When your contract partner goes bankrupt: your options as a creditor

When your contract partner goes bankrupt in the Netherlands, you stop being a supplier or a customer and become a creditor in a statutory liquidation. From the day the court declares the bankruptcy, the company loses control of its assets, a court-appointed trustee (curator) takes over, and your claim can only be pursued by filing it with that trustee. What you recover depends almost entirely on rights you secured in advance: retention of title, a pledge, a guarantee or a set-off position. This article explains what happens, what the Faillissementswet (Bankruptcy Act) allows you to do, and in what order to do it.

What happens the moment your contract partner goes bankrupt

A Dutch bankruptcy takes effect from the start of the day on which the court pronounces it. From that moment the debtor loses the power to manage and dispose of the assets that form the estate, and a trustee appointed by the court takes that power over under the supervision of a supervisory judge (rechter-commissaris). Anything the former management promises you afterwards is, in principle, not binding on the estate. That single fact reorganises your entire position: the people you have been dealing with for years no longer have the authority to solve your problem.

Two further consequences follow immediately. Attachments you may have levied lapse and enforcement against the debtor comes to an end, and court proceedings you had already started to obtain payment are stayed. A claim for payment can from then on only be brought by submitting it to the trustee for verification. In other words, suing the company is no longer an option; filing is.

Stop performing and stop paying

The first thing to do is to stop the outflow. Do not ship the next consignment, do not start the next phase of the project, and do not pay invoices you still owe. This is not obstruction; it is the only way to keep your exposure from growing. Every euro of goods or services you deliver after the bankruptcy date without a clear arrangement with the trustee is money you are lending to an insolvent estate, and every euro you pay away is money you can no longer use for set-off.

There is one important exception. If the trustee asks you to keep supplying because he needs your goods or services to continue or wind down the business, obligations he takes on in that capacity are estate debts (boedelschulden), which rank ahead of ordinary creditors. Do not rely on a verbal request: confirm in writing that you are supplying at the trustee's instruction and on the trustee's account, and agree payment terms before you deliver.

Find out who the trustee is and what stage the file is at

Bankruptcies are published in the Centraal Insolventieregister kept by the judiciary and in the Handelsregister at the Chamber of Commerce. Those registers give you the date of the judgment, the name of the trustee and the court involved. The trustee's duty runs to the general body of creditors rather than to you personally, so nothing will happen in your file unless you put it there. Write early, write clearly, and keep every message short enough to be acted on.

Secure the file before anyone needs it

Your contract, your general terms and conditions, your order confirmations, your delivery notes and your correspondence are the evidence on which the trustee will admit or reject your claim. Two documents deserve particular attention. The first is proof that your general terms and conditions were actually agreed and handed over before or at the time of contracting, because a retention of title clause that sits only in unincorporated terms is worth nothing. The second is proof of delivery, because a retention of title claim fails if you cannot show which goods on the premises are yours.

Which contract clauses actually help you

Once the immediate bleeding has stopped, the contract decides how much of your money is still reachable. Read it with one question in mind: does anything in this agreement give me a right against a specific asset or a specific person, rather than a right to be paid out of a shared pot? That distinction is the whole game. A general claim for payment puts you in line behind the tax authorities and the secured lenders. A right in an asset, or a right against a solvent third party, takes you out of the line altogether.

Four types of clause do real work in an insolvency. A retention of title clause (eigendomsvoorbehoud) keeps ownership of delivered goods with you until payment; Dutch law treats a sale subject to such a clause as a transfer under a suspensive condition, which is why the goods never fully entered the estate. A right of pledge (pandrecht) or mortgage (hypotheek) makes you a secured creditor who may enforce as though there were no bankruptcy at all. A guarantee or suretyship (borgtocht) from a parent company or a director creates a separate contract with a party who is not bankrupt. And an insolvency termination clause lets you end the agreement without becoming liable for doing so.

That last category needs a caveat. Clauses that terminate an agreement on bankruptcy are common and are as a rule accepted, but they cannot be used to strip the estate of value that ought to be shared among all creditors, and a court will look critically at a clause whose only real effect is to prefer one creditor. Treat an insolvency clause as a way to stop your own obligations, not as a shortcut to payment.

Where you rank, and why it matters more than the size of your claim

Dutch law starts from the principle that creditors are paid in proportion to their claims unless the law gives one of them priority. Almost every recovery question comes down to which of the following boxes you are in.

Many Dutch bankruptcies are closed for lack of assets, which means the ordinary creditors receive nothing at all and the trustee files a simplified account. That is not a reason to do nothing, but it is a reason to spend your effort on the routes that bypass the queue rather than on polishing an unsecured claim. Our guide to bankruptcy in the Netherlands for entrepreneurs and creditors sets out how the procedure as a whole is run.

