Ending a legal entity through fast-track liquidation

Fast-track liquidation is the quickest way to end a business. It is also known as turbo liquidation. The new temporary law ‘Tijdelijke wet transparantie turboliquidatie’ (Temporary act transparency fast-track liquidation) came into effect on 15 November 2023. This means creditors can easily monitor the liquidation process. Are you considering using fast-track liquidation to end your business? Read this article to find out if it is possible and what you need to consider.

What is a fast-track liquidation?

Fast-track liquidation, also known as turbo-liquidation, is a way to end a legal entity in the Netherlands. For example, a private limited company (bv), a public limited company (nv), a cooperative, a mutual insurance society, a foundation, or an association. You cannot use a fast-track liquidation to end a sole proprietorship (eenmanszaak) or a general partnership (vof). In 2022, some 50,000 legal entities were dissolved. Nearly 90% of these cases were resolved by fast-track liquidation.

Ending a business immediately if there are no assets

Fast-track liquidation has one important requirement: there must be no assets left at the time of dissolution. This is the moment when a decision to dissolve the company is made. If there are no assets at that time, the company is ended immediately. This quick process is called fast-track liquidation. The board notifies the Netherlands Chamber of Commerce KVK about the dissolution by sending in form 17a, 'Dissolution of a legal entity'.

If a business still has assets, the company is not immediately ended. Instead, you must follow the legal liquidation procedure. You need to follow the steps set out in the law. If the debts are larger than the assets, the creditors or the business owner may file for bankruptcy.

What are assets?

Assets include various items within a business, such as:

• money in the bank;
• inventory and stock;
• property; and
• shares in other companies.

Claims are also assets. This applies to claims you are sure will be paid. But also to claims you could collect. For example, money you only get after you speak to a debtor or take legal action. Examples of claims are:

• an amount you are owed from debtors;
• a deposit that you get back after a rental period; and
• an amount you will get after cancelling an agreement.

The term ‘assets’ covers more than you might think. Therefore, be very careful when deciding if your business still has any assets. Seek advice from a legal professional and accountant before making a decision to dissolve the company.

No assets at the time of dissolution

Fast-track liquidation is possible when there are no assets at the time of dissolution. This is often the case for ‘empty’ legal entities that have no assets. Such as an inactive holding company.

However, active legal entities with assets can also use fast-track liquidation. To do so, you must ‘liquidate’ or clear the remaining assets before the dissolution. You sell all assets and pay off creditors as much as possible. When doing so, you must consider the interests and priority of creditors. After the assets are cleared, the decision to dissolve the legal entity can happen.

Does your company have debts?

Fast-track liquidation is possible even if a business still has some debts. Are there significant debts? It may be better to file for bankruptcy. In a bankruptcy, you appoint a trustee who has experience in handling debts correctly.

Ongoing (employment) agreements

It is not usually advisable to choose fast-track liquidation if there are debts or ongoing agreements. For example, rental or employment contracts that cannot be easily ended. Additionally, mistakes can be made in repaying creditors when you are clearing debts.

New rules for fast-track liquidation

Fast-track liquidation can be harmful to creditors. They often find out suddenly that a company no longer exists. Additionally, there is no way for creditors to know what happened to the assets in a fast-track liquidation. Have all assets been properly settled? They also cannot check if a director intentionally or unintentionally fails to report certain assets.

A new temporary law came into effect on 15 November 2023. This gives creditors more protection from fast-track liquidations. The fast-track liquidation process will become more transparent, and prevent improper use or abuse of the process.

According to the new rules, the board of the company must provide financial accountability during a fast-track liquidation. Within 14 days of the dissolution decision, the board must submit various financial documents to KVK. Once everything is submitted, the board writes to creditors to inform them about the fast-track liquidation. They can also view the documents at KVK, which allows them to better assess if they agree with the fast-track liquidation. Learn more about the process of a fast-track liquidation.

The new law is temporary. It will be valid for 2 years after it takes effect. It is possible that a permanent law will be introduced in the future.

Risks of using fast-track liquidation

Fast-track liquidation may seem like a quick and simple process, but it also has risks. Is it later discovered that the business still has an asset? Creditors can request that the liquidation process is reopened through the courts. This is also the case if the fast-track liquidation was applied incorrectly, either intentionally or unintentionally. Creditors can also apply for the bankruptcy of the already terminated legal entity.

In some cases, creditors can hold a former director personally liable via legal action. The director must have acted unlawfully with intent. For example, by prioritising certain creditors when others should have been paid first. This means the order of priority among creditors was not considered. Another example is when a director intentionally hides assets and still continues with the fast-track liquidation.

The new law also carries risks for business owners. In certain situations, the Public Prosecution Service can request a ban on directorship. If this happens, the director is forbidden from holding any directorial positions for a maximum of 5 years. Intentionally failing to comply with the new accountability requirements can also lead to criminal liability.

Checklist for ending your business

Are you planning to end your business? There are several things to consider before and after you formally make the decision. This checklist for ending your business offers a step-by-step explanation of the key steps.