Goodwill and a relaunch after bankruptcy
Trustee claims goodwill after wholesaler's bankruptcy
On appeal, the Hague Court of Appeal dismissed the claims of a trustee in bankruptcy who alleged that a newly incorporated company had unlawfully taken over the business of an insolvent wholesaler in timber and garden materials. The heart of the dispute: had the new company appropriated the goodwill of the insolvent business by starting the same activities at the same premises, without paying for it?
The insolvent company was a wholesaler in timber and building materials with branches in The Hague and Rotterdam. Its stock had been pledged to Rabobank, which at a certain point enforced repayment. When the company was no longer able to meet that demand, bankruptcy followed on 28 October 2014.
Shortly before the bankruptcy — on 17 September 2014 — two sons of the indirect director and shareholder incorporated a new company: Woody Brothers. Both were at that time working for the insolvent business. Woody Brothers then rented the same business premises in The Hague from the father's holding company and established a business there with effect from 1 October 2014. Woody Brothers also tried to buy the insolvent company's stock through a third party, but Rabobank, as pledgee, had by then already levied attachment.
The trustee sought a declaratory judgment that Woody Brothers had unlawfully taken over the business by not paying for the goodwill. The damages were initially assessed at €960,000 and, on appeal, reduced to €142,245. In the further alternative, the trustee relied on the actio pauliana in bankruptcy (Section 42 of the Dutch Bankruptcy Act (Fw)).
Court of Appeal: takeover of customer base insufficiently substantiated
The Court of Appeal held at the outset that the trustee had to put forward sufficiently concrete facts, and prove them where necessary, from which it could be inferred that Woody Brothers had taken over the insolvent company's customer base. That was not achieved.
Crucial was that it was common ground between the parties that the business had already ceased before the bankruptcy: stock and inventory had been removed by Rabobank, no deliveries had been made for months, and hardly any activity was still taking place. Customers had sought their fortunes elsewhere with businesses that could actually deliver. In September 2014 Woody Brothers had not yet undertaken any activity of its own and, by February 2015, had already moved to a different address, where it purchased new stock. Moreover, the respondents disputed — unchallenged — that Woody Brothers was engaged in activities (small-scale specialist carpentry) other than those of the insolvent wholesaler.
The confirmations of conversations with a number of former customers submitted by the trustee were insufficient: they had been drawn up by the trustee itself, were not signed or confirmed by the customers in question, and were too limited in number to support the assertion that the customer base had been taken over.
The Court of Appeal dismissed all the claims: the tort claim (Section 6:162 DCC), the directors' liability claim (for lack of a factual basis), and the actio pauliana (likewise based on the unproven takeover of goodwill). The offer of evidence was passed over for insufficient factual substantiation.
What does this mean for those relaunching a business after bankruptcy?
The judgment illustrates how difficult it can be for a trustee to substantiate a claim for the appropriation of goodwill where the business had already in fact ceased before the bankruptcy. The mere fact that a new company — incorporated by relatives of the director — begins activities at the same premises is not enough. The trustee must show concretely that the customer base was actually carried over, and that requires more than self-drafted, unsigned confirmations of conversations.
For those starting a new business after the bankruptcy of a related company, the judgment offers guidance: anyone who demonstrably begins with different activities, a different customer base and their own stock is in a stronger position against a claim by the trustee. At the same time, the case shows that the factual course of events — the same premises, family ties, attempts to buy the stock — quickly draws the trustee's attention.
Frequently asked questions
When is there an unlawful takeover of a business after bankruptcy?
An unlawful takeover arises where a third party appropriates the goodwill — in particular the customer base — of the insolvent business without paying for it. The trustee must show concretely that customers were actually carried over. The same premises or family ties alone are not enough.
Can a trustee rely on the actio pauliana in bankruptcy in a relaunch?
Yes. Under Section 42 Fw, the trustee may set aside legal acts that prejudice the estate. In a relaunch, the trustee must then prove that the transfer of goodwill was a legal act that prejudiced the creditors and that both parties were aware of this.
How can a party relaunching a business protect itself against a claim by the trustee?
By demonstrably acquiring its own customers, undertaking different activities and independently purchasing stock. Document that the business had already ceased before the bankruptcy and that customers had left of their own accord. Avoid taking over the trade name, customer lists or telephone numbers of the insolvent company.
ECLI:NL:GHDHA:2019:2615, The Hague Court of Appeal, 24 September 2019.
Cited case law
Courts of Appeal: ECLI:NL:GHDHA:2019:2615