Filing your claim and dealing with the trustee

Filing is the formal step that turns your invoice into a claim the trustee has to deal with. You submit the claim in writing to the trustee, who places it on the list of provisionally admitted or disputed claims. If the estate holds enough assets to pay something to ordinary creditors, the supervisory judge sets a date for a verification meeting (verificatievergadering) at which claims are finally admitted or contested. If it does not, the bankruptcy is wound up in simplified form and no meeting takes place.

Send more than a figure. A usable filing consists of a covering letter stating the principal sum, the contractual interest and the collection costs claimed, the underlying contract and any addenda, the general terms and conditions with proof that they were provided, every unpaid invoice, and proof of delivery or completion. State expressly in the same letter whether you invoke retention of title, a right of pledge, a right of retention or set-off. A trustee who is told about a right in month one will usually be able to respect it; a trustee who hears about it after the goods have been sold cannot.

What the trustee may do with a contract that is still running

Bankruptcy does not automatically terminate contracts. Where neither side has fully performed a reciprocal agreement, the Bankruptcy Act gives the trustee a choice and gives you a way to force that choice: you may set the trustee a reasonable deadline to declare whether he will perform. If he declares that he will, he must provide security for performance. If he lets the deadline pass, he loses the right to demand performance from you, and you are free to treat the contract as ended and to claim damages. That damages claim ranks as an ordinary claim, but the certainty is worth having, because an unanswered contract can block your own planning for months.

Some contracts have their own statutory regime. A lease may be terminated by either the trustee or the landlord with a notice period that is capped by statute, and rent falling due after the bankruptcy date is an estate debt. Employment contracts may be terminated by the trustee with a shortened notice period, and wages from the bankruptcy date onwards are likewise estate debts. If your relationship with the bankrupt company is one of these, the general rules on reciprocal contracts are not the ones that apply.

If the trustee gets it wrong

A trustee is not a judge and does not always accept a well-founded position. If you disagree with a decision or with the way the estate is being handled, you can ask the supervisory judge to give the trustee an order, by lodging a reasoned request. Disputed claims that cannot be resolved are referred to a separate court procedure (renvooiprocedure) following the verification meeting. Both routes are real, but both cost time and money, so they are worth using for a right in an asset and rarely worth using for a modest unsecured claim.

Getting your goods or your money back

Three mechanisms recover real money in practice. None of them works by itself; each has to be invoked, and each has conditions that are checked strictly.

Invoking retention of title

A retention of title clause is only useful if three things line up: the clause was validly agreed before delivery, the goods you supplied are still present and identifiable, and the invoices for those particular goods are unpaid. Notify the trustee in writing that you invoke the clause, list the goods with the matching invoices and delivery notes, and offer to attend an inspection. Expect resistance where goods have been mixed with identical stock from other suppliers, processed into something else or resold to a buyer acting in good faith; in those situations ownership is often lost and only an extended clause, drafted for exactly that risk, still helps. The mechanics are set out in more detail in our article on retention of title in the Netherlands.

Using set-off

Set-off (verrekening) is the most under-used tool available to creditors. The Bankruptcy Act allows a creditor who is also a debtor of the bankrupt estate to set the two off against each other, provided both positions arose before the bankruptcy or flow from dealings with the debtor from before that date. The effect is that you pay nothing and file only for the balance, which converts an uncertain pro rata claim into a certainty for that part. There are limits: you cannot buy or take over a claim from someone else shortly before the bankruptcy in order to create a set-off position, and a trustee will test the timing of anything that looks constructed. This is the practical reason for the earlier advice to freeze outgoing payments the moment you hear of the bankruptcy.

Enforcing a guarantee or holding a director liable

A guarantee or suretyship given by a parent company or a director is a contract with a party who is not in bankruptcy, so you enforce it in the ordinary way and the estate is irrelevant. This is the single most effective protection you can negotiate before trouble starts, and it is worth asking for on any long-term or high-value agreement.

Holding a director personally liable is a different and much harder route. Where a company is bankrupt, the claim for manifestly improper management belongs to the trustee, not to individual creditors, and the trustee has to show that the mismanagement was an important cause of the bankruptcy. A creditor may still bring a claim in tort against a director who entered into an obligation while knowing the company would not be able to meet it, but that requires proof of what the director knew at the time. Neither route is a substitute for security agreed in advance.

The mistakes that cost creditors the most

The errors we see repeated are rarely exotic. They are ordinary commercial reflexes applied at the wrong moment.

The first is continuing to perform out of loyalty or in the hope of being paid for the whole file at the end. It never works that way: performance delivered after the bankruptcy date without an arrangement with the trustee simply enlarges an unsecured claim. The second is paying an outstanding invoice after hearing of the bankruptcy, which destroys a set-off position that was worth its full nominal value. The third is silence: creditors who assume the trustee will find their retention of title in the file, and who write only once the stock has been sold.

