When a company is declared bankrupt, there are a number of options for ending the bankruptcy, such as:
- Objection or appeal in which the bankruptcy is annulled;
- A simplified settlement, which means that the bankrupt can choose to offer a bankruptcy agreement to the creditors.
There are several reasons to make use of the bankruptcy agreement to speed up an accelerated settlement of the bankruptcy.
Preferred and unsecured creditors
The bankruptcy agreement is aimed at settlement with creditors. This does not affect the fact that the preferential creditors continue to retain their right to payment of the entire claim. The rights of the preferred creditors are not restricted in any way.
Preferential creditors can choose to waive this right and join the proceedings as unsecured creditors. It should be clear that preferential creditors do not simply do this.
Reasons for waiving this right are the possibility to vote in the verification meeting in which the bankruptcy agreement is accepted or rejected.
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The voting process
The vote on the composition takes place by a simple majority vote in a meeting attended by the unsecured creditors.
A condition for adoption of the plan is that at least half of the amount of the recognised and conditionally admitted claims not covered by priority is represented by the unsecured creditors.
If the bankruptcy plan is adopted by the verification meeting, it still needs to be ratified by the court, which is called homologation.
The consequence of this ratification is that every unsecured creditor, even the creditors who voted against, are bound by the plan. This gives it compelling force. This ends the bankruptcy.
If, however, the plan is rejected by the unsecured creditors or the court, the option to offer another bankruptcy agreement within the bankruptcy will end. The bankruptcy will then be continued and settled by the trustee.
Advantages of the bankruptcy agreement
The advantages of a bankruptcy agreement for the creditors:
- the often higher percentage that the creditors are reimbursed
- the faster, more advantageous settlement of the bankruptcy. For example, the agreement will often be financially covered by a third party. As a result, the financial resources to be distributed to the creditors are greater than the normal division of assets in bankruptcy.
Process after claim
After the bankruptcy agreement has been approved, the other debts will be converted into a natural obligation.
This means that the bankrupt can no longer be held liable by the creditor regarding the claim. However, the remainder may lead to a deductible claim.
Under the circumstances of the debtor, it can therefore be expected at a later stage that the debt will be set off against any performance by the creditor. This ends the bankruptcy.
Need an insolvency lawyer? Bring in VIOTTA
Since the content of the agreement is free of form, it is wise to hire a lawyer before concluding the agreement. If you or your company has to deal with bankruptcy or an agreement, we are happy to help. Our lawyers have gained a lot of experience by working on the largest bankruptcies in the Netherlands.
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VIOTTA is a law firm based in Amsterdam and is specialized in advising on the areas of corporate law, mergers and acquisitions, contract law and corporate & commercial dispute resolution. We advise in transactional matters and litigate in commercial disputes. VIOTTA provides legal advises to its clients on Dutch corporate law matters, such as corporate governance, board structures, director’s duties and liabilities, joint ventures and other collaborations. VIOTTA advises purchasers, sellers, management and other stakeholders in domestic and cross border mergers and acquisitions (M&A).