Case: debt collection in the Netherlands (bankruptcy)
A UK-based company (client) approached us with a request to help collect a debt from a company registered in the Netherlands, Amsterdam (debtor), which initially arose under a staffing and service agreement. The amount of debt was about 300,000 euros. An arbitration decision was previously received from one of the European arbitration institutions obliging the debtor to pay this amount.
Our team was faced with the task of developing the most effective debt collection strategy. At the same time, it was necessary to take into account that the debtor company itself had limited assets (several employees, a director, an office under a lease agreement, computer equipment, and a small tax debt).
The debtor's parent company was a holding structure and also did not have any special assets. The real assets were held by investors in this holding company, who were physically located in the UAE and the USA.
We considered two options: either initiate traditional legal proceedings to recognize and enforce the arbitral award against the company itself, which could be expensive and ineffective, or focus on directly influencing the ultimate beneficiaries and investors.
We decided to take the second path: we initiated bankruptcy proceedings in the Netherlands, to which we joined all the beneficiaries of the debtor.
As a result, within a couple of weeks we managed to reach a settlement agreement with the debtor. Thanks to joint work with local lawyers and the judge, a flexible schedule for postponing the consideration of the bankruptcy case was agreed upon, which coincided with the debt repayment schedule under the settlement agreement. It was very simple: if the debtor missed a payment of any installment, he would be declared insolvent at the subsequent hearing.
As a result, the client received a 100% refund of the debt amount from the debtor, as well as interest and full compensation for our legal costs.
It is true that debt collection involving piercing of the corporate veil requires a comprehensive and consistent approach.
In complex cases with limited debtor’s assets, the bankruptcy process should be a tool, not an end in itself. Bankruptcy of the debtor does not guarantee the return of assets. However, it can be a strong argument in negotiations if the debtor's ownership structure is properly investigated to identify and hold accountable the real beneficiaries.
Author: Aliaksandr Struzhko.
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The REVERA Arbitration team (Kamal Tserakhau, Aliaksandr Struzhko) – our experts in dispute resolution and debt collection.
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