

Accountability and duty of publication
The draft imposes a duty of accountability and duty of publication on the board. If the legal entity is discontinued by means of expedited liquidation, the board must render financial account by filing the documents below with the trade register of the Chamber of Commerce:

• A balance sheet and a statement of income and expenditure in respect of the financial year in which the legal entity has been dissolved;
• A written statement of reasons for the absence of income at the time of dissolution and, if applicable, the leaving unpaid of debts;
• A plan of final distribution, if before dissolution the creditors have been paid as part of the settlement of the legal entity’s assets; and
• The financial statements for the financial years preceding the financial year in which the legal entity has been dissolved, if the entity is under a legal duty in this respect that has not yet been met, if necessary accompanied by an audit opinion.

The board must immediately notify the dissolved entity’s creditors of the filing of the documents. This notification does not have a prescribed form, and the board can use the creditors’ contact details as known to them.  Creditors who have been informed of the filing and after reading the filed documents suspect abuse of the expedited liquidation procedure can lodge an objection.  

Director disqualification under civil law
The draft bill also introduces a disqualification under civil law of (current and former) directors, or de facto directors, if the legal entity has been dissolved pursuant to a resolution to dissolve or a decision of the Chamber of Commerce and at the same time ceased to exist while one or more creditors are still fully or partially unpaid. At the request of the Public Prosecution Service the court can impose a director disqualification (five years’ maximum) in the situations described below:

• If in an expedited liquidation following a resolution to dissolve the director has not complied with the duty of accountability and filing obligation; or
• The director, on behalf of the legal entity, has deliberately committed or omitted acts by which one or more creditors have been considerably prejudiced; or
• In the two preceding years the director, in that capacity or as a natural person acting in the course of a profession or business, has been involved at least twice before in the discontinuation of a legal entity by means of expedited liquidation in which one or more creditors remained fully or partially unpaid, unless that director cannot be blamed personally.  

If the director’s death was a circumstance that resulted in the Chamber of Commerce’s decision to dissolve the legal entity, it is not possible to request and impose director disqualification.

Economic offence
Non-compliance with the duty of accountability and filing obligation is an economic offence, punishable under the Economic Offences Act. The maximum penalty is six months’ imprisonment and a fine of the fourth category (since 1 January 2020 this is EUR 21,750).

Clarification of Section 2:23c DCC
The legislator has used this opportunity to clarify Section 2:23c DCC. This section provides for a procedure for the situation in which the legal entity no longer exists, but there is still a creditor or a party entitled to the liquidation surplus or if it turns out there is still income. The court can then reopen the liquidation at the request of an interested party and appoint a liquidator, if necessary. The proposed amendment to this section would mean that this procedure could be conducted even if a legal entity no longer exists following expedited liquidation and that the court in that case could order liquidation and (possibly) appoint a liquidator. This amendment would have a more permanent character for even if the Expedited Liquidation Transparency (Interim Measures) Act would be repealed, the amendment would not be affected.

Temporary character and transitory law
For now, the proposed measures are temporary for budgetary reasons, and are valid for two years, in principle. As soon as it takes effect, the act will apply to dissolutions after the act’s entry into force and before the act is repealed. The same applies to applications for directors’ disqualification, on the understanding that the court may only consider facts and circumstances that occurred after the act’s entry into force.

Takeaway
The draft bill should bolster confidence in the use of expedited liquidation and make that procedure more accessible to entrepreneurs. For that reason, the bill provides for measures to enhance the legal protection of creditors in expedited liquidation and discourage abuse. Directors who wish to use this procedure must file documents with the trade register and notify their creditors of that filing. Creditors who suspect abuse of expedited liquidation can object. Non-compliance with the filing obligation is punishable under the Economic Offences Act. Lastly: directors abusing expedited liquidation risk disqualification for a period of five years maximum.

Advice and guidance of BUREN can help you take the right steps in realising and/or handling expedited liquidation. Please do not hesitate to contact us if you would like to know more.