Bankruptcy in the Netherlands: a guide for entrepreneurs and creditors

The bankruptcy procedure Netherlands courts apply is set out in the Bankruptcy Act (Faillissementswet, Fw). A Dutch court declares a debtor bankrupt if the debtor has stopped paying, has at least one debt that is due and payable and has more than one creditor. The declaration puts the whole of the debtor’s assets under the control of a court-appointed trustee (curator), supervised by a supervisory judge (rechter-commissaris), who liquidates those assets and distributes the proceeds among the creditors in the order the law prescribes.

Bankruptcy is a liquidation procedure, not a rescue procedure. Anyone whose aim is to keep the business alive should be looking at the alternatives further down this page, because the moment the judgment is given the entrepreneur loses control of the company and the trustee takes over. That is why the timing of the decision matters far more than the paperwork that follows it.

This guide explains the statutory test, how a petition is filed and decided, what the trustee does, where each category of creditor ranks, what happens to employees and contracts, when a director can be held personally liable, and what a creditor should do to protect its position.

When a court declares a bankruptcy

Article 1 of the Bankruptcy Act sets a single test: the debtor must be in the position of having ceased to pay (opgehouden te betalen). Case law fills that in with two requirements that a petitioning creditor has to make plausible. There must be a claim that is due and payable, and there must be at least one other creditor, the requirement known as plurality of creditors. A debtor that is simply refusing to pay one disputed invoice is not bankrupt; a debtor that has several creditors it cannot satisfy is.

Insolvency in the accounting sense, meaning that liabilities exceed assets, is not the test. A company with a healthy balance sheet but no liquidity can be declared bankrupt, and a company with negative equity that still pays its suppliers cannot. What the court examines is the payment behaviour, and it does so on the state of affairs at the moment of the hearing.

The procedure applies to natural persons and to legal entities, and the consequences differ sharply between them. When a legal entity is wound up in bankruptcy and the estate is exhausted, the entity ceases to exist and the unpaid debts disappear with it. When a natural person is declared bankrupt, the unpaid part of each debt remains enforceable after the bankruptcy ends: a bankruptcy gives no clean slate. Only the statutory debt restructuring scheme for natural persons, the Wsnp, can produce one.

Bankruptcy, suspension of payments, WHOA and Wsnp compared

Dutch insolvency law offers four routes, and choosing the wrong one, or choosing too late, is the most expensive mistake in this field. Bankruptcy liquidates. Suspension of payments (surseance van betaling) buys time. The WHOA restructures debts without insolvency. The Wsnp discharges the debts of a natural person.

The WHOA, formally the Act on the Confirmation of Private Composition Agreements, is the instrument most often overlooked. It allows a company that is heading for insolvency but still has a viable operation to impose a composition on unwilling creditors and even on shareholders, provided the statutory safeguards are met. It works only while there is still something to restructure, which in practice means months before a bankruptcy petition would be filed. Our article on the WHOA scheme explained sets out the procedure, and suspension of payments is covered separately.

Costs and duration vary too widely between cases to be usefully summarised. A small bankruptcy with no assets is closed within months for want of assets; a group insolvency with foreign subsidiaries runs for years. What can be said is that the trustee’s remuneration is fixed by the supervisory judge and paid out of the estate before the creditors receive anything, and that the fees of a WHOA restructuring are borne by the company and can be substantial. Any figure quoted in advance is a guess.

How a bankruptcy petition is filed and decided

Three routes lead to a declaration of bankruptcy. The debtor can file its own declaration (eigen aangifte), a creditor can petition the court, and the public prosecution service can apply on grounds of public interest. Jurisdiction lies with the district court of the debtor’s place of business or residence.

Filing your own bankruptcy is deliberately made easy. A natural person or the board of a legal entity can file the declaration without a lawyer, using the court’s own form, and no court fee is charged for that procedure. What the court needs is a complete picture: a recent statement of assets and liabilities, a list of all creditors with amounts and addresses, an overview of assets and their realistic value, recent bank statements, and the employment contracts of any staff. An incomplete filing costs weeks, and weeks matter when payroll is due.

A creditor’s petition works differently. It must be filed by a Dutch lawyer (advocaat), it does attract a court fee, and the creditor has to make plausible both its own claim and the plurality of creditors, usually by naming a supporting creditor whose claim is also unpaid. The threshold is not a fixed sum: there is no statutory minimum amount for the claim, and the argument about a modest claim is fought over the summary nature of the proceedings rather than over a figure.

The hearing takes place in chambers, usually within a few weeks, and it is short. The debtor can appear and explain why the test is not met, why the claim is genuinely disputed, or why suspension of payments should be granted instead, which the court may do on the debtor’s request. It is also possible, and often sensible, to put a position in writing before the hearing. A debtor who pays or secures the petitioning claim before judgment normally removes the basis for the petition. The court gives its decision immediately after the hearing or shortly afterwards, appoints the trustee and the supervisory judge in the same judgment, and the bankruptcy is entered in the Central Insolvency Register, which is public.

