The suspension of payment, or moratorium, pursuant to the Dutch Bankruptcy Act is a general suspension of payment for ordinary (unsecured and non-preferential) creditors for a certain period of time. The suspension of payment is intended to give the debtor temporary relief from actions of certain categories of creditors and enable the debtor to propose a composition to its creditors. The procedure can be used to reorganize the business of the debtor and is intended to prevent bankruptcy proceedings.
Conditions for opening
The debtor will seek protection from the District Court of its registered seat to grant a suspension of payment for a certain period. The assistance of an attorney is required to file the petition. In the petition order, the debtor will state that, for the time being, it is not capable of paying its debts but that in the foreseeable future it expects to be able, at least partially, to pay its creditors.
Only the debtor can file a petition for suspension of payment. The petition should be signed by the directors of the debtor and the debtor’s attorney. It should include information regarding the creditors of the debtor and the debtor’s latest financial statements. The petition can also already include a proposal for a composition to the creditors.
The District Court will immediately grant a provisional suspension of payment for a limited period of time and an attorney will be appointed as administrator. The administrator must administer the debtor’s business during the moratorium and pay attention to the rights and interests of all the parties affected by the moratorium. When granting the provisional moratorium, the District Court sets a date for a hearing of creditors in order to decide whether to grant a definite moratorium order. At the meeting of creditors, a vote takes place on the final granting of the moratorium. If a certain majority is not reached, continuation of the moratorium will be refused and the District Court will generally declare the debtor bankrupt.
The moratorium suspends all litigation by unsecured and non-preferential creditors against the debtor and stops the enforcement of judgments by such creditors against the debtor. The debtor needs the cooperation and consent of the administrator to act in relation to its assets. On the other hand, if the administrator wants to act on behalf of the estate, he needs the cooperation of the debtor as well.
The most important restructuring method in the suspension of payment procedure is the composition with creditors. In principle, consent of all the creditors is required. The debtor cannot force a creditor to accept a proposal for a composition. Most of the time the composition implies a partial payment of the creditors’ debt and a discharge of the debtor for the remaining unpaid part of the debt. The Dutch Bankruptcy Act also offers the debtor the possibility of proposing a composition. When approved by at least 50% of the creditors holding at least 50% of the debtor’s debt, this majority can overrule a minority of creditors. Although the creditors with security rights and the creditors with preferential claims are not affected by the moratorium and are not entitled to vote for the composition, the debtor and administrator normally negotiate with these creditors. For example, tax and social security authorities are generally willing to accept the composition if they receive payment of twice the percentage that the ordinary creditors receive.
Most of the time, the suspension of payment will not be the restructuring method that companies desire. Most suspensions of payment are followed by formal bankruptcy proceedings. In general, the suspension of payment is not to be considered successful at all.
Pros and cons of this specific proceeding
Pros: One of the most important advantages of the suspension of payment is, when it can be realized, the possibility to offer creditors a composition.
Cons: The main disadvantage of the suspension of payment is that it only offers protection against the claims and actions of unsecured and non-preferential creditors. Creditors with security rights (such as a right of pledge) and creditors with preferential claims (such as tax and employees rights) may still attempt to have their debts paid despite the suspension of payment.