”It is very important to recognise the signs on time”, says Arnold Zwaagstra, insolvency advisor and co-director of debt counselling agency Bureau Benedictus bv. “Take action before you lose control due to measures by creditors. The sooner you recognise and solve your problems, the sooner you can get on with your business or with your normal life.”
Debt restructuring or amicable settlement
In the Netherlands, there are various ways to get rid of your debts as an entrepreneur. The best known is the Debt Restructuring for natural persons Act (Wsnp). Before you appeal to the Wsnp, you must first try to find a solution together with your creditors with mutual agreements outside of court. That is referred to as an amicable settlement. Is such an agreement initially unsuccessful because creditors do not cooperate? Then you can ask the court to impose a compulsory settlement on your creditors, which they must agree to. If that does not work either, you make use of the Wsnp.
Municipality or debt counselling agency
Based on the Municipal Debt Assistance Act (Wgs, in Dutch), municipalities provide debt assistance to private individuals and entrepreneurs with problematic debts. Problematic means you can no longer pay your business and private bills, and creditors threaten to seize your house or goods or file for bankruptcy.
Zwaagstra states: “The amicable settlement applies to natural persons such as owners of a sole proprietorship, self-employed professionals, partners in a general partnership, and director-major shareholders (DGA) of a private limited company who are personally in trouble because of the company. Entrepreneurs with debts can also go directly to a commercial debt counsellor instead of the municipality. In that case, you usually pay the costs for debt counselling yourself, for example through family. If you go to the municipality, they usually pay the costs for your debt assistance procedure. Municipalities often also engage debt counselling agencies. Experience shows that a process through the municipality often takes longer.”
After you have registered with the municipality or debt counselling agency, there will be an intake interview. You can register by telephone, email, or sometimes via Whatsapp. During this meeting, you indicate how high your debts are and who the creditors are. Together you find out which approach best suits your situation. Are you unable to get out of financial problems with interventions by, for example, an accountant or an business coach? Then you need specialised help. The municipality usually also calls in specialists for this. According to Zwaagstra, it normally takes 6 months to a year before all agreements with creditors are finalised and you can start repaying your creditors.
You draw up an action plan together with the municipality or debt counselling organisation. An important instrument in this action plan is the amicable settlement. You first carefully map your debts. The debt counsellor must have a complete overview of your debts in order to decide whether to continue the business or to close it. Think of tax debts, supplier debts, or mortgage on, for example, a commercial building. This overview is important to determine whether you can make use of a consolidation loan from the municipality. With this loan you finance your debt and pay your creditors. This is only possible if your business is viable and there are enough revenue to be expected. If the municipality does not provide a loan, you must save money to pay off the creditors bit by bit. The debt counsellor draws up a payment plan and proposes this to the creditors.
Zwaagstra emphasises the importance of openness. “Be completely open and transparent about your finances from the start and do not hide anything. If, for example, it emerges at a later stage that there is still capital somewhere, this can mess up all your plans and agreements with creditors, bringing you back to where you started. It is also important not to favour creditors. If other creditors find out, they will no longer cooperate in an agreement.”
Ending your business
Have you come to the conclusion that you must end your business because your company is not viable? Then the debt counsellor will examine how much of those debts you can repay to your creditors based on your personal and expected situation. For example, do you have or will you get a job and will you receive income from this? In that case, the amicable settlement means that the debt counsellor makes a proposal to the creditors about how much you can save to pay off as much of your debts as possible within 3 years. You will receive an amount at welfare level to pay your fixed costs and to live on. You use the rest to pay off your creditors. In addition, the debt counsellor makes a proposal to the creditors to completely cancel the rest of the debts after these 3 years. This is called final discharge. If the creditors agree to this proposal, you can start paying off.
