Insolvency, a blessing in disguise?

Businesses will often do almost anything to avoid insolvency, but it can sometimes be a blessing in disguise.

Businesses will often do almost anything to avoid insolvency, but it can sometimes be a blessing in disguise. If turnover figures are dropping and it’s no longer possible to find the funds to pay staff and pay the rent. A trustee in insolvency (known in Dutch as a ‘curator’) can terminate employment contracts and rental agreements relatively easily.

If a business can continue without this burden, it may be able to do profitable business again on a smaller scale. So what’s the best way to deal with these issues if they arise in your own business?

Even before the onset of insolvency you can take action to limit the risks considerably. Any new activities can be carried out by a new subsidiary. You can also split up existing activities with varying future prospects. This enables you to spread the risk. Businesses are sometimes held back from setting up new companies because each company requires a start-up capital of 18,000 euros. However, new legislation is coming that will remove this requirement, so this problem is only temporary.[E1] What should you do if a regular supplier or customer gets into financial difficulties? You can make it a condition that all future supplies must be paid for in advance. In many cases this will prove difficult for the customer, as it will force him to find extra funding when he is already in difficulties.

A retention of title clause or other security can sometimes limit your losses, but in many cases this is not enough. Retention of title clauses are often contained in standard terms and conditions, but it is not uncommon for errors to be made in declaring that these terms apply. This is something that a trustee in insolvency will always check. You should give proper consideration to this issue, take good advice and have a check carried out to establish whether the usual practice of the company satisfies the requirements in this area. [E1]Ingrid: dit is niet meer actueel – de wet is al van kracht.

With respect to stock, the tax authorities have a right of seizure that takes priority over any retention of title clause. So you need to be prepared for this too. For goods that are traded on, any retention of title will usually cease to apply when the goods are passed on to the end user. Retention of title also ceases to apply if an item is processed to become part of something else and also if what is known as ‘improper mixing of goods’ takes place. This occurs when the goods supplied are in the warehouse, but it is no longer possible to establish which supply was delivered when. Applying stickers with the order number, logo and delivery date can prevent disappointment in this situation.

Further options include getting a supplier to agree a pledge over stock or debtors or asking the customer to offer a personal guarantee for invoices relating to new deliveries. A compromise that divides up the risk between the parties.