Turbo liquidation: a flash-in-the-pan or a useful tool?

Turbo liquidations are under fire. The pop-up company is now a familiar phenomenon: a director fills in a single form, signs it, submits it to the Chamber of Commerce and poof – the company is gone. Including any outstanding bills. Creditors are left empty-handed and often see no real chance of recovering their claims.

The other side of the coin

At the same time, turbo liquidation is a completely legal method and, in many cases, a sensible tool for terminating a company quickly and efficiently. In fact, in certain cases, it is not the execution of the turbo liquidation, but rather the filing for bankruptcy of an empty private limited company that entails director’s liability. In this article, I will take you through both sides of the coin – the abuses, but also when and how you can use a turbo liquidation responsibly.

What exactly is a turbo liquidation?

A turbo liquidation is the appropriate method for dissolving a private limited company without assets. In order to carry out this method, the company must no longer have any assets or prospects of acquiring assets. The company is then dissolved without liquidation by a shareholders’ resolution. The company then ceases to exist; this must be reported in the register of the Chamber of Commerce.

If there are creditors, they must be informed and a brief chronology must be submitted with the Chamber of Commerce documents, explaining how the situation arose.

Important difference with bankruptcy:

In the event of bankruptcy, the court appoints a receiver.

The receiver examines the accounts, sells any assets and checks for improper management or fraud. In turbo liquidation, there is no receiver, no prior assessment and hardly any supervision. It is precisely the latter that makes turbo liquidation attractive to entrepreneurs who do not want too many questions about their accounts, debts or creative constructions.

Abuse: the “plof-bv” as a disappearing act

Research and reports show that turbo liquidation is regularly used and abused. Every year, tens of thousands of companies disappear via this route. In many cases, this works well: empty, inactive private limited companies are neatly cleared up. However, a group of directors use turbo liquidation as:

• A way to “leave behind” debts without going bankrupt;
• A route to avoid tax and pension obligations;
• A step in a series of restarts via ever new private limited companies.

Why turbo liquidation is still a useful tool

At Fruytier Lawyers in Business, we also see the other side: the entrepreneur who is acting in good faith but is stuck with an empty or no longer profitable private limited company. Examples include:

• Old project companies in which all activities have already been completed;
• Holding companies with no assets after restructuring;
• Companies that only incur costs (accountant, Chamber of Commerce, bank) and no longer serve any purpose.

In such cases, turbo liquidation is:

• Efficient – no lengthy liquidation procedure;
• Cost-effective – no receiver, limited procedural costs;
• Practical – can be completed quickly with the right preparation.

The bottom line: turbo liquidation is intended for private limited companies that are truly empty. Not “empty on paper”, but empty in reality: no assets and no real interests of creditors that are harmed.

How do you use turbo liquidation “properly”?

Those who use turbo liquidation without thinking are playing with fire. Those who do so carefully can use it safely. The most important points to consider:

1. Ensure that the private limited company is actually empty. In principle, a possible claim is also a potential asset, including a possible claim for directors’ liability.

2. Transparency towards creditors. Since the temporary law on transparency in turbo liquidation came into force, it has been mandatory to provide financial accountability. Inform the creditors and file the accountability documents with the Chamber of Commerce.

3. Careful administration

Get your administration in order before you dissolve. This definitely includes a closing balance sheet.

Messy or missing administration is often the starting point for directors’ liability. This makes turbo liquidation impossible.

4. Be honest about your inability to pay

Are you unable to pay your debts (in full) and are there still assets? Then a turbo liquidation is usually not the right route. In such cases, filing for bankruptcy or a restructuring solution is more obvious. Misuse of turbo liquidation to effectively circumvent bankruptcy significantly increases the risks for directors.

Director liability: you are not “safe” because the company is gone

A common misconception we often hear is: “The company has been deregistered, so no one can touch me.” That is too simplistic. Even after a turbo liquidation, directors can still be held liable and the dissolved company can be reopened, and the assets – the claim against the director – can be liquidated. The bar for proving intent or improper management is high, but that does not mean the risk is theoretical.

What does this mean for you as an entrepreneur?

A few concrete lessons:

– Only use turbo liquidation for truly empty companies.

– Invest in a comprehensive file. Make it clear to an outsider that you have acted properly.

– Take creditors seriously. Anyone who uses turbo liquidation to buy time or avoid responsibility ultimately runs the greatest risk themselves.

– Consider alternatives. Bankruptcy, a controlled sale, restructuring – sometimes these are more painful in the short term, but safer in the long term.

Do you want to terminate a private limited company and are you considering turbo liquidation? Let us take a look before you press the “off” button.