Almost every week we read newspaper reports about companies that have gone bankrupt. Recent examples include VanMoof, BCC and Big Bazar. Bankruptcy not only has major consequences for the company and staff. It also affects creditors, landlords, suppliers and customers.
Suppose you entered into a purchase agreement with the bankrupt. In principle, bankruptcy does not affect the rights obligations under the purchase agreement. Yet the trustee cannot always fulfill the obligations of the agreement. For example, did you purchase goods from the bankrupt prior to bankruptcy and they have not yet been delivered at the time of the bankruptcy declaration? Then these goods may no longer be delivered by this trustee.
Below I discuss three different situations that may arise if you have a purchase agreement with a bankrupt company.
Unfulfilled or partially fulfilled agreements
Suppose you have a purchase agreement with the bankrupt whose obligations, both by you and the bankrupt, have not been fulfilled, or have been fulfilled only partially. In that case, you should give the trustee a deadline. Within that time, the trustee must decide whether or not to honor the purchase agreement. In doing so, the trustee will consider whether fulfilling the agreement is beneficial to the estate (the estate, simply put, is the assets of the bankrupt with which creditors are paid). The agreement can also be tacitly honored by the trustee.
Only the bankrupt has yet to meet its obligations
You may also have delivered goods to the bankrupt, but their invoices have not yet been paid. In those cases, depending on the situation, you have several options. Below are some examples.
Retention of title
In some cases, you can recover your goods, for example, if you have delivered goods with a retention of title. Because the invoices were not paid by the bankrupt, you are still the legal owner and can recover them. The goods must still be with the bankrupt and you must be able to prove that they are your goods. It is wise to make this known to the trustee at short notice. Here, there is the possibility that you may have to pay an estate fee before you get your goods.
Right of advertising
If you have delivered goods and the bankrupt has not yet paid the invoices for them, you can also invoke the right of claim. This is a legal right and need not be included in the agreement. If legally invoked, you can claim and recover your goods.
The bankrupt has fulfilled its obligations
It may also be the case that the bankrupt has already paid for the goods, but you have yet to deliver the goods. In this case, the trustee will seek performance. In principle, the declaration of bankruptcy does not affect the obligations under the contract. You must deliver the goods at the trustee’s request.
Do you have an outstanding claim against the bankrupt? Then you may be able to set off the bankrupt’s claim against your claim. This requires that both claims arose before the bankruptcy declaration or resulted from actions taken with the bankrupt before the bankruptcy declaration.
Questions?
Would you like to know the consequences of a (possible) bankruptcy declaration on the contract you have entered into? Or has your counterparty declared bankruptcy and you want to know what your options are? Please feel free to get in touch.
