In the Netherlands, “turbo liquidation” refers to a fast-track liquidation procedure that is typically used for small companies or businesses that have ceased operations and have no assets or liabilities. The procedure is called “turbo” because it is completed within a short period of time, usually a matter of weeks, and is relatively inexpensive.
Under this procedure, a director or shareholder of the company files a request for the liquidation of the company with the Chamber of Commerce. If there are no objections from creditors or other interested parties, the company will be declared bankrupt by the court, and a liquidator will be appointed to wind up its affairs. The liquidator’s primary duty is to sell any remaining assets and distribute the proceeds to creditors.
One of the main advantages of the turbo liquidation procedure is that it is relatively fast and inexpensive compared to other liquidation procedures. However, it is important to note that there are certain requirements that must be met in order to use this procedure, such as having no employees or assets.
On the contrary, turbo liquidations can have a significant impact on accounting principles. When a company is subject to a turbo liquidation, it is required to settle all of its debts and distribute any remaining assets to its shareholders. As a result, the company’s financial statements must be updated to reflect the liquidation process, including the recognition of any gains or losses on the sale of assets and the settlement of liabilities.
In particular, the balance sheet must be adjusted to reflect the liquidation process, with assets revalued at their expected selling price and liabilities adjusted for any expected settlements. Any remaining equity in the company is then distributed to shareholders as part of the liquidation process. The income statement must also be updated to reflect the gains or losses on the sale of assets and the settlement of liabilities. In addition, any tax implications of the liquidation must be accounted for, including the recognition of any tax losses or gains associated with the liquidation.
In addition, any distributions made to shareholders as part of the turbo liquidation may need to be recorded differently than in a traditional liquidation, as they may not be considered legal distributions if outstanding debts remain unpaid.
In a traditional liquidation, any distributions made to shareholders after all outstanding debts and liabilities have been settled are typically considered legal and recorded as such in the company’s accounting records. However, in a turbo liquidation, if there are still outstanding debts remaining at the time of the distribution, those distributions may not be considered legal, and therefore cannot be recorded in the same way.
In such cases, the distributions may need to be recorded as loans or advances made by the company to the shareholders. These loans or advances may need to be repaid by the shareholders once the outstanding debts are settled, or they may be written off if the company is unable to recover the debts. The accounting treatment of distributions made in a turbo liquidation will depend on the specific circumstances of the case, and it is important to consult with a qualified accountant or tax advisor to ensure that the distributions are recorded correctly in the company’s accounting records.
Overall, a turbo liquidation can have a significant impact on the accounting principles of a company, requiring the revaluation of assets and liabilities and the recognition of gains or losses associated with the liquidation process.
The issuance of the new ‘Temporary Act for Transparency Turbo Liquidation’ is in its final phase by Dutch lawmakers. This law pertains to the voluntary liquidation of companies, commonly known as a ‘turbo liquidation’. It imposes filing obligations on directors during the process of turbo liquidation and provides for potential civil law bans or fines against directors for any misconduct. This new law has been introduced in anticipation of an increased number of turbo liquidations following the post-COVID pandemic fall-out.
It is worth noting that the use of the term “turbo liquidation” has been criticized by some legal experts in the Netherlands, who argue that it may give the impression that the procedure is a shortcut or a loophole in the law. They stress that the procedure is a legitimate and legal means of liquidating a company, but caution against using it inappropriately or without proper consideration of the consequences.
The new Temporary Act for Transparency Turbo Liquidation in the Netherlands will introduce additional filing obligations and potential civil law sanctions for directors during the process of a turbo liquidation. Under this new law, the former board of the company must file additional information with the Netherlands Company Register within 14 days of the dissolution date, including a balance sheet, statement of income and expenditure, and annual accounts for the preceding financial years. They must also provide a description of the cause of any lack of assets at the time of dissolution, the manner in which the assets of the legal entity were realized and distributed, and the reasons why any creditors are unpaid.
Directors who fail to meet these obligations could face a fine of up to €22,500 or six months imprisonment, and creditors may seek access to the records of the dissolved company to substantiate their claims against the directors for personal liability. Additionally, the new law enables the imposition of a management ban on previous directors of the company who have not complied with the deposit obligation, deliberately disadvantaged creditors in the lead-up to dissolution, or repeatedly been involved in dissolutions with debts.
The aim of this new law is to increase transparency, protect the creditor’s position, and prevent abuse of the turbo liquidation possibility. It comes in response to the high number of turbo liquidations expected due to the fallout of the COVID-19 pandemic. By introducing these additional filing obligations and sanctions, the law aims to ensure that directors take their responsibilities seriously during the process of a turbo liquidation, and that creditors are protected from any abuse or malfeasance.
The new Dutch Temporary Act for Transparency Turbo Liquidation is part of a global trend of increased regulation and scrutiny of company dissolutions, particularly those that involve significant debts. Other countries have also implemented similar measures to ensure transparency and accountability in the dissolution of companies.
For example, in the United States, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 includes provisions that require corporate debtors to provide a wide range of financial information to the court and creditors during the bankruptcy process. This information includes balance sheets, income statements, tax returns, and a statement of financial affairs. Failure to provide this information can result in sanctions against the debtor, including dismissal of the bankruptcy case.
Similarly, in the United Kingdom, the Insolvency Act 1986 requires companies that are being wound up to provide a statement of affairs to the court, which includes information on the company’s assets, liabilities, and creditors. The court can also require directors to provide information and attend interviews to explain the company’s financial affairs.
Overall, the trend towards increased transparency and accountability in company dissolutions is a global one, as regulators and governments seek to protect the interests of creditors and prevent abuse of the dissolution process.
In conclusion, the draft Bill is scheduled for a vote in the House of Representatives on February 16, 2023. Once adopted, it will be sent to the Senate for further consideration, although the timing of this is currently uncertain. Once the Bill is adopted in its current form, the following steps should be followed to apply for turbo liquidation:
Step 1: The board determines that the legal entity has no assets.
Step 2: The general meeting or, in the case of a foundation, the board makes a decision to dissolve the legal entity. This decision specifies the moment at which the legal entity will cease to exist, as per Article 2:19(4) of the Dutch Civil Code.
Step 3: Within 14 days of the dissolution date, the board must file the necessary documents with the Netherlands Company Register (Kamer van Koophandel), as outlined in Article 2:19(4) of the Dutch Civil Code (new).
Step 4: Immediately after filing the documents, the board must notify any remaining creditors in writing, as per Article 2:19b(2) of the Dutch Civil Code (new).
Due to the new transparency requirements imposed by the Bill, companies engaging in turbo liquidations will be required to maintain thorough and accurate records and be proactive in communicating with remaining creditors. The responsibility for ensuring that creditors are aware of the turbo liquidation process falls to the management board, and they will need to maintain complete records of all creditors’ contact details. If proper records are not kept, the traditional liquidation process may be the more appropriate course of action. This emphasis on accountability and good corporate governance underscores the importance of proper financial management practices in turbo liquidations.