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The legal position of the management board and the supervisory board in the conclusion of a bankruptcy agreement (faillissementsakkoord).

As part of the blog series: the legal positions of the corporate bodies of private limited companies in difficult financial circumstances, this blog discusses the legal position of the management board and the supervisory board in the conclusion of a bankruptcy agreement (faillissementsakkoord).

What does the board do?

Represent

In the event of bankruptcy, the board retains the authority to represent the company, including in the conclusion of a bankruptcy agreement (faillissementsakkoord). The conclusion and content of the bankruptcy agreement involve many legal aspects. For example, the general meeting could try to thwart the board from offering a bankruptcy agreement by refusing to give its consent for the bankruptcy agreement to be offered. There is debate in legal literature about whether the board can represent the company independently in such a situation. A solicitor can advise the board on the steps it can take in that case. It is therefore wise for the board to seek the assistance of a solicitor when concluding a bankruptcy agreement.

Informing and notifying

There is no dispute that the board’s duty to provide information to the shareholders’ meeting continues to exist in the event of bankruptcy. However, this duty is more limited than outside bankruptcy, because the power to manage and dispose of the assets of the company in bankruptcy lies with the trustee. The scope of what must and must not be reported is determined by the open standard of reasonableness and fairness. A serious interest of the company may still prevent the requested information from being provided to the shareholders.

Directors are also obliged to attend the verification meeting if they are summoned by the trustee. At the request of the bankruptcy judge, they must provide all information about the causes of the bankruptcy and the state of the estate. The directors also have this duty to provide information to the trustee. It is important for a director to know that the duty to provide information is not limited to the information he has received in his capacity as a director.

A director may oppose the proposal of a bankruptcy agreement offered by the trustee

A situation may arise in which the trustee considers it to be in the interests of the creditors to conclude a bankruptcy agreement. If the board considers this to be undesirable, but the trustee persists, the board may object to the trustee’s proposal for the bankruptcy agreement to be confirmed by the court-appointed trustee. For example, the board could argue that it is in the interest of the company to avoid unnecessary estate costs.

What does the supervisory board do?

Supervision and advice

Even in the event of bankruptcy, the supervisory board continues to supervise the board of directors and advise it. As the role of the board of directors is limited, the role of the supervisory board is also reduced.

Right to information

Nevertheless, the supervisory board is still entitled to timely and necessary information from the management board. For example, the supervisory board supervises the management board’s (intention to) offer a bankruptcy agreement and advises the management board in this regard.

Other (statutory) powers

It is important to note that the statutory (approval) powers of the supervisory board remain in force in the event of bankruptcy. Violation of these powers may have consequences for the legal validity of a management decision or an agreement concluded by the management board. If, for example, creditors know that the required approval of the supervisory board is lacking, it may be unacceptable to hold the company to the agreement.

In addition, the supervisory board may represent the company in a bankruptcy agreement if all directors are also unsecured creditors of the company. After all, a director should not participate in deliberations and decision-making if he has a direct or indirect personal interest that conflicts with the interests of the company.

Are you a director and would you like to offer a bankruptcy agreement? Or are you a supervisory director and would you like advice on your role in the bankruptcy agreement? Please feel free to contact us. We will be happy to advise you.

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The legal position of the management board and the supervisory board in the conclusion of a bankruptcy agreement (faillissementsakkoord).