By Sjoerd Yntema
As a result of the recent outbreak of the coronavirus (COVID–19), a lot of businesses are suddenly facing severe challenges. While the situation is not acute for some businesses, for others there is a very real, sudden risk of bankruptcy. For those running these companies, this means they have to be more conscious of their actions. This blog goes over some of the most important issues to keep in mind in the Netherlands.
Companies in difficulty
In the Netherlands, if business continuity is at risk, managers have to decide to suspend business if there is no reasonable prospect of continuing the business in any way, shape or form. This doesn’t just mean that the management can throw in the towel, though. Even if there’s a tiny chance that the business can continue, by definition management are not acting illegally if they try to continue business operations in their current form or a different one.
Furthermore, if a company can’t be saved and is declared bankrupt, it is also likely that continuing business operations after a certain point increased the company’s debt and reduced the likelihood that creditors will obtain redress. Curators will weigh these situations against the likelihood that from that point the management would have been successful in their attempts to save the company, which would have put all of those involved in the company in a better position. It’s therefore a matter of recognising the tipping point and knowing the time at which to stop trying to save the company and to initiate bankruptcy proceedings.
What management of companies like this in the Netherlands should do
Management’s job is generally to manage the company with a view to ensuring its continued success. However, the role of management changes somewhat if the company runs into difficulty. If a company goes bankrupt, the curator will closely examine management behaviours (and in particular behaviour during this crucial period). Based on this behaviour the curator may then decide to bring proceedings under article 2:248 or article 2:9 of the Civil Code (known as management board liability).
As well as the usually applicable norms (standard practice, sound management, etc.), in the period before bankruptcy the following points are also important:
- Taking extra care when making payments. During bankruptcy proceedings, a practice known as paritas creditorum is followed. This means that all creditors are treated in the same way. To a certain extent the same principle applies to a period prior to bankruptcy. It’s therefore not the case that the creditors who shouts the loudest will have their credit repaid first. The management must be careful here;
- Taking extra care when assuming new obligations. Settled case law is that assuming obligations in the knowledge that the company will be unable to fulfil them or offer redress may make the management liable;
- If you decide to continue operating the company, this should be done with a reasonable and achievable rescue plan. You must also ensure decisions regarding that plan, or to close the business, are well-substantiated and well-documented;
- Reporting insolvency to the tax authorities. The management must give timely notice if it is likely that tax owed will not be able to be paid.
Company and bankruptcy law advocates
The AMS Advocaten team in Amsterdam has years of experience in advising and presiding over management action and bankruptcy, current or approaching. Our advocates also often act as curators during bankruptcy proceedings. They are closely involved in their clients’ business, work with short lines, and have competitive rates.
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More information about this article at AMS Advocaten