Introduction
A creditor has a claim but the opposing party does not pay, or is actively threatening to place its assets beyond reach; or a judgment has been won that cannot be collected. This area of law concerns the instruments for recovering money after all, from attachment and a bankruptcy petition to the enforcement of judgments, and equally the other side: the party confronted with an attachment or a bankruptcy petition used as a pressure tactic. Timing is decisive here, because the order in which steps are taken often determines the outcome. Set out below are the situations that arise most frequently, with the route leading to the objective for each.
Securing a claim before litigating
Even before, or while, proceedings are pending, a prejudgment attachment can be levied on the other party's assets: bank accounts, real estate, shares or receivables from third parties. This prevents there being nothing left to recover once the case is won. What is characteristic is the element of surprise: the attachment is levied without the other party being heard in advance, usually on the same day. Against that stands a flip side. Within a short period the main action must be brought, or the attachment lapses by operation of law, and the other party can seek its lifting if the claim proves unsound. If the attachment turns out to have been wrongful, the attaching party is liable for the loss, so a full and accurate account in the application is decisive.
More about attachment and enforcement
A debtor does not pay and threatens to become insolvent
Under certain conditions the bankruptcy of a debtor can be applied for, and in practice that application works above all as a means of pressure. Timing is decisive: a petition filed too early gives the debtor room to restructure, while one filed too late meets an empty estate. What is required is that the debtor has ceased to pay, which can only be assumed once there is, besides the applicant, at least one other unpaid creditor. Because bankruptcy hits a business hard, payment in practice often follows before the hearing. A party seeking certainty of recovery, however, is often better served by a prejudgment attachment; the application is effective precisely against a debtor who can, but will not, pay. On both sides of that assessment, as applicant and as respondent, the strategy is a matter of fine judgement.
More about bankruptcy and the trustee
Assets were siphoned off before bankruptcy
Shortly before a business goes bankrupt, assets shift to family members or affiliated companies, away from the creditors. Such prejudicial acts can be set aside by means of the actio pauliana: outside bankruptcy by the individual creditor who is prejudiced, and in bankruptcy by the trustee on behalf of the creditors as a whole. If the annulment succeeds, the diverted assets return to the pool available for recovery. The case always turns on two elements: is there prejudice to creditors, and did both parties involved know that this would be the case? For transactions for no consideration or with closely connected parties shortly before the bankruptcy the law assists with evidentiary presumptions, but whether the claim succeeds ultimately remains a question of proof.
More about the bankruptcy actio pauliana
A judgment has been obtained and needs to be enforced
A judgment in one's favour is not yet payment: sometimes the other party fails to cooperate or draws the matter out with enforcement disputes. With the enforceable copy of the judgment the bailiff can levy executory attachment, on movable property, on real estate with a public auction as the final step, or as a third-party attachment on the bank or the employer. Where the enforcement itself is contested, the court decides in a short enforcement dispute. Two limits determine the yield in practice: with an attachment on wages the attachment-free threshold can materially erode the proceeds, and an enforcement out of proportion to the interest can be blocked as an abuse of power. Command of those procedural details often makes the difference between recovery on paper and money in the account.
More about enforcing a judgment
The business needs to be restructured
Not every payment problem has to end in bankruptcy. The Court Approval of a Private Composition Act (WHOA) allows a business to restructure its debts outside bankruptcy, even where not all creditors cooperate. The creditors are divided into classes that each vote separately on the composition offered; if at least one class agrees, the court can confirm the composition and bind dissenting creditors to it as well. That compulsion has a hard floor: no creditor may be worse off under the composition than in a bankruptcy. For a creditor the question is therefore whether to accept the composition, or to vote against and resist in the hope of a better position.
More about the Dutch scheme (WHOA)
A director needs to be held liable in bankruptcy
If a company goes bankrupt, the trustee can hold the directors personally liable for the deficit in the estate on the ground of manifestly improper performance of duties. The pivot is the duty to keep proper accounts and to publish: if that duty has been breached, it is established that the board performed its task improperly, and it is moreover presumed that this was an important cause of the bankruptcy. That presumption reverses the burden of proof, and it is for the director to rebut it, for instance by making it plausible that external circumstances led to the bankruptcy. A director whose administration is in order stands considerably stronger, so directors of an ailing company would do well to have their position assessed early.
More about directors' liability in bankruptcy
For directors’ liability outside bankruptcy, see directors’ liability.