For entrepreneurs, unpaid debts can be irritating at best and crippling at worst. Recovery of debts and assets should preferably be quick, cheap, and effective. Even if the debtors or assets are located abroad. Compared to most other jurisdictions, Dutch law offers creditors two relatively easy tools that in many cases meet those needs: the prejudgment attachment and the bankruptcy petition.
Prejudgment attachment
Especially when recovery possibilities are in danger of disappearing, it is vital to freeze a debtor’s assets, so as to preserve the creditor’s rights. An additional advantage is that attachments can sometimes be used as a means of exerting pressure on the debtor, for example in order to force a settlement. To levy an attachment, many countries require at least 1) solid substantiation of a claim and 2) proof that a debtor will make recovery by the creditor significantly more difficult by disposing of its assets. However, in The Netherlands it has always been fairly easy to have the goods of a debtor attached before a court renders judgment about the existence of the creditor’s claim.
Essential principles in ordinary Dutch civil proceedings, such as an adversarial process, a public hearing and a motivation for the decision, hardly play a role in prejudgment attachments. One reason for this is practicality: once a debtor is informed about an intended attachment on its assets, it is possible that it would allow assets to disappear. The possibility of taking protective measures at a stage where the creditor has not yet obtained a judgment in legal proceedings, is considered of great value in The Netherlands. A creditor’s interest in not running the risk of being left with an irrecoverable claim after obtaining an enforceable title, in general, outweighs a debtor’s interest in not having their assets “frozen”.
“Essential civil procedure principles, such as an adversarial process, hardly play a role in prejudgment attachments.”
Levying a prejudgment attachment in The Netherlands cannot be done without leave from a judge in preliminary relief proceedings. This leave is petitioned for by an attorney. The legal requirements the petition must meet, differ depending on the type of attachment. In short, the petition must include a brief statement of the – alleged – claim against the debtor or the right in rem (ownership, pledge, mortgage, etc.) to the asset. The more straightforward the claim, the shorter the explanation can be. The nature of the intended attachment object must also be indicated (e.g. the debtor’s bank account, car or real estate).
In order to somewhat address the debtor’s disadvantaged position in this procedure – the attachment will come as a complete surprise to them – a working group of judges has created guidelines for assessing prejudgment attachment petitions. Pursuant to these, a petition must also describe why the attachment is necessary, why this particular object was chosen, and why a less onerous attachment is not possible (e.g. attachment of someone’s real estate rather than a bank account).
The preliminary relief judge assesses the creditor’s petition prima facie; “summierlijk” in Dutch. As a rule, if a petition is somewhat logically constructed, the preliminary relief judge will grant the petition within 1 or 2 days. The preliminary relief judge may conclude in their balancing of interests that the attachment intended has too far-reaching consequences for the debtor, but in practice this rarely happens. If the petition is granted, the judge also establishes the (maximum) amount for which assets may be attached. Subsequently, the bailiff levies the attachment, after which the debtor is no longer able to transfer or the attached goods or dispose of the frozen bank balance.
It must be kept in mind that a prejudgment attachment is no carte blanche for a creditor to start executing their claim on the attached goods. To do so, they must first obtain a judgment ordering the debtor to pay or hand over the asset. If no main proceedings are initiated within a set, short period of time, the attachment lapses. Should a debtor want to have the attachment lifted before the main proceedings are carried out, then all they can do is try to lift the attachment by means of preliminary relief proceedings.
“Both a prejudgment attachment and a bankruptcy request often trigger negotiations on partial payments or payment arrangements.”
Bankruptcy petition
While the prejudgment attachment is a powerful tool in debt and asset recovery, filing a bankruptcy petition with the court may in some situations be preferable. Especially if the situation mainly calls for leverage, a bankruptcy petition could prove a better means to place the desired pressure on the debtor, as not every attachment will effectively impede a debtor’s actions. As the consequences of bankruptcy are obviously tremendous, the threat of it can set a lot in motion. The filing of a bankruptcy petition often triggers negotiations on partial payments or payment arrangements. A bankruptcy petition should be filed with the court by an attorney. Such a petition must state that 1) the creditor has a claim on the debtor and the basis thereof, 2) two or more creditors are being left unpaid and 3) the debtor has ceased to pay their debts. As attorneys, we have ways of finding out whether a debtor is letting a second creditor go unpaid. In the bankruptcy procedure also, the court will only assess prima facie whether the above requirements for bankruptcy have been met, departing from the basic rules on the duty and burden of proof. A bankruptcy petition is not without risks: if it comes to an actual bankruptcy, creditors are often left empty-handed. The aim is usually not to actually have the court declare bankruptcy, but to exert the pressure of its threat, if necessary for a longer period of time.
Both the prejudgment attachment and the bankruptcy petition are simple and cost-effective ways of debt and asset recovery in The Netherlands. As in many cases, tailor-made solutions remain necessary. We help clients choose the right measure depending on the specific situation.
