Turbo liquidation keeps everyone busy

However, since December 18, 2015 (Hoeksema q.q./RM Trade), the Supreme Court has accepted turbo liquidation and Article 2:19 (4) of the Dutch Civil Code now applies to companies that no longer have any income but do have debts.

This post was reviewed and updated on 14 October 2020

What is turbo liquidation again?

At a time when a company wishes to end its activities, for example because the company is in financial difficulties, the company must be liquidated. A general meeting of shareholders is authorised to approve a resolution to liquidate.

If the company still has known assets (such as inventory, cars, or debtors), liquidation must take place first: the assets are sold and the proceeds are distributed to the creditors. If the income is insufficient to pay all debts, bankruptcy follows.

However, if there are no known assets, the settlement process can be skipped. The shareholders’ meeting may determine that there are no assets, decide to dissolve the company, and deregister the company from the Trade Register. In such a situation, the company immediately ceases to exist. Creditors are left empty-handed. This is called a turbo liquidation.

Doesn’t turbo liquidation result in angry creditors?

When a company has been terminated by means of a turbo liquidation and creditors are left with nothing, it may be that an “angry” creditor then applies for the bankruptcy of that company. In the case that was dealt with by the Court of Appeal in ‘s-Hertogenbosch on 3 November 2016. X BV ended by means of a turbo liquidation. Creditor P applied for the bankruptcy of X. The court rejected this. P appealed.

In the opinion of the Court of Appeal, P had made its claim sufficiently plausible. The court also considered the plurality of creditors to be plausible, once it became apparent that X also had a debt to the tax authorities. P has also made it sufficiently plausible that A could not pay the debts within a reasonable period of time, and that X appeared to have stopped paying. So far, nothing stands in the way of the bankruptcy of X.

Does the Court also rule on bankruptcy?

The Court ruled that X could be declared bankrupt after its turbo liquidation. It was sufficiently clear to the Court that there was a considerable burden of debt and that there had been no settlement of the debts. The deregistration of X only took place after the bankruptcy of X (on appeal) was filed. The Court of Appeal was of the opinion that the decision to turbo liquidate X was taken so shortly before the appeal proceedings for no other purpose than to escape bankruptcy. In the opinion of the Court, turbo liquidation is not intended for this purpose.

Furthermore, the Court was of the opinion that P has made it sufficiently plausible that assets could still be expected. This was apparent from the list of collectable debtors that X had submitted to the Tax Authorities. The Court of Appeal therefore nullified the decision of the Court and pronounced A’s bankruptcy.

When is turbo liquidation appropriate?

As the Court of Appeal in the above case rightly found, turbo liquidation is only intended for companies that no longer have any assets. If there are still debtors to be collected, then turbo liquidation is not possible. A choice must then be made for bankruptcy or for the process of liquidation.

If you need help with turbo liquidation or a related topic, please contact us; our company and insolvency law team will be pleased to assist.