Contributed By Florent (Amsterdam - HQ)
Period leading up to suspension of payments/bankruptcy
When a company is in financial distress or even considering filing for bankruptcy or suspension of payments, it will typically involve qualified legal counsel to advise on how best to proceed and avoid liabilities, and if need be, to draft and file the petition for suspension of payments or bankruptcy. Costs incurred by an attorney in order to file for bankruptcy have preferential treatment in the bankruptcy of the company. Generally, lawyers will ask for a retainer in such situations in order to ensure that their fees are paid.
In certain cases, interim management (such as a chief restructuring officer) is appointed in the period prior to the insolvency of a company. This is usually instigated by the company’s (senior) lenders.
During suspension of payments
Since the debtor still has the capacity to act on its own behalf during suspension of payments, albeit in co-operation with, or with the authorisation of, the administrator, it is up to the company to decide which professionals to employ, taking into account that the administrator will have to approve their appointment. This could, for example, be a restructuring officer, financial adviser or other consultant.
After bankruptcy has been declared, it is not typical for a bankruptcy trustee to employ any (outside) legal counsel, as in the Netherlands a bankruptcy trustee is typically a lawyer who is part of a law firm. If the estate is a party to legal proceedings where representation by a lawyer is required, the estate will normally employ legal counsel from the bankruptcy trustee’s law firm to act on behalf of the estate in such proceedings. The approval of the supervisory judge is required for the bankrupt estate to be a party to legal proceedings.
Depending on the size of the bankruptcy, the bankruptcy trustee may employ forensic accountants and/or other financial specialists to assist in an investigation of the causes of the bankruptcy, mainly from a financial point of view. As such parties are employed by the estate, the costs associated with employing such parties will be estate costs. In large bankruptcies, an advisory firm may be employed by the estate to assist the bankruptcy trustee with the valuation of the assets of the company and with the more practical matters related to the bankruptcy. In addition, IT experts may be employed by a bankruptcy trustee in order to secure and preserve digital data. The costs associated with employing such a party will also be estate costs.
Other parties that wish to employ professional advisers will have to bear their own costs, as there is no mechanism under Dutch law that obliges the (bankrupt) company to pay or reimburse such professionals’ compensation.