Bankruptcy fraud

The Dirty Tricks Department

Bankruptcy fraud is a common problem, representing an estimated social cost of €2 billion a year.

What is bankruptcy fraud?

Bankruptcy fraud may arise, for example, where company assets are sold to acquaintances for far below their value or money is siphoned off. Other forms of bankruptcy fraud include making accounting records disappear and using a company deliberately to prejudice creditors. For example, a company may be used to sell or resell goods without paying its suppliers. By the time suppliers take legal action, those responsible have often already disappeared.

How can you deal with bankruptcy fraud?

Bankruptcy fraud can be addressed through both civil and criminal law. The primary aim of civil-law measures is to restore assets to the bankruptcy estate. The Dutch Bankruptcy Act contains several mechanisms that make it easier for bankruptcy trustees to reverse transactions that prejudice creditors. Criminal-law enforcement comes into play where the interests of individuals and society have been seriously harmed. If you suspect that you have been prejudiced by bankruptcy fraud, you can also report the matter to the police.

Prevention

It is, of course, better to avoid becoming a victim of bankruptcy fraud in the first place. RWV Advocaten can help you do so, for example by investigating a company with which you intend to do business. Conversely, if your own company runs into financial difficulty, our lawyers can assist you as well. We can reorganise your business in a legally compliant manner, arrange a restart outside bankruptcy, or assist you with a restart from bankruptcy.

Actio pauliana

If a creditor is prejudiced by a legal act performed by its debtor, the creditor may take action against it. This remedy dates back to Roman law, where it was known as the actio pauliana. Dutch law recognises both the general actio pauliana under the Dutch Civil Code, which is available to any creditor, and the bankruptcy actio pauliana, a specific power available to a bankruptcy trustee.

Actio pauliana (Dutch Civil Code)

If, when performing a non-obligatory legal act, a debtor knew or ought to have known that one or more creditors would thereby be prejudiced in their ability to obtain recovery, the legal act may be avoided by any creditor prejudiced as a result. If the legal act was for consideration, it may only be avoided if the counterparty also knew or ought to have known that prejudice to creditors would result.

Bankruptcy actio pauliana

In bankruptcy, the bankruptcy trustee can avoid legal acts by invoking the bankruptcy actio pauliana. The Dutch Bankruptcy Act distinguishes between two categories:

Obligatory legal act

Obligatory legal acts are acts that a person was already legally obliged to perform, for example the repayment of a loan. Such acts can only be challenged if the bankruptcy trustee can demonstrate that the receiving party knew that a bankruptcy petition had been filed, or if the trustee can prove that the debtor and creditor colluded to prefer that creditor over the others.

Non-obligatory legal act

The bankruptcy trustee can avoid non-obligatory legal acts if the debtor knew or ought to have known that the other creditors would thereby be prejudiced. If the legal act was for consideration, the trustee must demonstrate that the creditor also knew or ought to have known that the legal act would prejudice the other creditors. Importantly, the law contains a number of evidential presumptions regarding the creditor's knowledge. These apply to legal acts performed within one year before the declaration of bankruptcy. The principal categories concern legal acts between related parties.