Expedited liquidation

Expedited liquidation is a quick way to terminate a legal entity. However, the scheme was also abused, disadvantaging creditors. A new law should prevent this. What requirements does an expedited liquidation have to meet from now on? And what options do creditors have to collect their claims?

What is expedited liquidation?

A legal entity can be terminated by a resolution of the general meeting of shareholders or the general membership meeting. As a result, the legal entity has to be liquidated. This is the case if in the legal entity assets are still available. The legal entity will then add “in liquidation” to its name. If the legal entity has no more assets, the legal entity may also choose to cease to exist immediately, i.e. expedited liquidation. This mainly occurs in the case of a private limited company.

Directors can therefore “drain” a company in expedited liquidation and then terminate it immediately. As the company disappears immediately, this makes fraud and harming creditors easy. Therefore, since November 2023, an expedited liquidation is subject to a number of requirements, which are meant to prevent abuse.

Conditions

To carry out an expedited liquidation, the general meeting of shareholders must first pass a resolution for termination. When this resolution has been passed, the directors can proceed to wind up the company. To do so, they must file a number of documents with the Chamber of Commerce within 14 days of passing the resolution:

1. A balance sheet and a statement of income and expenditure for the last financial year.
2. A description of:
   1. The cause of the absence of income
   2. The manner in which the proceeds have been realized and distributed
   3. The reasons why the creditor(s) have remained unpaid
3. The annual accounts for previous financial years must be published if this has not been done before.

When these documents have been filed with the Chamber of Commerce, the board must notify the creditors of the expedited liquidation. In doing so, the board has to inform the creditors in writing (by e-mail or post) that the documents have been filed with the Chamber of Commerce and are available for inspection.

Interests of creditors

Creditors have an interest in being informed of a legal entity’s decision to cease to exist with immediate effect. After all, they may well still have a collectible claim against the company. Therefore, creditors must be informed about the expedited liquidation. The information obligation attempts to prevent them from being left empty-handed.

If the information is not shared by the board with the creditors, they can start proceedings before the subdistrict court to access the records. The subdistrict court can authorize the creditors to inspect the records of the already terminated company.

What can creditors do?

If creditors do not agree with the expedited liquidation, they have several options to still get their claims paid. Creditors can request a reopening of the liquidation or file for bankruptcy. They can also hold the directors personally liable for the damages suffered.

1. Reopening of liquidation

The law allows aggrieved creditors to reopen the liquidation of the company. Before reopening, a court will first assess whether a creditor has a sufficient interest in reopening and whether the company still has assets. As a creditor requests the reopening, it is the creditor who must prove that the company still has assets. They can do this by showing that a director can potentially be held liable or that a company still has claims or other assets elsewhere. In practice, however, proving this is difficult.

If a court grants the request to reopen the liquidation, a new liquidator will be appointed. The liquidator will then try to satisfy the creditors with the remaining assets.

2. Bankruptcy

Another option is to file for bankruptcy of the already terminated company. For this, as with the reopening of the liquidation, a creditor must prove that the company still has assets. Furthermore, the other requirements of a bankruptcy petition must also be met: there must be a situation where the (terminated) company has stopped paying and the petition must be filed by several creditors. If these conditions are met, the court can declare a bankruptcy of the company. The advantage of bankruptcy is that a trustee is appointed, who will investigate the estate and have more options to collect a debt.

3. Directors’ liability

Finally, it is possible to hold the directors of the liquidated company liable in private. There is a high threshold for directors’ liability, as the directors must be personally blamed.

Directors may be liable on two grounds. Firstly, if directors have acted on behalf of the company and the debt to the creditor remains unpaid and proves unrecoverable. Directors are personally liable if they already knew or should have known at the time of entering into agreements that the company would not perform and that the company would offer no opportunity for recovery.

The second ground is that directors acted or allowed the company to default on its obligations when they knew or should have known that the company’s actions would lead to non-performance and that creditors would be left empty-handed. An example is if directors selectively pay only certain creditors they know or allow a co-director to drain the company.

If one of these grounds is established, a director has acted unlawfully towards the creditor. It is therefore important to show that the director knew or should have known that the creditors were not going to be paid.

Corporate lawyer and corporate litigation

Are you dealing with a legal entity that has ceased to exist through expedited liquidation and your claim has not been paid? Are you dealing with a bankrupt debtor? We will be happy to give you advice. You can also contact us for other questions concerning corporate litigation. Please contact: