Restarting a company

An imminent or inevitable bankruptcy does not necessarily mean the end of a company. A company can, in certain situations, make a restart. In that case, the company is continued or sold and the healthy business units preserved, while the loss-making elements are left in the bankruptcy estate.

How does a restart work?

How does a restart work? Making a restart is usually based on one of two constructions: • A company makes a restart after bankruptcy. In general, a company can only restart after going bankrupt. After the bankruptcy, only the healthy (profitable) business units remain. For this method to be successful, far-reaching changes within, among other parts, the business operations and the workforce are often necessary, as well as a substantial capital injection. Prior to the bankruptcy, a company can use an ‘undisclosed administrator’ to investigate, through a pre-pack, whether a restart after bankruptcy is an option. • A company succeeds in making a restart without going bankrupt first Restarting without bankruptcy is less common. This often requires a substantial amount of reorganization or restructuring, as part of which personnel may be dismissed and (surplus) business units or assets sold off. This form of restarting is expensive and time-consuming. Another option for a restart is to transfer the healthy business units to a new legal entity, i.e. the split-up of a company into viable and non-viable units, allowing unhealthy parts to be transferred to a newly formed subsidiary.

Restart after bankruptcy

In the event of a restart after bankruptcy, the bankruptcy trustee decides whether a company can be continued with only the healthy (profitable) parts. The loss-making business activities are not sold. The bankruptcy trustee offers the assets and healthy business units to candidates and interested parties, who may make an unconditional offer. The bankruptcy trustee negotiates with the parties about the purchase price and negotiates with creditors. After the conclusion of a purchase agreement, company ownership is transferred to the restart candidate. The purchase price is used by the bankruptcy trustee to pay outstanding creditors’ claims in the bankruptcy.

Restart requirements: the conditions

Restarting is only possible if it concerns a legal entity, such as a private limited company. Restarting is (virtually) impossible for companies with a different type of legal form. To give a restart a good chance of succeeding, it is important that a company also has healthy parts, or at least that a healthy basis remains. To continue the bankrupt company, requirements are set to the restart. For example, continuation should represent added value and be in the interest of the existing estate and assets. It may also be that jobs are at stake, in which case the bankruptcy trustee can also facilitate a restart, even though a higher amount could have been achieved if the assets had been auctioned. The bankruptcy trustee is authorized to make this decision. When is a restart not permitted?

• If the bankruptcy trustee finds that creditors are being disadvantaged, the restart is held back;
• If the restart is initiated before the bankruptcy is declared, this constitutes a conflict of interest between the old company and the restarter.

Technical bankruptcy

Deliberate management towards a restart is also referred to as a technical bankruptcy. The main reason for restarting a company this way is the fact that a company is not legally required to take over existing staff. In the event of a company takeover that does not involve bankruptcy, existing employment contracts are automatically transferred to the new company. This situation also applies in case of a suspension of payment. If the viability of a company is at risk due to an over-sized workforce, a restart can often only go ahead when redundant staff are left in the bankruptcy estate.

Job refusal after restart

After a restart, a company is not obliged to recruit (old) staff members again. This rule does not apply in the case of a company takeover. Are staff offered a new job after an unprepared restart? Refusing a job with the continuing company after a restart is not without consequences for employees. To be eligible for unemployment benefit, an employee must accept suitable work. If a (new) position is refused, the Employee Insurance Agency (UWV) has the right to stop the unemployment benefit or at least decide against granting benefit.

Restart: our specialists are ready for you

Is your company experiencing financial difficulties, but does have healthy business units? Then making a restart can be an option. Proper preparation is crucial for this approach to be successful. The lawyers of Fruytier Lawyers in Business are specialized in bankruptcy law and will be happy to support you in filing for bankruptcy or conducting an in-depth preparation of the refinancing of your company. Recognizing and where possible limiting directors’ and officers’ liability is of course standard, regardless of your situation. Thanks to our ample experience in the field of insolvency and knowledge gained in the role of bankruptcy trustee, we represent both entrepreneurs who want to make a restart and those who wish to buy assets from the bankrupt estate, providing strong and committed guidance in either process.