Do’s and don’ts when dealing with a bankrupt client

Many businesses do not know how to act when one of their clients goes bankrupt or in administration. Often they only present outstanding bills to the bankruptcy trustee and wait passively what will happen next. In some cases however a creditor has more rights to his disposal. This is especially the case with contracts concluded for an indefinite period or when goods are supplied but not have been paid yet. Dutch lawyer Marco Guit explains.

Presenting a claim to the trustee of a bankrupt client

A creditor in The Netherlands needs to present his claim in writing to the trustee as soon as possible after the bankruptcy proceedings are opened. The trustee will set up a list of creditors of the debtor. This is an informal record of all the unsecured and non-preferred creditors and serves to determine the financial position of the debtor. The record is not definite yet: the trustee can reject certain claims in a later stage.

Claim back VAT in Dutch bankruptcy

When a creditor presents his claim at the trustee, he can request the trustee to confirm that there is no clear favorable prospect of distribution of assets The assets of a Dutch company reflect the value of all that the company possesses
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of the estate. Usually the trustee is quickly able to predict the outcome of the proceedings based on the assets of the estate and the debt ranking of the secured and preferred creditors like the tax authorities and employees. With the confirmation of the trustee that the creditor should not expect any repayment, the creditor is able to at least claim back the VAT over the outstanding bills from the tax authorities. It is important to realize that generally speaking trustees will not actively provide these confirmations to creditors and in some case they will even wait till the very last moment, i.e. the closing or liquidation, if they do it at all.

Debtor bankrupt: termination of current contracts?

When at the time of opening of the proceedings the creditor was doing regular business with the bankrupt company and some of the contracts were not completed yet, the mere fact that a contract party goes bankrupt does not immediately mean that the current agreement is terminated. Dutch law prescribes that the non-bankrupt contract party has to request the trustee in written to confirm -within reasonable time- that the trustee will continue the agreement (meaning he will deliver). When the trustee fails to do so, he looses his right to enforce performance. If the trustee is prepared to maintain the agreement as it is -because this may be beneficial for the estate, more so when most of the contract has already been executed – he must give assurances to the other contract party.

Terminating the contract and claim compensation

If the trustee fails to confirm to fully perform and execute the current contract, the other party can fully or partially dissolve the contract and claim additional compensation. This will constitute a claim that again can be presented to the trustee. In the event that both parties in a bankruptcy situation fail to perform, one may consider whether or not it is in their best interest to maintain the agreement at all. Always seek the advice of a lawyer in those circumstances.

Lease agreement and employment contract

With the permission of the supervisory judge, the trustee has special statutory authority to terminate both lease contracts and employment contracts while observing the legal notice period. Regarding employment contracts a period of 6 weeks will definitely be sufficient. In case of a lease agreement where the tenant goes bankrupt, the trustee as well as the landlord can terminate the contract half term while observing the usual notice period, where a period of three months will be on the safe side.

As from date of bankruptcy rent is claim against the estate

If the rent has been paid in advance, the lease agreement cannot be terminated before the last day that has been paid in advance. Besides, as per the date of the bankruptcy the rent becomes a debt of the estate: the trustee has to pay out this debt first (after paying out his own salary and other secured and preferred creditors). While a debt of the estate will be likely to be paid out, it is still recommended that a landlord present his claim explicitly to the trustee. If you find yourself in a situation like this, it is always better to find an experienced lawyer to present the claim to the trustee.

Dutch lawyer on retention of title and bankruptcy

In case a supplier has supplied goods under retention of title (meaning that the legal ownership of the goods remains with the supplier until the buyer has fulfilled his contractual obligations) and his invoice is not (fully) paid, he has the right to repossess his goods: after all the ownership of the goods has not been transferred to the debtor. The goods need to be identifiable though as goods provided by the seller.

Right to reclaim goods in bankruptcy

Even when parties have not agreed retention of title, it is still possible for the seller to repossess his goods. This can be when the purchase price has not been paid and consequently the criteria for dissolution are met (i.e. when the debtor is permanently incapable of performance). The seller can then claim back –by written notice- the supplied goods, after which the contract can be dissolved. In this written notice of cancellation the seller has to give a reasonable notice to the trustee to fulfill payment or to give adequate guarantees. Be aware though that this right to reclaim expires 6 weeks after the claim to pay the purchase price becomes collectable and also when the goods have been stored at the debtors for 60 days or more. A successful appeal to the right to reclaim or retention of title can be a very effective way to settle a claim in a bankruptcy.

Holland law firm on liability of directors in bankruptcy

The trustee always investigates the possible liability of the board of directors of the debtor in case of bankruptcy. He will investigate whether the management board has performed its tasks correctly and he has the power to invoke the action pauliana if the rights of recourse on the debtor’s assets have been prejudiced by legal acts performed by the debtor without obligation or in case of other irregularities or even acts of fraud. It is often the case that a managing director of a bankrupt company has been continuing his business activities for too long. When a managing director has made promises on behalf of the company knowing that the company could not fulfill, the director has acted unlawfully and a creditor can hold the director personal liable for his damage. If serious misconduct of the board is suspected, it is recommended to share The portion of registered capital of a private or public limited company
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these thoughts with the trustee, or to call in a lawyer who can assess whether a claim regarding wrongful act against the director will be successful.