Account settled in the end

Our client entered into a cooperation agreement with a Dutch company. The key activity covered by the cooperation was the manufacture of car parts. Our client manufactures these parts using a machine supplied by the Dutch company. There was an error in the design of one of the machines causing this machine to manufacture car parts with incorrect measurements.

Our client, which suffered loss as a result, held the Dutch company liable for supplying an unsatisfactory product. The Dutch company then informed its liability insurer of the matter and asked its insurer to compensate the loss. The insurer took a very long time about this and our client, a German company, got in touch several times to enquire about progress. On each occasion our client was promised further information shortly, but no information was received.

Suddenly, our client discovered that the Dutch company had ceased to exist. It had closed down, terminated its lease, sold its stock and dismissed its staff. Our client had reached a dead end and was no longer able to recover its losses. At this point, it came to our firm for assistance.

We then applied to court to have the final liquidation of the Dutch company reopened so that our client could still submit a claim to this company for its losses. Reopening is only possible if there are known to be profits. We argued that the payment under the insurance was a profit and formed the basis for our client to submit its claim and that the company should therefore be reopened.

The Dutch company opposed this and stated that the insurance did not cover the matter. However, it was unable to provide proof of this. In the end, the court reopened the Dutch company and appointed a liquidator. This liquidator will examine the accounts and decide whether it is possible to recover the loss claim from the reopened company.

It this is not possible, then the directors can be held personally liable because they failed to settle the loss claim properly, strung our client along and ultimately wound the company up unlawfully when they should actually have filed for insolvency.

So where the other side has ceased to exist due to winding-up or insolvency, it is always advisable to investigate whether it is still possible to reverse this or to hold one of the directors personally liable.