Turboliquidation is a quick and easy way to dissolve and liquidate a company. In turboliquidation, the legal entity ceases to exist if it has no assets at the time of dissolution. The legal entity may still have debts at the time of dissolution. If the legal entity no longer has income, no liquidation takes place. It is only necessary to declare to the Chamber of Commerce that the legal entity has been dissolved. Information about the dissolution is not discoverable by creditors of the legal entity.
With the current regime, there are concerns about the abuse of turboliquidation, particularly in cases where the legal entity ceases to exist and leaves behind debts.
Reason for law: reduce risk of abuse
As indicated above, a legal entity automatically ceases to exist if it has no assets at the time of dissolution. This automatic consequence may lead directors to work toward a situation where the legal entity no longer has income at the time of dissolution. The legal entity then ceases to exist without the directors being held accountable. In practice, turboliquidation is also used for the purpose of avoiding creditors. Creditors are often unable to properly ascertain what happened to the legal entity’s assets, and it is difficult for them to assess whether the turboliquidation was used for the right purpose. With the new law, the legislature aims to increase confidence in turboliquidation and reduce the risk of abuse of the scheme by improving legal protection for creditors.
Temporary law on transparency turboliquidation
On Nov. 15, 2023, the law will take effect and it will expire in principle after two years, unless there are intentions to introduce the measures permanently.
The law introduces several measures to prevent abuse of turboliquidation and provide transparency to creditors. The board is required to file some documents with the Chamber of Commerce within 14 days of dissolution. The board must file the following documents:
- a balance sheet and a statement of income and expenses for the fiscal year of dissolution;
- the cause of the lack of benefits at the time of dissolution;
- if applicable, the manner in which the income of the legal entity was monetized and how the proceeds were distributed; and
- if applicable, the reasons why a creditor(s) have remained unpaid in whole or in part.
Financial statements for previous fiscal years (if applicable including an auditor’s report) must also be filed if this has not already been done.
Finally, after filing the above documents, the board must notify creditors in writing. This allows them to check for abuse.
Consequences for violation
Administrative ban
If the legal entity does not comply with the obligations under the new law, a board ban can be imposed by the court. This is done at the request of the prosecutor’s office. The administrative ban can only be imposed if:
- The above filing requirement has not been met; or
- creditors have been deliberately and significantly prejudiced by the director; or
- the director has been repeatedly involved in bankruptcy or turboliquidation and is personally blamed for that.
Criminal sanction
Furthermore, non-compliance with accountability is a punishable economic crime. This is sanctioned with a maximum penalty of six months’ imprisonment, community service or a fourth-category fine (up to €21,750).
Conclusion
The Temporary Turboliquidation Transparency Act gives directors accountability. The new procedure requires more transparency and accountability, giving creditors more protection. Companies should be aware of the obligations the board must meet in the event of turboliquidation. It is advisable to properly document the process prior to turboliquidation so that it can be shown in hindsight that turboliquidation was justified. This can prevent directors from facing a board ban and/or criminal sanction.
