Background
In early 2022, a mid-sized Dutch logistics company was declared bankrupt following a period of acute financial distress. The appointed administrator, acting under the supervision of the supervisory judge, began a standard assessment of the estate.
During the review of the company's financial records, the administrator identified a pattern of conduct by a former director in the period preceding insolvency. The analysis suggested that the director had made a series of decisions that had materially worsened the position of creditors. These included the repayment of connected-party loans at a time when the company could not meet its obligations to third-party creditors, and the disposal of assets at below-market value to a related entity.
Under Article 2:248 of the Dutch Civil Code, directors of a bankrupt company can be held jointly and severally liable for the total shortfall in the estate if they have manifestly performed their duties improperly and that improper management constitutes an important cause of the bankruptcy. The administrator's advisers concluded that the factual record supported a credible claim.
The Funding Problem
The administrator faced a straightforward but intractable problem. Pursuing the director liability claim required legal fees, expert accounting support to trace and quantify the relevant transactions, and likely trial preparation costs if the director contested the claim, which early indications suggested he would.
The estate had insufficient liquid assets to fund those costs. Taking litigation risk with estate funds would have required supervisory judge approval and exposed the administrator personally to criticism if the claim ultimately failed. In practice, the claim would have been abandoned.
Rook Radcliffe Partners' Assessment
Rook Radcliffe Partners received a case summary from the administrator's instructed counsel in the spring of 2022. The submission included a preliminary overview of the factual background, the legal basis for the claim under Articles 2:248 and 2:9 of the Dutch Civil Code, and a high-level estimate of the quantum.
The primary risk Rook Radcliffe Partners identified during due diligence was the director's personal asset position: a judgment against an individual with limited realisable assets is of limited value regardless of its legal merit. Rook Radcliffe Partners instructed an independent asset investigation as part of formal due diligence. That investigation confirmed that the director held personal real estate and liquid assets sufficient to satisfy a judgment within the estimated quantum range.
The second area of scrutiny was the improper management threshold. Dutch law requires that the administrator demonstrate manifest impropriety, not merely poor judgment. The factual record, in Rook Radcliffe Partners' assessment, met that standard, particularly with respect to the connected-party loan repayments made within the statutory look-back period.
A term sheet was issued within one week of the initial assessment. Formal due diligence concluded in six weeks. The LFA was executed in the summer of 2022.
Proceedings and Resolution
Proceedings commenced before the Amsterdam District Court. The director contested the claim and instructed legal counsel. The matter proceeded through an exchange of written pleadings and a hearing before the court.
Approximately fourteen months after the LFA was executed, the parties reached a negotiated settlement. The settlement figure was agreed at a level that allowed the administrator to make a distribution to unsecured creditors, an outcome that had been considered unlikely at the outset of the administration.
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