Continuing with your business
Is your business viable? This means that you have sufficient income from your company now and in the future to pay your fixed costs, both professionally and privately. There must also be an amount left over for the repayment of debts or loans. The debt counsellor will then examine how much you can repay from your business income. You can try to get a consolidation loan through the municipality. With this loan you can immediately pay off all, or a portion of, your debts. This depends on how high the loan is.
You repay this loan in instalments with interest to the municipality. This way, you will then be rid of your creditors and have control of and insight into your financial situation. After all, you only have to deal with the municipality. For any remainder of the debts, the debt counsellor tries to arrange final discharge with the creditors. Do the creditors agree with the proposal? Then you can continue with your business, pay your debts, and pay off the municipality.
There is a chance that one or more creditors will not cooperate with the debt counsellor's proposal. They are not obliged to cooperate. It is possible that the mutual relationship between you and the creditors has been seriously disrupted due to your (financial) situation. Creditors may also find the amount offered or the repayment too low, because it gets them into trouble themselves. In this situation, an amicable settlement cannot take place, because all creditors must cooperate. If 1 or more creditor(s) reject the proposal, you can submit a request to the court to force unwilling creditors to participate. That is called a compulsory settlement. The judge assesses whether the refusing creditors have good reasons to reject the proposal. If their reasons are not good enough, the judge can decide that unwilling creditors must agree to the proposal and the process can start. A compulsory settlement can only be imposed if most of the creditors have agreed.
“In practice, 75% of all amicable settlements lead to success. More than 50% of these amicable settlements are ultimately concluded through a compulsory settlement. More than 95% of the requested compulsory settlements are granted. This makes it a powerful instrument for resolving debts. The other 25% of the amicable settlements that fail continue on to the Wsnp procedure", says Zwaagstra.
What the judge looks at when deciding on a compulsory settlement:
- Is the proposal well-documented and based on reliable numbers
- Has the proposal been reviewed or drawn up by an independent and expert party, such as a municipal credit bank or professional debt counselling organisation
- Is it clear that the offer is the maximum you can ask from the debtor
- Does the compulsory settlement provide at least the same as a Wsnp procedure would
- If a creditor does not get their full share, will they get in trouble
- What is the unwilling creditor's share of the total debt
Is an amicable settlement not successful and does the judge not grant a compulsory settlement either? Only then can you go to court and apply for Wsnp. This is also possible if you have a statement from experts or the municipality that an amicable settlement is not likely to succeed. Because, for example, there is no chance to convince the creditors. In most cases you must end your business if you are admitted to the Wsnp.
Sometimes debtors get stuck in the amicable process. To make access to the Wsnp easier for them, there is the option to go directly to a specific group of insolvency administrators. After a failed amicable settlement, they can request a compulsory settlement or access to the Wsnp. The Legal Aid Board ('Raad voor Rechtsbijstand') reimburses the costs of these procedures.
Wsnp is a statutory scheme where an insolvency administrator makes agreements with creditors to repay the debts. This is a more expensive process because an insolvency administrator has to be paid and there are legal costs. You pay these costs out of your savings, meaning the creditors will receive less. A magistrate (in Dutch) checks your insolvency administrator.
If you have a complaint about your Wsnp process, you can contact the magistrate. In addition, you are limited in your freedom of action, and you may not, for example, incur new debts. You must stick to the agreements you have made with the insolvency administrator and keep them informed of your financial developments. You will be given a free amount of money (in Dutch) to pay your fixed costs and to live on. That is at welfare level. The rest of your income is used to make repayments. This process usually takes 3 years, sometimes 5 years. After this period, you can continue without debts and with a clean slate.
Since 2021, the Tax and Customs Administration has also been open to amicable debt settlements for entrepreneurs. When resolving tax debts, the Tax and Customs Administration will check the viability of your company in the event of a debt proposal. The cooperation of the Tax Administration increases the chance of success in resolving all your debts.
Do you have problematic debts, or signs that things are going wrong financially in the short term? Then contact the KVK Chamber of Commerce, your municipality, or a debt counselling agency to assess your situation and your options to solve your problems.