Bankruptcy, restructuring and restart

It is a major fear for many entrepreneurs and companies: going bankrupt. Sometimes, against better judgement, attempts are made to turn things around, often with far-reaching consequences. By postponing the inevitable, the (financial) hole that a company or entrepreneur digs for itself only gets deeper. When is filing for bankruptcy the best – or least bad – solution, and who can file for bankruptcy?

Filing for bankruptcy

Filing for bankruptcy is a big and often sensitive step for an entrepreneur or company. When a company is unable to pay its outstanding debts – and the financial and business prospects are bleak – it can file for bankruptcy. A creditor can also file for bankruptcy, for example in the event of default by a debtor. However, there are legal conditions attached to this.

When to file for bankruptcy?

When a company in financial difficulty is no longer able to meet its payment obligations and the outlook is bleak, filing for bankruptcy with the court is a logical step. In this situation, bankruptcy is often unavoidable. An entrepreneur can decide to file for bankruptcy themselves. Filing for bankruptcy for large organisations, such as a private limited company, requires consultation with shareholders. The management must inform shareholders about the current situation of the company. Only when shareholders agree to the bankruptcy petition during a shareholders’ meeting can the request for a bankruptcy order be carried through.

Can a creditor file for bankruptcy?

Various parties can file for bankruptcy. Naturally, a company or entrepreneur can choose to initiate bankruptcy proceedings themselves. Creditors can also file for bankruptcy. If the conditions for filing for bankruptcy are met, legal proceedings will commence.

Who can file for bankruptcy on behalf of a company or organisation?

• Creditors

• The Public Prosecution Service

• The administrator in the event of a suspension of payments

• Shareholders of a company

• An independent entrepreneur

Letting a company go bankrupt: the advantages

Bankruptcy often announces itself well in advance. A company that notices that demand for a product or service is declining or is unprofitable can prevent worse by acting in time. Letting a company go bankrupt or filing for bankruptcy yourself is a sensible solution in various situations. For the company, the entrepreneur and the creditors, whose claims will not increase any further. After bankruptcy, a trustee will consider selling and collecting funds to pay creditors.

Disadvantages of filing for bankruptcy

Filing for bankruptcy has far-reaching consequences. If a company is declared bankrupt, the owner or entrepreneur loses control over their own assets and the company’s assets. In the period between filing for bankruptcy and the completion of the bankruptcy proceedings, affected entrepreneurs or companies are not allowed to make business decisions on their own initiative. They are declared legally incompetent during this phase.

A trustee determines what happens to the assets and the bankrupt estate and is responsible for settling the bankruptcy. The trustee is appointed by the bankruptcy judge. The bankruptcy judge checks whether the trustee is acting in the interests of the bankrupt estate and is performing their duties properly in accordance with the requirements of the Bankruptcy Act.

Conditions for filing for personal bankruptcy

There are various conditions attached to filing for bankruptcy for your own company. A condition for filing for personal bankruptcy is that an entrepreneur or company has stopped paying outstanding debts and has two or more debts with different creditors, or at least that such a situation is foreseeable. At least one of these debts must be due and payable. This means that the payment term for the outstanding debt has expired.

Another condition is that the estate must still have (realizable) assets. If there is nothing left but debts, the court will reject any bankruptcy petitions. This is to protect the trustee, who cannot recover his costs from the empty estate. In that case, the usual route is for the owner to liquidate the company. These conditions explicitly apply when a creditor wishes to file for bankruptcy of a company or organisation.

Applying for bankruptcy for a private limited company

When a private limited company (BV) is unable to meet its payment obligations and this situation is not expected to improve in the short term, the organisation can apply for bankruptcy. When filing for bankruptcy for a private limited company, the company must provide various documents – or copies of these documents. These include the articles of association, the register of shareholders and the minutes of the shareholders’ meeting at which the decision to file for bankruptcy was taken. Other documents that must be submitted include (if applicable) the approval of the Supervisory Board and an overview of the company’s current financial situation.

Bankruptcy petition for general partnerships and limited partnerships

A general partnership and a limited partnership may file for bankruptcy, but only if all partners are co-petitioners. Once a general partnership is declared bankrupt, all managing partners are bankrupt. If these are natural persons, their private assets are also included in the bankruptcy. In the event of bankruptcy of the limited partnership (CV), one or more managing partners will also be declared bankrupt. Silent partners and investors are not involved in the bankruptcy. The only risk they run is that they will lose their investment in the CV.

