Companies come and go. They are dissolved as often as they are established. Dutch law, like most other law, prescribes how a legal entity is to be dissolved.
Of course, there are provisions to protect creditors and shareholders. For example, a plan setting out how the company’s assets will be distributed has to be published so that creditors can object to the plan within two months of its publication but if there are no objections, the company is irrevocably dissolved, or at least that was the general understanding amongst Dutch lawyers.
Bird & Bird recently represented a dissolved company in Supreme Court litigation. The outcome of this case demonstrates that that it is never safe to assume that a dissolved company is indeed dead and buried.
The dissolved company, the claimant, had previously brought a claim against another Dutch company, the defendant for import taxes paid in respect of two containers of raisins it had sold to the defendant. The court awarded judgment in default for the claimant but this was opposed by the defendant.
The sole shareholder decided to dissolve the claimant company while the defendant’s opposition to the judgment in default was still pending. The shareholder asked the Chamber of Commerce to declare the claimant dissolved and to register that it had ceased to exist and that there were no known assets.
This did not deter the defendant and eleven months later, the default judgment was overturned. The defendant assumed that this would end the litigation but the claimant, now dissolved, appealed. The appeal was filed by the now former shareholder but in the name of the claimant. The Court of Appeal denied the claimant’s appeal on the basis that it was dissolved and that it abandoned its claim through the statement that there were no known assets remaining.
At this point, Bird & Bird became involved and the claimant appealed to the Supreme Court. The Supreme Court decided that the defendant could not have relied on the claimant’s statement that there were no known assets remaining since the claimant had obtained judgment against the defendant and the defendant was still contesting that claim in opposition proceedings when the claimant was formally dissolved. Accordingly, the claimant had to be treated as still existing vis a vis this specific debtor and the claimant was therefore entitled to claim reimbursement for the import taxes it had paid on the defendant’s behalf.
The lesson to be learned is that dissolution will not be effective against every third party. It seems safe to assume that this also works the other way and a creditor which does not file an objection to a distribution plan may still sue a dissolved company unless the creditor had made it clear that it would not do so.
Directors and shareholders ought to take this into account when dividing any remaining assets amongst themselves - they may yet be ordered to pay a creditor.