Wham, bam, and no recovery!
The method is simple: the shareholders’ meeting decides to wind up the company, the managing director informs the Chamber of Commerce that the company no longer has any assets, and the company is dissolved. Unfortunately, this arrangement paves the way to fraud, since creditors are left empty-handed.
It recently became apparent that employers can also easily rid themselves of employees in this manner.
The Court of Gelderland ruled on this issue on 27 June 2016. An employer had terminated an employee’s contract even though the UWV (Employee Insurance Agency) had refused to grant the requested dismissal permit. The employer had also failed to observe the correct notice period.
The employee refused to accept her dismissal and claimed the transition payment and fair compensation. But the employer then instantly wound up the company on the grounds of a (persistent) lack of income.
The employee’s claim was dismissed in court. Also in light of the Supreme Court judgment referred to above, the court found that it must be assumed that the employer’s company had ceased to exist and that the employee therefore had no cause of action. In the court’s opinion that was not altered by the fact that the current system enables abuse of turbo liquidation and is detrimental to creditors, such as this employee.
The employee was therefore left empty-handed.
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Recovery problematic
The employee nevertheless has a few options. She could first try to hold the managing director liable. A reasonably strict test of directors’ liability must then be met: the managing director must have acted in a seriously culpable manner. That is the case, for instance, if only the employee has been seriously disadvantaged compared with her colleagues, because she was the only who was be paid. A second option is to hold the shareholder liable. Fortunately, that test is not as strict: the employee must then prove that the shareholder breached a standard of care and disadvantaged the employee.
In some cases an employee or creditor may then be paid after all. But that is by no means certain and will depend on the circumstances of the case.
In sum: turbo liquidation offers many advantages, but is also conducive to fraud. When abused, turbo liquidation can be at odds with the principle of protection under employment law, since an employee’s options will be limited after a turbo liquidation.
Legislative action required
Since the Supreme Court judgment, the Chamber of Commerce, the Tax Administration and the FIOD (Fiscal Intelligence and Investigation Service) have seen an increase in cases of fraud. For that reason the Ministry of Safety and Justice and the Ministry of Economic Affairs started an investigation several months ago into possible changes to the law to solve this problem. The Public Prosecution Service and the FIOD are now also conducting a number of (criminal) investigations. Hopefully that will soon clarify the seriousness and scope of the problem – and in particular the action that the legislature will take to avoid abuse. Will the legislature take action? We’ll keep you informed!