Filing for bankruptcy for a sole proprietorship

Bankruptcy can be filed for a sole proprietorship either at the entrepreneur’s own request or at the request of creditors. In the case of a sole proprietorship, the entrepreneur is declared personally bankrupt; the bankruptcy does not affect the business. Filing for personal bankruptcy is done at the court in the region where the entrepreneur lives. You can fill in the form for personal bankruptcy on the website rechtspraak.nl. In the case of a registered partnership, marriage or any community of property, a spouse or registered partner must also sign the application.

It is only possible to initiate proceedings before the court if the conditions are met. Do you want to file for bankruptcy for a sole proprietorship? Then it is not mandatory to hire a solicitor. If the applicant does not need to explain the application orally, this must be communicated in writing during the application. The court will then decide on the application without an oral hearing. The hearing usually takes place within six weeks of the petition being filed.

Where and how do you file for bankruptcy?

Bankruptcy is filed with the court in the area where the company (or where the company has its registered office) that is filing for bankruptcy operates. All the necessary forms can be downloaded from the website rechtspraak.nl. The completed forms and documents must be sent in duplicate or handed in by the applicant for bankruptcy at the central desk of the court. Creditors who wish to file for bankruptcy of an organisation are required to engage a solicitor for this purpose.

How long does it take to file for bankruptcy?

How long it takes to file for bankruptcy depends on various specific circumstances. For example, who is filing for bankruptcy: the entrepreneur themselves or a creditor? Which procedures are in force? And what is the reason for the bankruptcy? Every bankruptcy petition has its own story and background. How long it takes to file for bankruptcy therefore varies from situation to situation. The duration of the process varies from a few months to even several years, depending on the complexity and scale of the case.

Why file for bankruptcy?

Filing for bankruptcy for a private limited company, public limited company or yourself has negative connotations, but in many cases it is done precisely to limit damage, both for the debtor and the creditor. The purpose of personal bankruptcy is to restructure debts (debt restructuring). After the court declares a company or organisation bankrupt, a trustee is appointed. The judge appoints the trustee. The trustee attempts to repay outstanding debts to creditors as much as possible by collecting claims and selling assets from the bankrupt estate.

The debts are paid on the basis of a legally determined order of priority of creditors with the proceeds of the trustee’s efforts. The trustee may also investigate whether there is any directors’ liability due to improper management by one or more directors.

Opposition or appeal against bankruptcy

Not every company that has been declared bankrupt agrees with the bankruptcy. If bankruptcy has been declared, but the bankrupt party does not agree with this, it is possible to appeal against the ruling. This can be done by means of an opposition or an appeal. An objection can be lodged if, after the creditor has filed for bankruptcy, the debtor is not present at the hearing and is declared bankrupt in absentia.

To lodge an appeal against bankruptcy, the party declared bankrupt must be present during the hearing. This party will need a solicitor for this. The solicitor must lodge the appeal within eight days of the ruling. If the party declared bankrupt does not agree with the court’s ruling on appeal, the bankrupt party can appeal to the Supreme Court within eight days. To do so, the solicitor submits a request for cassation to the Supreme Court of the Netherlands to have the ruling overturned.

Can I prevent bankruptcy?

A bankruptcy petition or application for bankruptcy is filed when all possibilities to save a company – or to force it to meet its payment obligations – have been exhausted. No matter how bleak a situation may seem, there are various steps that can be taken to prevent bankruptcy. These include, for example, concluding a creditors’ agreement with creditors, applying for a moratorium on payments and reorganisation or refinancing of a company. Our specialists can provide targeted and sound advice on this.

Advice on bankruptcy proceedings

Is your company in serious financial difficulty and do you want to file for bankruptcy, or would you like more information about the bankruptcy procedure and how to file for bankruptcy as a creditor? The specialists in bankruptcy law and insolvency law at Fruytier Lawyers in Business can provide you with specific advice before you file for bankruptcy. Is bankruptcy the best solution for your company? Or can you avoid bankruptcy by means of a reorganisation or restructuring of the organisation? In this precarious situation, our dedicated solicitors will examine every option and all supporting documents in order to provide you with fully tailored advice for the most favourable outcome. Please contact us!