New rules on bankruptcy fraud in the Netherlands

On 5 April 2016, the Dutch parliament has approved two legislative proposals that target bankruptcy fraud in the Netherlands.

 

Wet civielrechtelijk bestuursverbod (Act that bans fraudsters to be on the board of a company)

The first proposal that has been adopted is the so-called Wet civielrechtelijk bestuursverbod. In the event that a director of a legal entity has been convicted for bankruptcy fraud, such person is not allowed to be on the board or supervisory board of a legal entity for a maximum of 5 years. The intention is to prevent that convicted fraudsters can continue their fraudulent activities through other legal entities or utilize a structure of legal entities to conceal fraudulent activities. Typical bankruptcy fraud includes for instance VAT fraud, where VAT is reclaimed on goods that have been exported where upon re-importing the same goods (often only paper), VAT is not paid and the importing company applies for bankruptcy.

The ‘board ban’ is registered with the Trade Register in order for third parties, such as a civil law notary and the Chamber of Commerce, to readily verify whether a person who wants to incorporate a company or who wants to be registered as a director is blacklisted.

Wet herziening strafbaarstelling faillissementsfraude (Act that revises penalties for bankruptcy fraud)

The second bill that has been adopted is the Wet herziening strafbaarstelling faillissementsfraude. The main goal of this Act, as part of the Criminal Code, is to increase possible legal actions against bankruptcy fraud.

Now, a director of a bankrupt company can be prosecuted if he or she has excessively spent money and by doing so he or she has disenfranchised the company’s creditors. Also, currently, fraudsters may often avoid conviction by having the (financial) accounts of the company deliberately disappear or by not keeping accounts altogether. In practice, this makes it very difficult to reconstruct the financial dealings of the bankrupt company and, as a consequence, there may not be sufficient evidence for a conviction. The new Acts includes a separate penalty when, in the event of bankruptcy, the obligation to keep financial accounts has been violated.

Both legislative proposals that target bankruptcy fraud in the Netherlands are part of the broader legislative program ‘Reassessment of Dutch Bankruptcy laws’ (Herijking faillissementsrecht). It is expected that both proposals will come into effect on 1 July 2016.

For more information please contact the Restructuring & insolvency of BWK Partners.