Misuse of authority in company’s own bankruptcy application?

In a recent case before the Court of Appeal of Amsterdam, a dismissal of a company’s own application for bankruptcy was upheld in appeal. The Court of Appeal found that the authority of a company to apply for its own bankruptcy had been misused. When is there misuse? Dutch insolvency lawyer Marco Guit explains.



Company submits own request to be declared bankrupt

Based on the first article of the Bankruptcy Act, a debtor can be declared bankrupt by a court order by his own application, if the applicant is in a condition where he has ceased payment. In practice, the court will test, within the scope of that application, whether the applicant has left at least two creditors unpaid, with one creditor with a claim that is due and payable. In this case, although this requirement was complied with, the court dismissed the own application. The company appealed that ruling.

No assets present to pay the liquidation costs

The Court of Appeal found that there was a situation in which the company had ceased payment and that it also had an interest in applying for its own bankruptcy. There were several creditors while there were no more business activities, which meant that there was no turnover. However, the Court of Appeal also found that it was implausible that there were assets The assets of a Dutch company reflect the value of all that the company possesses
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to pay the liquidation costs and that a bankruptcy trustee has an interest to be spared a bankruptcy in which it is obvious in advance that he will have to pay all costs.

The Court of Appeal confirms the court ruling

The Court of Appeal found that the statements that there was furniture and equipment and that the bankruptcy was applied for because a rental agreement impeded a liquidation of the company were not substantial enough to reject the conclusion that the company could not in all reasonableness exercise its authority to apply for its own bankruptcy. The court ruling was confirmed by the Court of Appeal.

Condition of assets important in assessing an application for bankruptcy

This ruling by the Court of Appeal can be added to a series of ruling where not only bankruptcy trustees, but also the courts, guard against bankruptcies in which (practically) no assets are found and/or can be generated, which means that liquidation costs, including the fee of the bankruptcy trustee, cannot be paid. The Supreme Court already found in May 2015 that in such a situation a bankruptcy trustee (pro se), as interested party, can contest a bankruptcy ruling.

AMS Advocaten specialized in bankruptcy cases

AMS specializes in bankruptcy cases and some of our lawyers are regularly appointed as bankruptcy trustees. This means that we are eminently qualified to advise both creditors and debtors and assist them in claim validation proceedings or other insolvency disputes.