There is also a risk running in the opposite direction that few creditors anticipate. A trustee may reverse transactions carried out shortly before the bankruptcy that disadvantaged the general body of creditors. Voluntary acts that the debtor was not obliged to perform can be set aside where both parties knew that creditors would be prejudiced, and even the payment of a debt that was due can be reversed where the payment was the result of collusion or was made after the creditor knew a bankruptcy petition had been filed. If your partner suddenly paid an old invoice, gave you extra security or transferred an asset to you while the business was visibly failing, expect the trustee to ask about it and keep the correspondence that shows what you knew and when.

Finally, do not confuse bankruptcy with the routes that come before it. A struggling counterparty may propose a restructuring plan under the Dutch scheme legislation, which can bind dissenting creditors once a court confirms it, or may simply be behind on payments and still perfectly solvent. Each situation calls for a different response, and the strategy for pressing an unpaid invoice before insolvency is a separate exercise, described in our guide to debt collection in the Netherlands.

Reducing the risk in your next contract

The lasting lesson from a partner's bankruptcy is that recovery is decided at the drafting table, not at the verification meeting. Two things deserve attention: who you contract with, and on what terms.

On the first point, a proportionate check before signing a significant agreement pays for itself. Filed annual accounts, a credit report, the payment behaviour reported by other suppliers and any published judgments or registrations against the company will usually reveal a deteriorating position long before a petition is filed. Where the counterparty is a newly incorporated entity within a larger group, ask which entity actually carries the assets, and contract with that one or ask the parent to guarantee.

On the second point, four clauses do most of the work. A properly incorporated and, where the goods allow it, extended retention of title clause. A security right over the assets you are financing in effect. A guarantee from a parent company or a director for long-term or high-value commitments. And a payment structure with advances or milestones, so that the amount outstanding at any moment is an amount you can afford to lose. None of this is unusual to ask for, and a counterparty that objects to all four is telling you something useful about its own view of its finances. The procedural background to all of this is set out in The Bankruptcy Act and its procedures.

How long it takes and what you will hear

A Dutch bankruptcy is not a fast procedure and creditors are informed at intervals rather than continuously. After the judgment the trustee takes stock of the assets and liabilities, investigates the causes of the failure and the conduct of the directors, and reports publicly on progress; those reports are filed in the central insolvency register and are the most reliable source of information you will get. Where assets are realised and enough remains for ordinary creditors, the supervisory judge sets the verification meeting, after which a distribution list is drawn up, made available for inspection and, once it has become final, paid out. Where nothing remains, the court lifts the bankruptcy for lack of assets and the file simply closes.

Plan on months rather than weeks for anything involving realisation of assets, and considerably longer where there is litigation about a security right or about the directors. The exception is the retention of title claim: goods disappear quickly, so that is the one right you should assert in the first days rather than the first quarter. Practical answers to the questions creditors ask at each of these stages are collected in our overview of Dutch insolvency law.

One financial point falls outside the insolvency file itself. Where an invoice will demonstrably not be paid, the VAT you have already remitted on it can in principle be recovered through your VAT return. The conditions and the timing are a tax matter rather than a legal one, so raise it with your tax adviser at the same time as you file your claim; it is frequently the only part of the loss that is actually recovered.

When the bankruptcy is in another EU country

Cross-border failures follow their own rules. Within the European Union, insolvency proceedings are governed by the EU Insolvency Regulation, under which main proceedings are opened in the member state where the debtor has its centre of main interests, normally the place of its registered office unless the facts point elsewhere. Those proceedings are recognised automatically in every other member state, including the Netherlands, and the law of the state in which they were opened determines the effects of the insolvency, the ranking of claims and how the estate is administered.

Two consequences matter for creditors. First, the filing rules, deadlines and creditor rankings are those of the foreign procedure, not the Dutch ones, and a claim filed too late in a foreign register is not saved by Dutch law. Second, secondary proceedings may be opened in a member state where the debtor has an establishment, which can be relevant if the assets you are interested in are located here. Rights in rem over assets situated in another member state are, as a rule, unaffected by the opening of main proceedings elsewhere, which is exactly why a security right or a valid retention of title is worth more in a cross-border insolvency than any contractual promise.

Common questions when a contract partner goes bankrupt

What Law and More can do for you

Law and More advises suppliers, customers and lenders whose contract partner goes bankrupt, from the first letter to the trustee through to the verification of the claim and, where necessary, proceedings before the supervisory judge. We assess in a single review whether you hold a right in an asset, whether set-off is available, whether a guarantee can be enforced and whether the estate owes you as an estate creditor, and we draft the contractual protection that makes the next insolvency a manageable one. If your counterparty has been declared bankrupt or you fear it is about to be, our bankruptcy lawyers in the Netherlands are available to discuss your position.