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My debtor is discontinuing its business or no longer exists: now what?

My debtor is discontinuing its business or no longer exists: now what?

It can happen in practice that a client to whom you have supplied goods or services decides to stop its operations at some point. If the client is a BV (private company), it may have been dissolved and ceased to exist, in other words: liquidated. What can you do to ensure that your invoices are still paid?

Business discontinuation by your debtor
First of all it is important that your debtor’s business discontinuation does not mean that you no longer have a claim. In order to know what you need to do to recover your unpaid invoices (and any damage compensation), the legal form of your debtor is relevant. Is your debtor a BV, or perhaps a sole proprietorship or VOF (general partnership)?

Liquidation and winding up of a BV
If the client is a BV, so-called turbo-liquidation is a simple way of discontinuing the company. In that case the BV is dissolved by a resolution by the general meeting of shareholders. If the BV no longer has any assets at that point, it immediately ceases to exist.

If there are assets, the dissolved company must be wound up. This usually is done by the director: the assets are converted into cash, which is used to pay the debts. The liquidator is required to render account and draw up a plan of distribution. These documents are then filed with the Chamber of Commerce for inspection and published in the newspaper. If you do not agree with the distribution, you can object to it. If there are not enough assets to pay all the debts, the liquidator is required to file for the dissolved company’s insolvency.

If the client fails to take action after its business discontinuation and your debt is not paid, there are three things you can do:
1.       Request that the winding up be reopened
If you can demonstrate that the dissolved BV may have assets, you can request the court to reopen the winding up. If the court grants your request, the BV is ‘revived’ and a liquidator is appointed to liquidate the assets. If it emerges that these assets are insufficient to pay your debt, the liquidator will have to file for the BV’s insolvency.
2.       Filing for the client’s insolvency
You can also file for the client’s insolvency yourself, without requesting that the winding up be reopened. If it is not expected that the (dissolved) BV has assets, and it also does not proceed to pay its debt to you, it is advisable to file for the client’s insolvency.
3.       Sue (former) director on grounds of unlawful act
If it emerges that the former director dissolved the BV without winding it up, even though there were assets available and you still had a claim on the BV, you can hold the former director (personally) liable on grounds of unlawful act. In that case you will have to demonstrate that wrongly failing to wind up the BV has caused you damage and that the former director is liable for that damage.

Liquidation of a sole proprietorship or VOF
If the client is a sole proprietorship, the entrepreneur is responsible in a private capacity for all the sole proprietorship’s debts. If the entrepreneur decides to discontinue the sole proprietorship, and then does not proceed to pay the debt to you, the private person behind the sole proprietorship (the entrepreneur) can be directly confronted for payment. If payment is not forthcoming, it is advisable to file for insolvency.

If the client is a VOF, it is regarded as having separate assets that accrue first to the VOF’s creditors in the event of liquidation. Whatever remains after payment of the VOF’s creditors goes to the creditors of the partners in a private capacity.

Conversely, the partners are liable in a private capacity for the debts of the VOF to the extent these cannot be paid from the VOF’s assets. If it emerges that the VOF cannot pay its debt to you because its assets are insufficient, you can sue the partners directly. If you are still not paid, you can file for the VOF’s insolvency. The VOF’s insolvency automatically means the bankruptcy of the partners as well. The converse does not apply, incidentally.

Conclusion
If your debtor discontinues its business, don’t let the matter rest. Investigate whether there are still assets on which you can take recourse, if necessary at the partners or (in the event of unlawful act) at the director in a private capacity. If there are no assets, it is advisable to file for insolvency and submit your claim to the receiver.

By Maartje ter Horst

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