From that moment the debtor loses the power to administer and dispose of the estate. Individual enforcement by creditors stops, attachments lapse, and pending proceedings about claims that have to be verified are suspended. Appeal against a declaration of bankruptcy is possible, but the periods are short and the judgment is provisionally enforceable in the meantime.

The trustee, the estate and the order of distribution

The trustee is charged by the Bankruptcy Act with administering and liquidating the estate in the interest of the joint creditors, under the supervision of the supervisory judge. The trustee takes possession of the books and records, secures the assets, decides whether to continue the business temporarily, collects the outstanding receivables, sells what can be sold, and reports publicly at regular intervals. The trustee is not the debtor’s adviser and not any individual creditor’s representative, a distinction that surprises entrepreneurs and creditors alike.

Two of the trustee’s powers deserve particular attention. The first is the avoidance action (faillissementspauliana): legal acts performed before the bankruptcy that prejudiced the creditors can be set aside, and the burden of proof is reversed for acts performed with related parties within a year before the bankruptcy. Transferring assets to a friendly buyer shortly before the filing is the single most common way for a director to turn a bad situation into a personal liability. The second is the trustee’s investigation into the conduct of the board, which is where directors’ liability claims come from.

Creditors submit their claims to the trustee rather than to the court. Claims are verified against the records and, if disputed, they are dealt with at the verification meeting or in separate proceedings that follow from it. In a large proportion of Dutch bankruptcies no verification meeting is ever held, because the estate turns out to have too little in it and the bankruptcy is closed for want of assets. Filing a claim remains worthwhile: it costs little, and it is the only way to share in a distribution if one is made.

The order in which money leaves the estate follows the law, not negotiation. Secured creditors holding a right of pledge or mortgage stand outside the bankruptcy and may enforce their security as if there were no bankruptcy, subject to the trustee’s power to set them a reasonable period. What remains is applied first to the estate debts (boedelschulden), which include the trustee’s remuneration and obligations the trustee itself incurs, then to preferential claims, among which the tax authority and employee claims rank prominently, and only then to the ordinary unsecured creditors, who share pro rata. Ordinary creditors of an insolvent estate frequently receive nothing at all.

What happens to employees

Employment contracts do not end automatically when a bankruptcy is declared. The trustee may terminate them with the notice period the Bankruptcy Act allows, which is shorter than the ordinary notice period, and needs no permission from the UWV or the court. In practice the trustee gives notice within days, but until then the contracts continue and the wages become estate debts.

Employees are protected by the wage guarantee scheme operated by the UWV. It takes over unpaid wages for a limited period before the termination date, the wages during the notice period, and holiday pay and holiday allowance within statutory limits. Employees apply to the UWV directly, usually at an information meeting the trustee organises. What the scheme does not cover is a transition payment on dismissal by the trustee, and it does not cover claims that fall outside the statutory periods.

A restart out of bankruptcy

A restart (doorstart) is a sale by the trustee of the viable parts of the business, often inventory, contracts, customer base and goodwill, to a new company. It is not a way of shaking off debts: the buyer acquires assets, and the old liabilities stay with the estate. The trustee is bound to obtain the best achievable price for the creditors, which means a former director who wants to buy back the business will be tested against competing offers and will have to pay a market price.

Employees have no automatic right to transfer with the business in a genuine bankruptcy, because the rules on transfer of undertaking are largely disapplied. The buyer chooses whom to take on and on what terms, within the limits of equal treatment law. Where the sale is arranged before the bankruptcy in a pre-pack, the position is less settled and specific advice is needed. Our article on a restart after bankruptcy deals with this route in detail.

Personal liability of directors after a bankruptcy

The limited liability of a BV protects the shareholder, not a director who has mismanaged the company. Under article 2:248 of the Dutch Civil Code each director is liable for the deficit in the estate if the board manifestly performed its duties improperly in the three years before the bankruptcy and that failure was an important cause of the bankruptcy. The trustee brings that claim on behalf of the joint creditors.

Two administrative failures make that claim far easier to bring. If the board did not keep proper records as article 2:10 BW requires, or did not file the annual accounts within the statutory period of article 2:394 BW, improper management is established by law and it is presumed to have caused the bankruptcy. The director then has to prove that another, external cause brought the company down, which is a genuinely difficult exercise. Late filings are therefore the first thing a trustee checks.

Alongside that, a director can be liable in tort under article 6:162 BW towards a specific creditor, typically for entering into obligations while knowing the company would not be able to perform them and would offer no recourse. Unpaid payroll tax, VAT and pension contributions carry their own regime: the board must notify the collector of the inability to pay in writing, in principle within two weeks of the tax becoming payable, and a late notification shifts the burden of proof onto the director. Personal guarantees given to a bank or landlord bind the person who signed them regardless of the bankruptcy. Our article on when a Dutch BV director is personally liable works these grounds out in full.

