After a bankruptcy has been declared, a bankruptcy trustee is given control over the bankruptcy estate of a company or organization. From the moment a court declares bankruptcy, only the bankruptcy trustee may make decisions for and regarding a bankruptcy estate. Directors and shareholders no longer have access to the business assets. A bankruptcy trustee is appointed by the court and is given full decision-making powers over business operations and assets whilst winding up the company. Depending on the legal form of a company, bankruptcy can also mean seizure of the private assets of directors or entrepreneurs.
Bankruptcy estate sale by the bankruptcy trustee
In the event of bankruptcy, a bankruptcy trustee sells the bankruptcy estate of a company or organization. The outstanding claims of creditors are settled with the proceeds of the bankruptcy estate sale. Those creditors have different rankings in priority. A bankruptcy trustee also investigates the options for an overall sale of the company. After costs have been paid, the proceeds of the sale are then divided among the creditors based on the ranking of creditors. Usually, the bankruptcy trustee will auction the assets. The bankruptcy trustee can also proceed to a private sale of assets. For this, a bankruptcy trustee needs permission from the examining magistrate. A private sale in the event of bankruptcy only takes place if the proceeds of the sale are at least as high or if it yields other advantages compared to a public sale, such as job retention.
Bankruptcy sale: bid book
Before a bankruptcy trustee proceeds to a bankruptcy sale, the available assets are valued. All information about the bankruptcy estate of a company or organization is often summarized in an offer memorandum, or bid book. This information is shared with prospective buyers before the start of the execution sale. The bid book includes the entire bankruptcy estate, as well as the bidding protocol and conditions that buyers must meet.
Liquidation of stock and retention of title
Suppliers of goods can invoke retention of title or the right of retention towards the bankruptcy trustee. The right of retention provides creditors with legal grounds for retaining goods after performing work or providing services. Goods delivered by a supplier to the debtor may be subject to retention of title. This means that the goods remain the property of the supplier until the invoice has been paid in full. If outstanding claims have not been paid prior to the bankruptcy, a supplier can reclaim goods from the bankruptcy estate. Depending on the situation, the bankruptcy trustee can ignore this demand. When a company is declared bankrupt, the bankruptcy estate is ‘sealed up’. This means that assets may not be sold, traded or distributed by a bankrupt entrepreneur or director. The bankruptcy trustee has full control over the estate and distributes the proceeds from the sale and the collection of claims among the creditors.
Bankruptcy fraud and fraudulent conduct
In the event of bankruptcy, a bankruptcy trustee also investigates whether the entrepreneur or director(s) in question have acted fraudulently. When bankruptcy fraud, for example with regard to the bankruptcy estate, irregularities or fraudulent acts are detected, the curator is obliged to report this to the examining magistrate. Forms of bankruptcy fraud are:
- Fraudulent abstraction of assets: an entrepreneur or director withholds funds or goods. Examples include diverting company funds and removing assets unbeknown to the bankruptcy trustee.
- Culpable prejudice: a company intentionally enters into agreements without being able or willing to pay for them. Goods are resold, while claims from suppliers are not paid.
- Private sale: the sale of a company for a token amount, as part of which the buyer allows the company to go bankrupt. The buyer pays an entrepreneur privately for the company takeover and ensures that all items of value disappear from the company.
- Expedited liquidation: a quick dissolution of a legal entity, without a formal liquidation phase. Prior to the liquidation of the company, items of value are withdrawn from the company.
- Straw man: an entrepreneur who is liable for the debts of a company with his private assets appoints a straw man just before the bankruptcy. These are often persons without assets, who are registered as directors, owners or shareholders.
A bankrupt debtor? Know your options
Are you dealing with the bankruptcy of a debtor or want to file a bankruptcy petition against a debtor? If so, then of course you want to claim your property or outstanding claims from the bankruptcy estate, at all costs. The specialists at Fruytier Lawyers in Business will be happy to defend your interests. We will explore your rights and options within the possibilities of bankruptcy law and the bankruptcy proceedings. Our lawyers are regularly appointed as bankruptcy trustees and can therefore provide you with thorough and targeted advice and guidance. Feel free to contact us now. You are not committed to anything.