What is suspension of payments?

Suspension of payments, also known as surseance van betaling, is a legal measure that temporarily protects a company from its creditors. This gives the company an opportunity to put its affairs in order without immediately going bankrupt. During this period, creditors are not allowed to seize assets or take other legal action to collect their claims.

Why Would a Company Apply for Suspension of Payments?

A company may apply for suspension of payments if it is temporarily unable to meet its financial obligations but still has prospects for recovery. Common reasons include:

• Liquidity problems – A temporary cash shortage, but expected payments in the near future.
• Time needed for restructuring – The company intends to cut costs, restructure its debts, or implement a reorganization.
• Negotiations with creditors – The company seeks an agreement with creditors but needs legal protection to prevent enforcement actions.
• Need for additional financing – Banks or investors may only be willing to provide funding if a restructuring plan is in place.

Who is Involved in the Suspension of Payments Process?

Several parties play a role in a surseance procedure:

1. The debtor (the company) – The entity applying for suspension of payments, usually via its lawyer, who submits the request to the court.
2. The court – Assesses whether the request should be granted and appoints an administrator.
3. The administrator – A court-appointed expert (often a bankruptcy lawyer) who oversees the company’s finances and assesses the situation alongside management.
4. Creditors – The parties with outstanding claims against the company, who will vote on a potential restructuring plan.
5. Potential financiers – Banks or investors who may provide additional funding (such as boedelkrediet, a form of estate financing).

Proposal for a Settlement

When applying for suspension of payments, a company may also propose a settlement (akkoord). This means requesting creditors to accept, for example, a partial payment of their claims. The alternative may be that they receive nothing at all. The percentage offered depends on the company’s financial position and the willingness of creditors to accept a reduction in their claims.

Temporary Nature of Suspension of Payments

Suspension of payments is initially granted on a temporary basis. In a later meeting, creditors decide whether to make the suspension permanent. During this meeting, they can express their approval or rejection of the proposal. The administrator’s advice often carries significant weight in this decision.

The ultimate goal of surseance van betaling is to ensure the company’s continuity, allowing creditors to be fully repaid over time. If this is not feasible, or if the administrator doubts the company’s long-term ability to meet its obligations, they may request the court to terminate the suspension and declare bankruptcy.

How Does Suspension of Payments End?

There are three possible outcomes:

1. Bankruptcy – If there is no realistic prospect of repaying debts, the suspension of payments may be revoked, leading to bankruptcy.
2. Termination without bankruptcy – If the company becomes financially stable again, the suspension of payments can end without leading to bankruptcy.
3. Creditor settlement – Creditors may agree to a partial payment of their claims. They will vote on this proposal, with the administrator advising on its feasibility and benefits.

Although many suspension of payments procedures ultimately lead to bankruptcy, careful preparation can make it a viable solution for temporary financial difficulties. Seeking timely professional advice is crucial, as suspension of payments does not necessarily mean the end of a business. Onkaa can help navigate this process, providing legal, financial, and strategic guidance.