Understanding Bankruptcy

A company may have to deal with customers or clients who go bankrupt. Bankruptcy is a form of attachment of the entire assets of the bankrupt for the benefit of the joint creditors. It is a collective recovery procedure in which individual attachments will lapse. If a company is a legal person or a natural person can no longer meet its payment obligations, the court can declare bankruptcy.

From that moment on, the company or company loses control over its assets. A private person who goes bankrupt will still have access to a minimum monthly amount for living expenses and several things considered to be necessities (clothing, furniture, etc.). Any amounts received to pay maintenance contributions are also excluded from the bankruptcy. Salary received during bankruptcy may be spent up to a certain amount at its discretion.

The court appoints a trustee in bankruptcy and a supervisory judge to settle the bankrupt estate. The trustee will then map out the debtor’s assets and secure them (if necessary). He will then cash in on the investments and distribute the proceeds among the bankrupt creditors. The appointed examining magistrate is charged with supervising the trustee. 

Bankruptcy Criteria

Bankruptcy is not simply pronounced; you must meet several requirements before the judge takes this step. Firstly, at the time of the application, the creditor must demonstrate that he has a claim against the debtor concerned, i.e., against the company. It must also be clear from facts and circumstances that the company does not (any longer) fulfill its payment obligations. It is irrelevant here whether the company is unable or unwilling to pay; the fact that he does not pay is enough. There must also be a plurality of creditors at the time of the application, which means that the company has an outstanding debt with at least two parties. However, only one of these creditors must have a due and payable claim. A claim is due and payable when the agreed payment term has expired.

During the court hearing, the debtor can still demonstrate that he does pay his debts. If this defense succeeds, the court will not declare bankruptcy. If the bankruptcy is pronounced, it can be appealed against this decision within eight days.

Liquidation of the Bankruptcy

In the Netherlands, many bankruptcies end due to a ‘liquidation due to lack of income.’ It occurs when the bankrupt has so little capital that it is impossible to pay the bankruptcy costs, the salary of the trustee, and the costs of advertisements and debts of the estate. The bankruptcy trustee then proposes to the court to close the bankruptcy for lack of income. 

Debt Verification

If enough assets are found in the bankrupt’s estate, you will verify the debts. In this phase, the bankruptcy trustee checks whether the creditors’ claims are correct. This verification happens on the premises of the available administration and the bankrupt statements. Creditors reported to the trustee in bankruptcy are invited to the verification meeting. If the company disputes its claims, it will have the opportunity at that time to explain and substantiate its claims. If successful, the claim is recognized.   

Agree

In the case of a person’s business, the debtor sometimes tries to reach an agreement whereby he offers to repay part of his debts in exchange for total cancellation. Suppose at least two-thirds of the unsecured creditors (together representing at least 75% of the debts) vote in favor of the composition at the meeting. In that case, the design is submitted to the court. Finally, the court checks whether the agreement has happened correctly. In the act of the bankruptcy of a BV, in most cases, the BV will be liquidated.

State of Insolvency

The bankrupt can only offer a plan once during his bankruptcy. If the bankrupt does not provide an arrangement or the arrangement is not accepted, the state of insolvency will enter. In that case, the trustee will proceed with the bankruptcy settlement. The estate is sold, and the proceeds are divided among the creditors. A ranking of creditors applies here. For example, the mortgagee and the tax authorities have preferential claims, which means they are quickly dealt with when dividing the proceeds. In practice, unsecured creditors (‘normal’ creditors without preferential claim) often see little or nothing of their claim.

Distribution List

The trustee draws up a so-called distribution list. This list contains information about the income and expenses in the bankruptcy, the creditors and the number of their claims, and the amount you will pay to the creditors. If the creditors agree to the distribution list, the bankruptcy ends. Creditors have ten days to object to the list. After this period, the distribution list becomes binding, and the bankruptcy ends. If the bankruptcy ends this way, the bankrupt is left with debts. The total waiver only occurs if the bankruptcy ends because an agreement is reached with the creditors (approved by the court).