Application as a pressure

An application for insolvency is often made with the intention of applying pressure so that a reluctant debtor finally pays up. In many cases an application leads to negotiations about partial payments or payment arrangements while the application is pending.

If the debtor is actually declared insolvent, the chances that the creditor will receive his money in full are limited. A good reason to show willingness to compromise. On the other hand, the individual or company whose insolvency has been applied for knows that if no arrangement can be agreed and there are a number of outstanding debts then a declaration of insolvency will be made. So both parties have a common interest in preventing the insolvency.

Very often a partial payment is made, perhaps as a result of agreeing a payment arrangement. If a further payment is promised, the creditor often states that the insolvency application will only be withdrawn if that payment is actually received. However, if the creditor has already received a partial payment of any significance, continuing with the insolvency application can lead to an unpleasant outcome.

Article 47 of the Dutch Insolvency Act provides that if a debt that has become payable on demand is paid this payment can be recovered by a trustee in insolvency (known in Dutch as a ‘curator’) if the creditor was aware that an insolvency application had already been made in respect of the debtor at the time the payment was made. The trustee will have no difficulty proving this knowledge if the creditor who received the payment was also the party who applied for the insolvency. The trustee can then cancel the payment and demand the return of the money. As a result, it is always advisable to withdraw the insolvency application after receiving a substantial payment.

If the debtor then fails to comply with the agreed payment arrangement, you can simply submit a new insolvency application. The advantage of this is that in this situation you cannot be required to repay the earlier partial payment under Article 47 of the Insolvency Act. For the same reason, it is also sensible to withdraw the insolvency application if the debtor makes a partial payment without agreeing any further payment. You can submit a new application a week later and have the security of knowing that the money you have received cannot be taken away from you. Any debtor who is counting on a partial payment resulting in withdrawal of the insolvency application should be sure to point out to the creditor the statutory provision mentioned above, as this is often overlooked and once a declaration of insolvency has been made it is seldom revoked.