Empirical Legal Studies

Irregularities in the vicinity of insolvency

Every year, more than three thousand businesses are declared insolvent in the Netherlands. The purpose of bankruptcy is to divide the assets of these companies among the creditors. However, the value of the claims of the creditors often exceed the value of the assets of the company

Sometimes, in the vicinity of insolvency, irregularities have taken place that have either caused the insolvency or have increased the deficit in the assets of the company. The costs for society caused by these irregularities are estimated at more than one billion euros per year. Dealing with irregularities around insolvencies has been on the legislator's agenda for decades. At the end of 2012 announced the legislative programme 'Restatement of Insolvency Law', with anti-fraud measures as its main pillar. The aim of the legislative programme was, among other things, to create a clear legal framework for dealing with irregularities in bankruptcy, with the insolvency practitioner being regarded as the first designated person to identify and rectify irregularities.

For years, the legislature is criticized by insolvency practitioners for giving them the task of dealing with irregularities. The criticism is mainly aimed at the legislator's assumption that the task to deal with irregularities follows from the task to benefit the creditors by liquidating the assets of the company. After all, an investigation into dealing with irregularities is not necessarily beneficial for the joint creditors. In some situations, the costs of this investigation override the benefits. For example because there are insufficient means of recovery. However, the additional costs of this investigation will decrease the assets of the company even further. In this situation, the investigation is therefore not in the interest of the creditors. Moreover, it is argued that the bankruptcies in which irregularities play a role are also those in which there are insufficient assets to pay the insolvency practitioner’s salary. If in those situations there is no prospect of (sufficient) recovery possibilities, (the office of) the insolvency practitioner has to bear the costs of dealing with irregularities. Dealing with irregularities in those situations is not in the interest of (the office of) the insolvency practitioner.

There is lack of insight in the way the insolvency practitioner deals with irregularities in practice. This makes it difficult to assess the value of criticism from the field. This research aims to look into the way insolvency practitioners deal with the obligation to look into irregularities. Furthermore, it aims to find out what obstacles insolvency practitioners face in these investigations. In this way, the research aims to find evidence based recommendations for the legislator to reach desired effects.