Reinier advises national and international companies
reinier.russell@russell.nl +31 20 301 55 55Esmée advises on corporate law, contracts and corporate litigation.
esmee.bootsman@russell.nl +31 20 301 55 55Entrepreneurs may have various reasons for ending their businesses. Expected profits may be disappointing, retirement may be approaching or a partnership (joint venture) may be ending. What should entrepreneurs bear in mind when terminating a business?
Maintaining proper and sound records is mandatory for the management of a company. It is also of great importance to know what income and expenses a company has. This is also important for the decision to dissolve the company. Keeping proper records facilitates the termination of a BV. If you decide to terminate your BV in the near future, it is important to map out all current contracts and obligations. After all, it is necessary to know which contracts are ongoing, with whom they are concluded and what the duration of the contracts is.
An entrepreneur who decides to terminate a business is required to request advice if the company has a works council or employee representative body.
If a works council has been established (mandatory for companies with more than 50 employees), you must inform it about this proposed decision and request its advice. This advice must be requested in a timely manner. This is because the works council must be able to exert substantial influence on the decision-making process. You must therefore include the reasons for the decision and its expected consequences with the request for advice. If you do not request advice or if you do not do so in time, the works council can go to court. Therefore, it is important to submit your decision in a timely manner, or indicate that termination is being considered.
Should the works council give negative advice, you must wait one month before implementing your decision. This is intended to give the works council the time to determine its next steps. If you do not wait or ignore the works council’s advice, the works council can initiate proceedings at the Enterprise Section of the Amsterdam Court of Appeal. In case of a positive advice, you can proceed with terminating the BV.
Companies with an employee representative body (PVT) (companies with 10 to 50 employees) must ask the PVT for advice. If they fail to do so, the PVT can ask the court to suspend the decision to terminate until the PVT has issued its advice. Unlike the works council, if a negative advice is ignored, the employee representative body cannot go to court.
The board of a company cannot decide by itself to terminate a BV. Only the General Meeting of Shareholders (AVA) is authorized to do so. The board is authorized to call the AVA and put the dissolution on the agenda. The articles of association may contain special requirements for voting on the dissolution resolution. For example, that a minimum capital of shares must be represented at the vote or that an increased majority is required. If the articles of association do not mention this, the resolution to dissolve can be passed with a simple majority (half plus one). This resolution is necessary for both the liquidation of the BV and a turbo liquidation.
A legal entity can proceed to liquidation if its income exceeds its debts. If there are no more assets in the legal entity, it can opt for turbo liquidation. If a legal entity has more debts than assets, it can file for bankruptcy. Interested parties, such as employees and creditors can oppose the declared bankruptcy. Another option is to settle the debts as much as possible and then go into expedited liquidation. This does involve the risk of directors’ liability if the legal entity makes selective payments and favours creditors. A director must pay close attention to this while making payments. In the following, we will only discuss liquidation. For expedited liquidation, there will be another blog.
After the General Meeting of Shareholders passes a resolution for dissolution the company is in the state of liquidation. This only occurs if the BV has more assets than debts. In this state, the AVA appoints a liquidator. The liquidator must focus their activities on liquidation. This means the liquidator must perform actions that lead to an increase in the liquidation balance. Furthermore, the liquidator must report the dissolution to the Chamber of Commerce. In addition, the company name must include “in liquidation”.
Thus, first of all, the liquidator will inventory current contracts and assets. Your company has to deal with suppliers and other creditors. The company may still have liabilities or be able to collect claims. The outstanding accounts must be collected. Furthermore, current contracts should be terminated if possible. It is not always possible to terminate a current contract. For one-time deliveries, compensation or, if necessary, the full value of the contract will have to be paid. For long-term contracts a notice period or possibly compensation will apply. This depends on the contract you have concluded.
In addition to the contracts with suppliers, employment contracts with personnel must be terminated too. It is possible to terminate such contracts by mutual agreement. The company will then sign a settlement agreement with the employee and pay compensation to the employee. If it is not possible to end a contract by mutual agreement, you must first request permission from the UWV to terminate the contract.
Furthermore, the rules for collective dismissal may apply. If your company employs 20 or more employees, collective redundancy law applies when the company is terminated. You must then report the collective dismissal to the UWV. Furthermore, you must also consult with the unions and set up a redundancy plan. If you fail to do so, the dismissal may be annulled.
In the event of termination due to termination of business activities, the legal prohibitions on termination lapse. However, pregnant employees must continue to be paid during maternity leave and subsequent maternity leave.
The liquidator must keep a record of how the assets will be distributed. This report must then be filed with the Chamber of Commerce. Furthermore, the liquidator is obliged to place a newspaper advertisement stating that the BV ceases to exist and that the liquidation report is available for inspection at the Chamber of Commerce. With this advertisement the creditors are informed and can check that they have not been prejudiced. After the two-month period expires, the liquidator can proceed to liquidate the balance.
The amount remaining after current contracts have been terminated, outstanding receivables collected and assets sold is distributed to shareholders in proportion to their shares. The articles of association may provide for a different use of the money or exclude a shareholder entirely. After the shareholders have been paid the proceeds, the liquidators may proceed to terminate the bank account. Please note that it must not be in the red. Often the bank will even require a minimum amount to be paid for the cost of terminating the bank account.
In addition the Chamber of Commerce must be notified that the BV has been discontinued. The Chamber of Commerce will the remove the BV from the trade register. Finally, it is mandatory to keep the administration of the company for the following 7 years. This may be necessary in possible legal proceedings. The administration does not have to be kept on paper; it can also be kept digitally. However, it is necessary that the records can be retrieved if they are needed.
Do you want to end your business? Are your dealing with a creditor who has ended their business? We will be happy to give you advice. You can also contact us for other issues related to corporate law.
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