Bankruptcy possible after expedited dissolution of Ltd
In a recent ruling the Court of Appeal of The Hague upheld the bankruptcy of a private limited company that had been declared in spite of the fact that the company had ceased to exist (with a so-called expedited dissolution, also referred to as “turbo dissolution”) after the application for bankruptcy was filed, but before the application had been heard. Dutch insolvency lawyer Heleen Ceelen discusses the possibilities of the bankruptcy of a company after liquidation.
Expedited dissolution (a.k.a. turbo liquidation)
The term ‘expedited dissolution’ refers to the dissolution of a company based on article 2:19 paragraph 4 of the Civil Code. In this situation, the company is assumed to have proceeded to liquidation – the consequence being that there are no more assets – before the decision to dissolve the company has been taken. This means that a (formal) liquidation process no longer has to be initiated.
Bankrupt in spite of dissolution
In the aforementioned recent ruling the managing directors of a private company, however, only proceeded with an expedited dissolution after they had been summoned to a bankruptcy hearing. The court declared the bankruptcy of the company. In the appeal proceedings, the company argued that it could not be declared bankrupt because at the time of the decision to dissolve the company there were no known assets and there were no facts and circumstances to justify the bankruptcy declaration.
Dissolution in spite of debts
A creditor then stated that article 2:19 paragraph 4 of the Civil Code was not created to dissolve a legal entity while there are one or more debts. After taking a dissolution decision, (in principle) a board of management should act as liquidator, and if there only debts and no assets, the board of management should have submitted a report for a liquidation order.
The Court of Appeal did not agree with this interpretation and finds that the lack of assets alone means that the legal entity ceases to exist, despite the presence of one or more creditors.
Assessment ex nunc: according to the present situation
However, any assessment by the Court of Appeal in such cases is done according to the present situation (ex nunc). In this case the Court of Appeal found that the requirements for a bankruptcy application had been complied with. It is also noted that a dissolved company can be declared bankrupt without reopening the liquation pursuant to article 2:23c of the Civil Code of The Netherlands.
Assets present with breach of disclosure requirement
Concerning the lack of assets, the Court of Appeal finds, in summary, that these assets are in fact (now) present, as it has been shown that the company failed to publish the annual accounts.
It was therefore determined that board of management was manifestly improper in the execution of its duties and there is reason to suspect that this improper execution of its duties was a major cause of the bankruptcy. Although the latter, in the opinion of the Court of Appeal, cannot strictly speaking be considered an asset, the liquidation of the estate requires a broad interpretation of the term ‘asset’. For that reason, the Court of Appeal upholds the bankruptcy.
Dutch law firm AMS
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