Completion of the liquidation due to lack of revenue: the creditor’s position

A creditor can apply for the liquidation of his debtor. Thereupon this liquidation can be completed if the revenue is insufficient to pay the liquidation costs. In that case the creditor is left empty handed, but can subsequently take other steps. Samir deals with this.

The liquidation costs cannot be paid

Many liquidations are declared completed by the courts “with insufficient funds to pay the ordinary creditors”. This means that the liquidation assets The assets of a Dutch company reflect the value of all that the company possesses
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are so little that even the liquidation costs (such as the salary of the insolvency practitioner) cannot be paid. Under specific circumstances the creditors of the bankrupt company can challenge the completion of the liquidation. For example, if the creditors are of the opinion that the insolvency practitioner has demonstrated insufficient effort to generate assets and effects.

Revenue in a liquidation

In the first place it is important to have a proper picture of the “revenue” in a liquidation. Revenue is not only taken to mean the goods and bank balances of the bankrupt company; even if a bankrupt company potentially has a claim against a debtor, this can be classified as revenue. Even if this claim is disputed by the debtor.

Apparent mismanagement

A potential claim against the director of the bankrupt company can also be classified as revenue. A director of a company will be liable towards the company if he apparently has not properly performed his duties. For example, this is the case in a liquidation if the director has failed to properly keep the administrative records of the bankrupt company up to date, or if the annual accounts have not been filed.

Regularity audit

The insolvency practitioner in the liquidation must inspect whether the director of the bankrupt company has properly (improperly) performed his duties. This audit sometimes can take a very long time and can be expensive. Certainly if the bankrupt company otherwise has no revenue, a regularity audit can be problematic for the creditors; the revenue present goes to the audit, while it is uncertain whether anything will return for this.

To overcome this problem the insolvency practitioners can request a guarantee from the authorities subject to specific conditions. A guarantee means that the costs that the insolvency practitioner incurs related to the regularity audit will be paid by the authorities. However, a condition for this guarantee is that it can be reasonably estimated in advance that the costs of the insolvency practitioner are proportionate to the expected proceeds.

The Supreme Court

However, according to the Supreme Court an insolvency practitioner is not obliged to invoke the guarantee, even if the director has failed to file the annual accounts and there are sufficient indications that there is mismanagement. The fact is that according to the Supreme Court the recoverability of the potential claim against the director must also be taken into consideration. In the ruling of the Supreme Court this chance of recovery was fairly minor and the insolvency practitioner therefore did not have to request any guarantee to start proceedings.

Other options?

This outcome is annoying for the creditors; they are left empty handed, while there were sufficient indications in the ruling that there could be mismanagement. The chance that any proceedings against the director could have been successful was present in that case.

In this case the creditors can consider two steps to still recover their claim from the the director. The creditors can (i) make a financial contribution towards the costs that the insolvency practitioner must incur for conducting the proceedings, or (ii) the creditors can hold the director personally liable.

Do you have any questions regarding (directors’ and officers’) liability in liquidation? In that case please do not hesitate to contact AMS Advocaten.