Bankruptcy

Definition

Bankruptcy is a court-ordered general seizure of all of a debtor's assets, administered by a trustee for the collective benefit of creditors, and governed in the Netherlands by the Bankruptcy Act (Faillissementswet). It is declared where a debtor has stopped paying and has more than one creditor. Unlike suspension of payments, which aims at restructuring, bankruptcy targets liquidation, though a going-concern sale of the business remains possible.

Example

After the company stops paying multiple suppliers, the court declares it bankrupt and appoints a trustee to liquidate the assets.

Why this is a business risk

When a key customer or supplier enters bankruptcy, the financial impact on your business can be immediate and severe. Outstanding receivables become unsecured claims in the estate with limited prospect of recovery, while the bankrupt supplier's failure to perform triggers its own cascade of operational disruption. Contracts that automatically terminate on insolvency may leave you without a critical service at the worst possible time. Businesses without robust monitoring of counterparty financial health often only learn of a bankruptcy after it is too late to protect their position.

How to manage it

• Include a retention-of-title clause in supply contracts so that goods delivered but unpaid remain your property and can be reclaimed from the estate.
• Monitor the financial health of significant counterparties periodically: a sudden change in payment behaviour, credit rating or public filing is often an early warning sign.
• Check whether your contracts have a change-of-control or insolvency-termination clause that lets you exit before the estate freezes performance.
• Credit-insure key receivables so that if a significant customer is declared bankrupt, the insured portion of the debt is recoverable.
• Avoid relying on a single supplier for critical services; diversify supply chains to reduce the operational impact of one counterparty's insolvency.

Legal references

• Fw art. 1 Bankruptcy Act: declaration of bankruptcy

Unless marked otherwise, references are to Dutch law (Burgerlijk Wetboek, the Dutch Civil Code); EU instruments such as the GDPR apply across the EU. This is general information, not legal advice. Other jurisdictions treat these concepts differently. Verify the current text and your situation with a qualified lawyer.