Dutch Bankruptcy Act: bankruptcy, suspension and debt restructuring

The Dutch Bankruptcy Act (Faillissementswet, Fw) contains four insolvency routes. Bankruptcy (faillissement) is a general attachment on all of the debtor’s assets for all creditors: a trustee (curator) realises the estate and distributes the proceeds according to rank. Suspension of payments (surseance van betaling) gives a viable company a temporary moratorium, the statutory debt restructuring scheme (Wsnp) gives individuals a clean slate, and since 1 January 2021 a business can also restructure outside bankruptcy through a court-confirmed composition (WHOA).

A court declares a debtor bankrupt when the debtor has ceased to pay (Article 1 Fw). Case law requires at least two creditors, at least one of whom has a claim that is due and payable. That threshold is lower than most debtors expect: a single determined creditor with a second claim behind it is enough.

What does bankruptcy mean for you and your creditors?

Bankruptcy is a collective procedure: all of the debtor’s assets are attached at once for the benefit of all creditors. Outside bankruptcy, each creditor recovers its own claim under the Code of Civil Procedure (Rv), and the fastest creditor is paid first.

What happens once the bankruptcy is declared?

From the day of the declaration, the debtor loses the power to dispose of and manage the assets of the estate by operation of law (Article 23 Fw). Enforcement measures that started before the bankruptcy end at once and attachments lapse (Article 33 Fw).

How do creditors get paid?

Creditors can only recover their claims by submitting them for verification (Article 26 Fw). The court appoints a trustee who manages and liquidates the estate for the joint creditors (Article 68 Fw). At the end the trustee distributes the proceeds by rank, so secured and preferential creditors stand stronger than ordinary unsecured creditors.

When can you apply for a suspension of payments?

When you foresee that you will not be able to continue paying your debts as they fall due (Article 214 Fw). The procedure is meant for a debtor who has not yet stopped paying, and it aims to preserve the assets rather than distribute them.

Once the court grants the suspension, the debtor cannot be forced to pay the claims that fall under it. Enforcement is suspended and existing attachments lapse, which gives room to reorganise or reach an arrangement with creditors.

Why does a suspension of payments often fail?

Because it does not bind every creditor. Creditors with a right of pledge, a mortgage or a right of retention, and creditors with a preferential claim on specific assets, can still enforce. An application often prompts exactly these creditors to take back their collateral, and a suspension of payments regularly ends in bankruptcy after all.

How does debt restructuring work for individuals?

The statutory debt restructuring scheme (schuldsaneringsregeling natuurlijke personen, Wsnp) resembles bankruptcy but ends with a fresh start. A bankrupt company is usually dissolved, so creditors have no debtor left to pursue; without the scheme, creditors could pursue a private person for life.

During the scheme the debtor must generate as much income as possible, and that income and the assets largely go to the creditors. After a successful conclusion the remaining debts become natural obligations (Article 358 Fw), which creditors can no longer enforce through the courts.

Why is good faith so important?

The court only admits a debtor who acted in good faith in the five years before the request, as regards how the debts arose or were left unpaid. If the debtor does not act in good faith during the scheme, the court can terminate it early (Article 350 paragraph 3 Fw), and good faith is also a condition for the clean slate at the end.

Is there an option for businesses outside bankruptcy?

Yes. Since 1 January 2021 a business facing insolvency can offer its creditors and shareholders a composition under the Act on Court Confirmation of Extrajudicial Restructuring Plans (Wet homologatie onderhands akkoord, WHOA). Once the court confirms it, the composition also binds creditors who voted against it. Whether the WHOA, a suspension of payments or another route suits your business depends on your creditors, your security arrangements and your cash position.

What should you check as a creditor?

Your position in an insolvency depends on your security and on acting in time.

• Check whether you hold a right of pledge, mortgage or retention title, or a preferential claim.
• Check whether a second creditor exists if you consider a bankruptcy petition under Article 1 Fw.
• Submit your claim to the trustee for verification under Article 26 Fw, with supporting documents.
• Note that attachments you made lapse on bankruptcy or suspension.
• In a WHOA procedure, check your class and vote on the composition.

What should you check as a debtor?

The earlier you act, the more routes remain open.

• Check whether you can still pay your due debts, or foresee that you cannot (Article 214 Fw).
• List your secured creditors: they can enforce in a suspension of payments.
• Assess whether a WHOA composition is realistic before creditors file for bankruptcy.
• As an individual, check the good-faith requirement for the five years before a Wsnp request.
• Keep complete records: the trustee will examine them.

What can we do for you with insolvency?

Our work for businesses is described on our corporate lawyer page; in insolvency matters:

• We file or defend against a bankruptcy petition with the district court.
• We submit and substantiate your claim to the trustee.
• We assess which route, suspension of payments or WHOA composition, fits your business.
• We advise directors on their position towards the trustee.

Summary

• Bankruptcy is a collective attachment on all of the debtor’s assets; a trustee liquidates the estate, and creditors claim only through verification.
• A debtor can be declared bankrupt once he or she has ceased to pay; in practice two creditors, one with a due claim, are enough.
• A suspension of payments pauses payment obligations towards unsecured creditors, but secured and preferential creditors can still enforce.
• The debt restructuring scheme is open only to individuals acting in good faith and can end in a clean slate.
• Businesses can restructure outside bankruptcy through a court-confirmed WHOA composition.

Frequently asked questions