New Fast-Track Liquidation Procedures in the Netherlands
In Short
The Background: On November 15, 2023, the Temporary Fast-Track Liquidation Transparency Act (Tijdelijke Wet Transparantie Turboliquidatie) (the "Act") came into force in the Netherlands, temporarily changing certain statutory provisions in the Dutch Civil Code (Burgerlijk Wetboek), the Dutch Bankruptcy Act (Faillissementswet), and the Dutch Economic Offenses Act (Wet op de economische delicten).
The Result: The Act contains measures concerning, among others, accountability and disclosure obligations for the management board of legal entities that will be dissolved by a fast-track liquidation process (turboliquidatie).
Looking Ahead: The Act is applicable to all accelerated liquidations that occur after the Act is effective and will initially be effective for a period of two years, with an option for extension.
Dutch law provides for a fast-track procedure allowing Dutch legal entities that do not have any known assets to immediately cease to exist when a resolution to dissolve the relevant entity is adopted by the competent corporate body. The main advantages of the accelerated liquidation process over the ordinary liquidation process are that less documentation is required, less disclosure is required, and the two-month creditor opposition period is waived.
The existing accelerated liquidation process has become prone to abuse as a legal entity could incur additional debt while deliberately working towards a situation where there are no more assets, allowing the legal entity to immediately cease to exist but leave its debts behind to the detriment of its creditors.
The Act has been adopted in order to prevent abuse of the current fast-track liquidation process. The Act aims to create more transparency in the liquidation process and to mitigate risks for creditors while allowing legal entities without any known assets to quickly dissolve and cease to exist.
The Act stipulates the following measures:
1. Accountability and disclosure obligations (verantwoordings en bekendmakingsplichten): The following documents must be filed with the Dutch Commercial Register within a 14-day period following the adoption of the resolution to dissolve the entity:
- A balance sheet and statement of income and expenses relating to the final financial year in which the legal entity was dissolved, and the preceding financial year, if no annual accounts have been published for that preceding financial year;
- A description of: (i) the cause of the absence of assets at the time of the dissolution; (ii) the manner in which the assets of the legal entity have been realized and the amounts have been distributed; and (iii) the reasons that creditors have been left wholly or partially unpaid; and
- Annual accounts for any financial year preceding the final year in which the legal entity is dissolved, which have not been published despite the legal obligation to do so.
2. Notification of creditors: In addition to these disclosure obligations, the management board must send a written notification to the legal entity's known creditors (if any).
3. Consequences of non-compliance: Failure to comply with these obligations will qualify as an economic offense under the Economic Offences Act. In addition, a so-called director disqualification (bestuursverbod) can be imposed on a managing director under certain circumstances.
The director disqualification can be imposed on the managing director by the Dutch courts upon request of the Netherlands Public Prosecution Service (Openbaar Ministerie) for a maximum period of five years. During such period, the director cannot be appointed as a managing director or as a supervisory director of any legal entity in The Netherlands.
Two Key Takeaways
- Despite the accountability and disclosure obligations that the Act imposes on its management board, the Act still allows Dutch legal entities that do not have any known assets to immediately cease to exist upon a resolution of the competent corporate body.
- It is expected that the fast-track liquidation will be a much-used procedure to dissolve legal entities, especially legal entities that merely perform intra-group or holding activities and, as such, have no (or limited) exposure towards third-parties and thus towards potential creditor's opposition.
