Despite the support measures, an increasing number of entrepreneurs will want to stop their business due to the COVID-19 virus. With turbo liquidation, entrepreneurs have the possibility to quit quickly and easily to avoid more costs and therefore higher debts. The turbo liquidation is the rapid dissolution of legal entities without assets. To facilitate the use of the turbo liquidation, the Council of Ministers has agreed, on a proposal from Minister Dekker for Legal Protection, to consult the draft law on the Temporary Turbo Liquidation Transparency Act. The preliminary draft introduces additional obligations for the liquidation of a company by means of turbo liquidation. The aim of these additional obligations is to combat abuse of the current turbo liquidation act, to better protect the creditors and to increase confidence in the turbo liquidation scheme.
To avoid higher debts, the Homologation Underhand Agreement Act has been offering entrepreneurs a helping hand since early 2021. However, this arrangement is complex and not suitable for all entrepreneurs. The turbo liquidation is a relatively quick and simple alternative for these entrepreneurs to arrange the termination.
In short, this arrangement means that legal entities can be dissolved by means of a dissolution if there are no more assets. The turbo liquidation thus offers entrepreneurs the opportunity to wind down the company, for example by selling the last stocks prior to the dissolution and to pay the debts as much as possible from the proceeds. As a result, debts do not continue to increase, bankruptcy can be averted and the entrepreneur can continue both business and private.
The turbo liquidation can also be applied if a company still have some debt outstanding during the liquidation process. Creditors sometimes discover too late that their debtor has been liquidated and do not know why their claims have remained unpaid. Frequently heard criticism is that the current regulations regarding turbo liquidation is open for abuse.
Last years the use of turbo liquidations increased. It is expected that due to the corona virus more entrepreneurs will want to liquidate their company on short-term making use of turbo liquidation. This increase will create a temporary risk on increased abuse on turbo liquidation. The abuse has been the motivation behind the introduction of some temporary measures as included in the preliminary draft of the Temporary Turbo Liquidation Transparency Act.
Entrepreneurs can already make use of this scheme. However, the bill should ensure that confidence in this instrument increases, making it more accessible to entrepreneurs. The proposal therefore contains measures to improve the legal protection of creditors in the event of turbo liquidation and to combat abuse. To this end, directors who want to make use of the turbo liquidation will soon be obliged to file documents with the trade register in which they give financial accountability. They must also inform the creditors concerned of this. Creditors who believe that the turbo liquidation is being abused can then challenge this. Failure to comply with the deposit obligation is punishable by law under the Economic Offenses Act. Surprisingly, not informing creditors had not been made a criminal offence. Furthermore, directors who abuse the turbo liquidation risk a ban on management for a maximum of five years.
The measures are temporary and will last for two years. It is unknown yet whether these measures will be extended. When the bill will be submitted to the House of Representatives is still unclear. More information on (turbo) liquidation can be found on rijksoverheid.nl.