Filing for bankruptcy in time is itself a form of protection. A board that keeps trading while it knows the company cannot pay is accumulating exactly the exposure that article 2:248 BW and article 6:162 BW are designed to catch. There is no statutory duty to file at a fixed moment, but continuing to incur new debts once the position is hopeless is what turns a company failure into a personal claim.

The mistakes that cost the most

Acting too late is the first and by far the most damaging. Every alternative to bankruptcy needs something left to work with: a WHOA composition needs a viable business, suspension of payments needs a realistic prospect of recovery, and an informal arrangement needs creditors who still believe a payment is coming. All three disappear in the months during which an entrepreneur hopes the next quarter will be better.

The second is selective payment. Paying the supplier you need next week while leaving the tax authority and a former employee unpaid is understandable and dangerous: it invites both an avoidance action by the trustee and a personal claim, especially where the payment went to a party connected to the director. If money is short, take advice before deciding who gets paid, not afterwards.

The third is neglecting the formalities that create presumptions against you. Records that cannot be produced and accounts that were never filed convert a defensible business failure into a near-automatic liability. The fourth is assuming the BV form is a complete shield, when personal guarantees, tax liability and improper management all cut straight through it. The fifth is a filing so incomplete that the court cannot decide on it, which wastes the only weeks the debtor still had.

What creditors should do

A creditor’s recovery is largely decided before the bankruptcy, by the security it took at the start of the relationship. A retention of title clause, a pledge over receivables, a bank guarantee or a surety from the director all convert an ordinary claim into something worth having. General terms and conditions that were properly incorporated are what make those clauses enforceable against the trustee.

Once a counterparty is in difficulty, act quickly and formally. Suspend further deliveries rather than extending credit, invoke retention of title in writing and identify the goods, consider a conservatory attachment with the court’s leave before assets disappear, and check whether a parent company issued a declaration of liability for its subsidiary. After the declaration of bankruptcy, file the claim with the trustee with the underlying documents, state any preference or security relied on, and respond to the trustee’s requests promptly. The practical steps are set out in our article on the bankruptcy of your contract partner, and the position after a debt restructuring of a private individual in our overview of what you can still recover after a Wsnp clean slate.

Filing your own petition against a debtor is a collection instrument as well as an insolvency instrument, and it is sometimes the only thing that produces payment. It is also a blunt one: if the petition succeeds, the creditor joins the queue like everybody else. It is worth using where there is reason to believe assets are being moved, and worth avoiding where a payment arrangement is realistically available.

Frequently asked questions about bankruptcy

Can I start a new business after a bankruptcy?

Yes. Dutch law contains no general prohibition on incorporating or managing a new company after a bankruptcy. What can stand in the way is a personal liability that survives, an outstanding guarantee, or a civil-law director disqualification, which a court can impose for a limited period at the request of the trustee or the public prosecutor in cases of serious misconduct.

How long does a bankruptcy take?

There is no fixed term. A bankruptcy without assets can be closed within months; one with a going concern, disputed claims or a liability action against the board can run for years. The bankruptcy ends when the final distribution list becomes binding, when a composition is confirmed, or when the court closes it for want of assets.

Am I personally liable for the debts of my BV?

As a shareholder, in principle not. As a director, you can be, on the grounds set out above: manifestly improper management under article 2:248 BW, tort towards a specific creditor, unreported inability to pay taxes, or a personal guarantee you signed.

What happens to my employees?

Their contracts continue until the trustee gives notice, which the Bankruptcy Act allows on a shortened period. The UWV takes over unpaid wages, notice-period wages, holiday pay and holiday allowance within statutory limits.

Can a bankruptcy petition still be withdrawn?

A petitioning creditor can withdraw its petition until the court has ruled, and a debtor who has filed its own declaration can ask to withdraw it before judgment. Once the bankruptcy has been declared, the route is an appeal or, where the debtor can satisfy the creditors, a composition or an annulment on the statutory grounds.

What does a bankruptcy cost?

Filing your own declaration is free of court fees. A creditor’s petition attracts a court fee, set annually by the Ministry of Justice and Security and published by the judiciary, plus the cost of the lawyer who files it. The trustee’s remuneration is fixed by the supervisory judge and comes out of the estate ahead of the creditors.

Advice on bankruptcy and insolvency

The decisions that determine the outcome of an insolvency are almost always taken before the court is involved: whether to restructure or to file, which creditor to pay, what to document, and how quickly to react to a debtor that has gone quiet. Those decisions are far easier to defend afterwards when they were taken with advice.

Law and More advises entrepreneurs, directors and creditors on the whole of Dutch insolvency practice: assessing the alternatives to bankruptcy, preparing a WHOA composition or a suspension of payments, filing and defending bankruptcy petitions, negotiating a restart with the trustee, and defending or bringing directors’ liability claims. We act for Dutch and international clients and work in English. Please contact one of our insolvency lawyers to discuss your position, or read further in our corporate law guides.