Sometimes people need or wish to terminate a business. An option, for example for a cooperative, is to dissolve the legal entity. However, the dissolved cooperative will not yet have ceased to exist – this is only the case when the liquidation is completed by the liquidator.
In this article, corporate lawyer Martijn Kesler will take a closer look at dissolution and the role of the liquidator based on a recent ruling on the dissolution of cooperatives.
The options for terminating a business
There can be various reasons behind the decision to dissolve a business. If such a decision is taken, there are roughly three options:
- turboliquidation leading to immediate termination of the company;
- dissolution by shareholder resolution to have the business assets distributed by a liquidator;
- filing for the company’s insolvency.
In this article, we will only deal with option 2, namely: dissolution and liquidation of the company.
Method of dissolution
The general meeting passes a resolution to dissolve after which the liquidator is appointed. The liquidator is often the director designated in the articles of association as the liquidator in case of dissolution of the legal entity.
What must a liquidator comply with?
The liquidator then has to take into account only the interest of the liquidation. This means that the liquidator ensures that all assets of the legal entity are expropriated (i.e. sold). The proceeds of the assets are eventually distributed to the shareholders or members.
In a nutshell, the liquidator’s job is to properly complete the dissolution of the company. Under Book 2 Article 23b(2) of the Dutch Civil Code, for example, the liquidator is entitled to render an account of the liquidation, showing the size and composition of the surplus. The liquidator also deals, for example, with clearing all tax liabilities and/or debts.
Distribution by the liquidator
Insofar as the surplus includes something other than money; and the articles of association or a court order do not provide any further indication, the following methods of distribution are permissible:
- allocation of part of the surplus to each of the entitled parties;
- overdistribution to one or more entitled parties in return for payment back of the excess value;
- distribution of net proceeds after sale.
When can a liquidator be held liable?
It is important that the liquidator performs their duties properly and diligently. If the liquidator fails to do so, any such deficient actions may be unlawful.
The liquidator can thus be dismissed and possibly held liable by those who have suffered loss as a result. However, it is important here that the liquidator must have been found to have been sufficiently seriously in error. This standard is equivalent to the standard required to establish directors’ liability. Thus, directors’ liability cannot be assumed lightly.
Case study: liquidating the cooperative and appointing liquidators
In 2015, CNC, a cooperative, sold the company Lutece, which accounted for about 60% of CNC’s sales. The sale led to a decline from 1,400 to just over 100 members. At the end of 2020, CNC sold its shares to Sun European Partners. The cooperative was subsequently dissolved and has since gone into liquidation. The general meeting of members then appointed three individuals as liquidators.
The liquidators are given a mandate by the general meeting of members
Prior to the dissolution, the members agreed to the plan to have the remaining surplus distributed by the liquidators to the members in proportion to the goods taken from CNC. Twelve members of the dissolved cooperative disagreed. They requested the court, pursuant to Book 2 Article 23b(5) of the Dutch Civil Code, to require the liquidator to make a different distribution by declaring that the filed plan was unacceptable by the standards of reasonableness and fairness, and to set up distribution in a different manner.
The findings of the court
The court held that there was no situation where the complaining members were treated unacceptably by standards of reasonableness and fairness. The court found that the agreed allocation system based on the generated operating profit per member over the last three years involved a deliberate and legitimate consideration of the members. This finding was a decisive factor in the judgement of the court. Moreover, this consideration was in line with the previous amendments to the articles of association, from which it follows that the distribution system was continuously in line with this.
Ending a business often involves a struggle. If you want to proceed with dissolution and liquidation, or your company is already in liquidation and you have any questions, please contact VIOTTA’s corporate law team. VIOTTA’s lawyers have years of experience in this field, both nationally and internationally. Feel free to contact Martijn Kesler to discuss your case.