In a judgment of 24 March 2017 (in Dutch), the Supreme Court of the Netherlands upheld the longstanding requirement that for a debtor to be declared bankrupt, there need to be at least two creditors.
Under Dutch law, bankruptcy can be applied for either by the debtor himself or by one or more creditors. The bankruptcy petition must include facts and circumstances which constitute prima facie evidence that the debtor has ceased to pay his debts. In order for this to be the case there must be at least two creditors.
The requirement for at least two creditors is called the 'plurality of creditors' requirement. This requirement is not laid down in the applicable legislation, but has been developed in case law from as early as the end of the 19th century, and is considered settled case law since 1927. The rationale behind it is that the purpose of a bankruptcy is to distribute the assets of the debtor amongst the joint creditors while preventing potential disruption of the paritas creditorum (equality of creditors) that could occur if each creditor would try to recover his claim separately. If there is only one creditor, there is no need for a bankruptcy trustee to 'distribute' the assets of the debtor, and thus, according to the Supreme Court, declaring a debtor with only one creditor bankrupt is not in accordance with the purpose of the bankruptcy. Furthermore the requirement is justified on the basis of the argument that it provides a buffer against companies being declared bankrupt too easily, as bankruptcy is a procedure of a radical nature.
Ideas differ on this in legal literature. Those opposing the requirement of plurality point out that in practice in many cases a bankrupt company is liquidated for the benefit of only one (secured and/or preferred) creditor. Other arguments put forward against the requirement are (in random order):
- Individual creditors do not always have adequate powers to recover their claim – whereas a bankruptcy trustee has powers that are more far-reaching;
- In practice in many cases it is difficult to find a second claim and to prove it (even if such second claim exists), because creditors have little access to information about their debtors, and consequently the creditor cannot successfully apply for the bankruptcy of his debtor even though the debtor has ceased to pay its debts and a plurality of creditors exists;
- The requirement encourages abuse, because it creates an incentive for a debtor to dispute the existence of other claims or to pay all other claims except for the claim of the creditor applying for the bankruptcy; and
- In other countries the plurality of creditors requirement does not exist (e.g. Belgium, France, Germany, England and the US), while in those countries the cessation to pay debts is also at the basis of a bankruptcy.
The Supreme Court however upholds the requirement in its latest judgment on the subject. It repeats its consideration relating to the purpose of a bankruptcy (see above) and points out that this purpose is upheld in the currently ongoing legislative programme on reassessment of bankruptcy law (Herijking Faillissementsrecht). Thus the ninety year old settled case law of the requirement of plurality of creditors is preserved, and a debtor with only one creditor does not have to fear a bankruptcy petition.
NB – when assessing whether a debtor has plurality of creditors, it is important to keep in mind that (i) only one claim needs to be due and payable (this does not have to be the claim of the creditor applying for the bankrupt-cy), (ii) the second creditor does not have to support the application for the bankruptcy.