Composition with creditors
Extrajudicial composition with creditors
Debtors who experience financial problems can offer their creditors to pay a certain percentage of the amount owed as a final settlement. This is called a composition with creditors. Creditors are not obliged to agree to this. A creditor is entirely free to determine the contents of a composition with creditors. In addition to money, shares in the company can also be offered as a payment of the debt. The better the offer, the more attractive it will be for the creditors to accept the composition with creditors, of course. The costs savings with regard to a collection procedure may also be an overriding factor for the creditor.
Compulsory composition in bankruptcy
In case of a bankruptcy, suspension of payment or a debt restructuring scheme, an arrangement scheme may be established by the court and be declared binding on all creditors. This is called a (compulsory) composition. When half of all debtors, who jointly also represent half of the debts owed, agree to the composition, it will be accepted. The court then has to confirm the composition; this is called sanctioning. After the composition has been sanctioned, it will be binding on all creditors. Debtors who have voted against the composition will then be bound by it as well.
Assessment of composition with creditors
For the assessment of a composition with creditors, it is first and foremost important that sufficient information is provided for assessing the offer. The offer must make clear how the financial problems of the debtor came about, what the debts consist of, and who the creditors are. Furthermore, the debtor’s financial position and prospects must be clear. It must also be clear whether the debtor finances the composition himself or a certain party has provided an amount for this purpose. If the debtor is unable to make use of this amount without the composition, it is more attractive to accept the a composition.
Tax authorities and composition: double percentage
The Tax Authorities are often willing to cooperate in a composition if this may save the debtor’s enterprise or may result in a restructuring of the debtor’s financial situation. In nearly all cases, the Tax Authorities make it a condition that they receive a percentage that is twice as high as the percentage received by the other creditors. The guidelines for this have been laid down in what is called the Collection Guidelines and also apply in case of a compulsory composition.