Your customer may be heading for bankruptcy: what you can still do as a supplier

If a shop pays later and later and orders less, a supplier has more options before a bankruptcy than after it. What you can still do and where a WHOA restructuring plan limits you.

A shop that always paid on time leaves last season’s invoices unpaid and orders less for the new one. It may just be a bad season, or it may be the start of something bigger. If your customer may be heading for bankruptcy, you have more room as a supplier in the months before than after. You can hold back the next delivery and set different terms for new orders. Once the court declares the shop bankrupt, the trustee takes over. What counts then is mostly what you put in writing earlier.

What happens after the bankruptcy to the clothes still hanging in the shop is explained under retention of title. This article is about the period before it.

Is a customer paying later and later, or are you unsure about the next delivery? Call 020 675 88 21 or get in touch.

Signs that a customer is running into payment problems

Bankruptcy rarely comes out of nowhere. For suppliers to shops it often starts with the payment term: first it is a few weeks late, then a part payment arrives without any agreement and then the shop asks whether the new collection can be supplied on consignment. Also watch for a customer that orders less while its shops look busy or that suddenly starts buying through a different company.

The Dutch Central Insolvency Register (in Dutch) shows whether a bankruptcy or a suspension of payments has already been declared. A pending petition does not appear there. If the shop is preparing a restructuring plan with its creditors, the statement that starts that preparation is filed with the court. As a creditor you can only inspect it once the plan is put to you (Article 370(3) of the Dutch Bankruptcy Act).

Suspending the next delivery when you no longer trust payment

If you supply on credit, you perform first and the shop pays later. If, after the agreement was concluded, you learn of circumstances that give you good reason to fear the shop will not pay, you may suspend the delivery (Article 6:263 of the Dutch Civil Code, in Dutch). What you already knew when you accepted the order does not count.

If an invoice for the same order is already outstanding, you may hold back the rest of that order until it is paid (Article 6:262). A further order is, legally, a new agreement. If you regularly do business with the same shop, there may still be enough connection to suspend a new delivery while an old invoice remains unpaid (Article 6:52).

If you suspend, keep it in proportion to what is outstanding and tell the shop in writing, giving your reason. Hold back an entire season’s delivery over one small invoice and the suspension itself may become a breach. If you work with the shop under an ongoing contract and want to stop altogether, read what to watch out for when terminating a long-term contract.

Asking for prepayment or security on new orders

For a new order you agree new terms. You can ask for prepayment, send a smaller first shipment or set a credit limit above which you only deliver once paid. Put this in the order confirmation and refer there to your terms of sale, so that it does not depend on which terms the shop itself uses.

If a contract for several deliveries is already running, such as a season’s order delivered in instalments, you have another tool. You ask the shop in writing to confirm that it will pay, state in that letter why you have doubts and set a reasonable deadline. If no such confirmation arrives in time, the consequences of non-performance take effect even though the invoice is not yet due (Article 6:80(1)(c) of the Dutch Civil Code, in Dutch). You can then terminate the part of the contract that has not yet been delivered (Article 6:265).

Taking back unpaid clothing while the shop is not yet bankrupt

With a retention of title clause you remain the owner of everything the shop has not yet paid for (Article 3:92 of the Dutch Civil Code). You don’t have to wait for a bankruptcy to rely on that. If your terms say you may take the goods back when payment is overdue, you can hold the shop to that now. After a bankruptcy, or during a cooling-off period, that becomes considerably harder.

What the shop has already sold to customers you will not get back. The shop was allowed to resell those pieces and the customer in the shop has become their owner. For that part of the delivery you are left with a claim against the shop. That is why a season that sold well leaves a supplier more exposed than a collection still hanging on the rails.

If the shop agrees to return unpaid pieces, draw up a signed list of what goes back and which invoices it cancels. Without retention of title you only have the right of reclamation, which comes with short deadlines; how to calculate them is explained under retention of title.

When a trustee can claw back a payment made before the bankruptcy

If the shop still pays an invoice that was already due in its final weeks, you may in principle keep the money. The trustee can only annul such a payment if you knew the bankruptcy petition had already been filed or if the payment resulted from consultation aimed at favouring you over the other creditors (Article 47 of the Dutch Bankruptcy Act, in Dutch).

The law is stricter for arrangements the shop was not obliged to make. If, within a year before the bankruptcy, you receive a payment or security, such as a pledge on the stock, for an invoice that was not yet due, both of you are presumed to have known that the other creditors would be prejudiced (Articles 42 and 43(1)(2°) of the Dutch Bankruptcy Act). If the shop offers you goods that are not yours instead of money, such as clothing from other brands or its shop fittings, the trustee can challenge that too if you both knew or ought to have known that other creditors would lose out.

A WHOA restructuring plan and the cooling-off period outside bankruptcy

Not every shop that is short of money goes bankrupt. Some try to reach a deal with their creditors through a restructuring plan under the Dutch Act on Court Confirmation of Extrajudicial Restructuring Plans (WHOA). The shop doesn’t have to have stopped paying yet. It’s enough that it is reasonably likely to be unable to keep paying its debts (Article 370(1) of the Dutch Bankruptcy Act). As a supplier you then receive a proposal in which you might, for example, write off part of your outstanding invoices. Creditors vote by class (Article 381(5)). If the court confirms the plan, it also binds those who voted against it (Article 385).

The fact that the shop is preparing a plan is not in itself a reason to suspend deliveries or terminate the contract (Article 373(3)). The court can also declare a cooling-off period of up to four months, which extensions can take to eight months in total (Article 376(2) and (5) of the Dutch Bankruptcy Act, in Dutch). Once you are aware of that period, you can only collect unpaid clothing from the shop with the court’s authorisation.

Your right to suspend shrinks as well. If the shop provides security that deliveries during the cooling-off period will be paid, you may no longer suspend or terminate because of invoices from before it (Article 373(4)). That is exactly when you want to know which of your pieces are still in the shop and whether your retention of title has been properly set out.

Advice for suppliers to a shop in difficulty

We look at your terms and order confirmations with you and tell you what you can still do with this customer. Sometimes that is a letter suspending a delivery, sometimes a payment arrangement you set out together so that a trustee has little to object to later. If you receive a WHOA proposal, we work out with you what it gives you compared with a bankruptcy. If the shop does go bankrupt, we notify the trustee of your retention of title straight away.

Is a customer paying later and later, or have you received a restructuring proposal? Get in touch or call 020 675 88 21.