Insolvency and securities

What we do

Entrepreneurship means taking risks. Sometimes, risks taken can spill over into the financial health of an organization. This can result in insolvent enterprises. Financial difficulties are there to be resolved. We have the in-house expertise to assist organizations with suspension of payments, administration, WHOA processes, restructuring, or risk management. Furthermore, certain financing structures may be of interest to an organization for various reasons. In commercial transactions, the associated risks are typically limited by providing collateral such as pledges and mortgages.

If litigation is required within insolvency law, our lawyers and legal experts can represent organizations. The practice group assists insolvent organizations. In addition, we represent creditors.

We have the knowledge and expertise to assume diverse roles: from advice to dispute resolution. We have an experienced team of lawyers and legal experts in the field of insolvency and securities. Contact us to discuss the possibilities.

Insolvency and securities within Litigation / Disputes

Insolvency and securities form part of our broader Litigation / Disputes. Wherever a bankrupt company comes into the picture, disputes almost always arise: between the trustee and creditors, between secured creditors and the bankruptcy estate, and between directors and aggrieved creditors. From this perspective, the emphasis is not on drafting financing documentation, but on litigating regarding the validity, ranking, and enforcement of securities – for both an international group and the baker around the corner. Our mixed teams of lawyers and in-house counsel are familiar with the Dutch Civil Code and the Bankruptcy Act and know where the practical points of contention lie.

Types of collateral and their position in bankruptcy

Collateral limits a creditor's risk, but its true value only becomes apparent when things go wrong. The main forms we encounter in disputes are:

• Pledge (Article 3:236 and Article 3:237 of the Dutch Civil Code) on movable property and claims, such as machinery, stock, inventory, and debtors.
• Mortgage right (Article 3:260 of the Dutch Civil Code) on immovable property, such as commercial premises, established by notarial deed and registered in the Land Registry.
• Retention of title (Article 3:92 of the Dutch Civil Code), whereby a supplier remains the owner until full payment.
• Surety (Article 7:850 of the Dutch Civil Code), a personal guarantee whereby a third party – often a director or parent company – binds themselves.

Pledgees and mortgagees are so-called separatists: in principle, they can exercise their right as if there were no bankruptcy, through summary execution. It is precisely regarding the validity and scope of these rights that much debate arises in practice.

Enforcement of securities and the trustee's term

When a company goes bankrupt, the interests of the secured creditor and the bankruptcy estate clash. To prevent delay, the bankruptcy trustee may, pursuant to Article 58 of the Bankruptcy Act, set a reasonable period for the pledgee or mortgagee to proceed with foreclosure. If the secured creditor fails to utilize that period, the trustee may claim and sell the assets himself; while the holder retains priority over the proceeds, he must contribute to the general bankruptcy costs. This can result in substantial costs. A holder may request an extension from the supervisory judge, but the judge is not obliged to grant one. We assist both secured creditors and trustees in disputes regarding the setting of time limits, execution costs, and the scope of the security right.

Common disputes regarding insolvency and securities

From litigation practice, we observe recurring points of contention that are litigated:

• Faillissementspauliana (Article 42 and Article 47 of the Bankruptcy Act): the trustee in bankruptcy annuls legal acts that prejudiced creditors immediately prior to bankruptcy, such as the establishment of securities shortly beforehand.
• Set-off in bankruptcy (Article 53 of the Bankruptcy Act): the question whether a creditor may set off his claim against a debt owed to the bankrupt.
• Preferential right of lien and right of lien of the tax authorities (Article 21 of the Collection Act 1990): the conflict between the pledgee of movable property and the Tax and Customs Administration.
• Directors' liability in bankruptcy: improper performance of duties (Article 2:248 of the Dutch Civil Code) and the Beklamel standard for assuming obligations without recourse. See also our page on directors' liability.
• Recovery of delivered goods subject to retention of title, and disputes regarding creation of a new object and accession.

WHOA, restructuring and disputes regarding

The Private Agreement Homologation Act (WHOA) offers companies the possibility to reach a compulsory agreement with creditors and shareholders outside of bankruptcy. Disputes arise surrounding such an agreement regarding classification, company valuation, and the position of secured creditors. We advise on and litigate WHOA proceedings, suspension of payments, and restructurings, representing the interests of the company or, conversely, those of a dissenting creditor who objects to homologation.

Frequently asked questions about insolvency and securities

What is a secured creditor in bankruptcy?
A secured creditor is a pledgee or mortgagee who may exercise their security right as if there were no bankruptcy. In practice, however, this position is limited by the time limit set by the trustee (Article 58 of the Bankruptcy Act) and by the contribution to the bankruptcy costs.

Can a pledge established shortly before bankruptcy be challenged?
Yes. Through the bankruptcy clawback action (Articles 42 and 47 of the Bankruptcy Act), the trustee can annul securities that have prejudiced other creditors. Whether this succeeds depends on the prejudice and knowledge thereof.

Who takes precedence: the pledgee or the Tax and Customs Administration?
In cases involving so-called "grounds" (cases subject to the right of priority over the property), the tax authorities' preferential right (Article 21 of the Collection Act 1990) may take precedence over a silent pledge. This is a common and technical point of dispute on which we regularly litigate.

Do you only assist large companies?
No. We work for clients ranging from international corporations to the baker on the corner, on both the corporate and creditor sides.

Getting started with insolvency and securities

Whether you wish to enforce your securities, defend yourself against a bankruptcy trustee, or face impending bankruptcy: our lawyers and in-house counsel think practically and litigate with sharp precision. Contact us to discuss your case without obligation. You can find more dispute topics on the Litigation / Disputes, for example regarding commercial contracts.