Objection against bankruptcy order possible despite appearance in court

On 27 February 2019, the Court of The Hague specified  the concept of "hearing" in the context of an objection to a declaration of bankruptcy. The ruling (in Dutch) clarifies a bankrupt party’s options for objection. 

If you do not pay one or more claims, a creditor can apply for your bankruptcy. The court reviews a petition for bankruptcy on two grounds, i.e. whether there is a plurality of creditors (there must be at least two creditors, one of which is a creditor with a claim that is due and payable) and whether payments have ceased. The debtor is summoned by a bailiff's notification to a court hearing on the petition for bankruptcy.

It is possible that you do not receive or fail to see such notification and do not appear at the court. Even in your absence you could be declared bankrupt .

Bankrupt parties have the option to lodge an objection against the bankruptcy declaration within 14 days after the judgment. Bankrupts who have been heard on the bankruptcy petition can appeal to the court within eight days after the bankruptcy order. An objection is - compared to an appeal - easier. In principle, the Court takes the bankruptcy petition again under consideration after the objection has been made. Objections can be successful comparatively quickly. However, this is possible only if the applicant’s claim is paid or an arrangement is made with the applicant and sufficient security has been provided for the trustee’s salary . Whether there are other creditors is not relevant. That is why pro forma court decisions on objections are increasingly common. This means that the Court assesses objections based on documents, and does not require a physical. Appeals, on the other hand, are more complex because an arrangement has to be made with all creditors to avoid the so-called bankruptcy situation. Moreover, appeals cost more time and money.

Objections, therefore, are preferable over appeals, but only if the debtor has not appeared at the hearing and the court has declared bankruptcy in the debtor’s absence. Otherwise, your only option to annul your bankruptcy is to file appeal.

However, it is more common for a debtor to appear before the court when summoned, while the court postpones further assessment of the bankruptcy petition, calling a second hearing. Occasionally, the debtor does not appear at that second hearing, and the court declares bankruptcy in the debtor’s absence. Until recently, once a debtor had appeared in the bankruptcy proceedings it implied that such debtor had been heard, even if the debtor would not appear at the next hearing at which bankruptcy was declared. The main consequence was that debtors did not have the option to object but could appeal only to the bankruptcy orders.

However, in its ruling of 27 February 2019, the Court of The Hague nuanced this adagium. It is important, after all, for debtors to be actually heard at the hearing they attended and he had the opportunity to raise a defense. If this did not happen, for example if only a request for deferment was made at the hearing or because the petition contained errors, this could result in no 'hearing' of the debtor. This means that in the event of an unexpected declaration of bankruptcy, a proper investigation must be made into whether the debtor should object to or appeal against the bankruptcy order. Such investigation could well reveal that the objection option is still open to the debtor.

Buren is happy to assist you with matters like these. Please do not hesitate to contact us whenever you have questions or remarks about this legal alert.