Impact of Coronavirus on insolvencies

In some jurisdictions, debtors (including directors of companies) are obligated to file for bankruptcy once they become insolvent or have a lack of liquidity. If they fail to do so timely, they can be held personally liable and it can even have criminal consequences.

Under Dutch law there is no such obligation for debtors/directors if they can't continue to pay their debts if and when they fall due. They are allowed to hope for the tide to turn or wait for a creditor to apply for their bankruptcy, although they must be careful not to be blamed for wrongful trading. A debtor can be declared bankrupt upon the application of a creditor if there is at least one additional unpaid creditor.

Much has been written and said yet about the tsunami of insolvencies that is expected shortly as a consequence of the COVID19 pandemic. Even governmental support measures and soft bank loans will not be able to prevent this from happening. That an unprofitable company goes bankrupt is inevitable, but this may be different if a creditor applies for the bankruptcy of a company that was doing well pre-COVID19.

For that reason, the Stichting Insolventie Mediation (Insolvency Mediation Foundation) has made an appeal to bankruptcy judges to act extra diligently in this sort of situations. The foundation requests  judges and insolvency lawyers to investigate whether bankruptcy proceedings can be settled through mediation. Parties can register for this via coronaconflictbemiddeling.nl. The foundation has a team of specialized mediators, some of whom are yet already involved in bankruptcies by the courts. The foundation will apply fixed rates for its work: 750 euros for simple matters, 1250 euros for more complex issues. As always in mediation, all parties need to participate voluntarily in the mediation attempt.