Restart

Restart

If an organization is at risk of bankruptcy, the decision may be made to initiate a restart. After the bankruptcy has been declared by the court, the assets offered by the trustee can be sold. The assets are then purchased before the trustee proceeds to liquidate the estate. In most cases, selling the entirety of the assets to a single party yields more than selling the assets in separate parts. Consequently, the trustee will often accept a good offer. To effect a restart, a restart plan must be drawn up. This plan includes a reasoned offer regarding the assets required for the business operations of the new legal entity. Our legal experts and lawyers provide the necessary legal support for executing a restart.

Do you have questions about making a restart? Please contact us.

Restart as part of insolvency law

A restart is pre-eminently an instrument of Insolvency Law. Whereas a reorganization or a creditors' agreement aims to save a company within the same legal entity, a restart revolves around continuing the viable parts in a new legal entity. The debts remain in the bankrupt estate and are settled by the trustee. It is precisely this dividing line that makes a restart legally sensitive: the Bankruptcy Act (Fw) and the rules regarding directors' liability and the <i>pauliana</i> action determine the rules of the game. Our lawyers and in-house counsel advise both the international group wishing to spin off an operating company and the baker on the corner wanting to continue his business in a streamlined form.

The asset transaction: what are you actually buying?

A restart after bankruptcy typically takes place via an asset transaction (asset deal). You purchase from the bankruptcy trustee the assets you need for business operations: stock, inventory, intellectual property rights, the customer base, trade name, current orders, and goodwill. Crucially, only the assets are transferred; debts, current obligations, and liabilities generally remain with the bankrupt legal entity. Therefore, you are not purchasing the shares, but selected components. The added value often lies not in the physical assets but in the intangible value: the customer base, current contracts, trademark rights, and goodwill. A careful valuation and a clear purchase agreement prevent later disputes with the trustee or with third parties who believe they have rights to specific assets (think of supplier retention of title or bank pledges).

Personnel and the transfer of undertaking

An important advantage of a restart from bankruptcy is that the rules regarding the transfer of undertakings (Article 7:663 of the Dutch Civil Code) do not, in principle, apply. In a standard business acquisition, all employees automatically transfer while retaining their terms and conditions of employment; in a restart from bankruptcy, the acquiring party may, in principle, select which personnel to take over. This makes a streamlined, viable restart possible. Please note: this exception applies only to a genuine bankruptcy aimed at liquidation. If the bankruptcy is used solely as a construct to get rid of personnel, the exception may lapse. The European Court of Justice ruled in the Smallsteps judgment (2017) that in the case of a pre-pack that is in reality aimed at continuation rather than liquidation, the employee protection provisions regarding the transfer of undertakings may still apply. A misjudgment could mean that you unintentionally take over the entire workforce with all its terms and conditions of employment. Our employment law specialists and insolvency lawyers assess this risk in advance.

Pre-pack and the silent administrator

In a pre-pack, a restart is prepared prior to the declaration of bankruptcy. The entrepreneur requests the court to appoint a prospective trustee (the so-called silent administrator), who can assess the proposed restart in secrecy. The advantage is speed: the asset transaction can be completed immediately after the declaration of bankruptcy, ensuring that customers, suppliers, and value are preserved. However, the legal status of the pre-pack is not yet legally enshrined in the Netherlands; courts handle it differently, and statutory regulation (as part of the Bankruptcy Act) is not expected until the long term. Partly due to the Smallsteps ruling, a pre-pack effectively aimed at continuation poses a risk to the position of employees. We assess on a case-by-case basis whether a pre-pack route is advisable or whether a regular restart after bankruptcy is preferable.

Pauliana and directors' liability in a business restart

A business restart is under close scrutiny because the bankruptcy trustee represents the interests of the collective creditors. If assets are sold to a party affiliated with the entrepreneur at an excessively low price, the trustee may challenge the transaction on the grounds of the <i>faillissementspauliana</i> (Article 42 of the Bankruptcy Act) due to prejudice to creditors. Furthermore, directors' liability looms for a director who initiates the restart too early or negligently. In bankruptcy, the trustee can hold the director liable on the grounds of manifestly improper management (Article 2:248 of the Dutch Civil Code), for example, if creditors have been paid deliberately and selectively or value has been withdrawn from the bankruptcy estate. In addition, the Beklamel standard applies: a director who enters into obligations on behalf of the company while knowing or ought to know that the company cannot fulfill them may be held personally liable (see also our page on directors' liability). A market-based, transparent price and a well-documented restart process are therefore essential.

The restart process step by step

A restart requires speed as well as care. Generally, you go through the following steps: (1) assessing viability and determining which parts will be retained; (2) drafting a substantiated restart plan with a reasoned offer; (3) arranging financing for the purchase price; (4) negotiating with the bankruptcy trustee regarding price and terms; (5) selecting contracts, suppliers, and customers to be acquired; (6) personnel decisions and alignment regarding employment law; (7) establishing the new legal entity; and (8) closing the asset transaction. Because customers and suppliers are quick to leave in the face of uncertainty, speed is of the essence. Our lawyers and in-house counsel guide you through every step, from the group with multiple operating companies to the independent entrepreneur who wishes to continue practicing their profession.

Restart before or after bankruptcy?

Not every restart needs to involve bankruptcy. Sometimes, an out-of-court restructuring or an agreement with creditors is feasible, whereby the company actually continues to exist. The Private Agreement Homologation Act (WHOA) makes it possible to reach a compulsory agreement with creditors outside of bankruptcy and thus avoid bankruptcy. Only when continuation within the same legal entity is no longer realistic does a restart via an asset transaction after bankruptcy come into play. We advise you on which route preserves the most value and entails the fewest risks in your situation; see also our pages on suspension of payments and bankruptcy application.

Why MKB Juristen for your restart?

A business restart touches upon insolvency law, corporate law, employment law, and contract law simultaneously. At MKB Juristen, you work with mixed teams of lawyers and in-house counsel, giving you both legal clout and commercial pragmatism in one hand. We assist both international corporations and small business owners, and we think proactively with you from the very first sign of payment difficulties. Are you considering a business restart, or have you been approached regarding the acquisition of assets from a bankruptcy? Please contact us for a confidential discussion.