In this context, the bankruptcy trustee will dig deep into the actual causes of the bankruptcy and shall scrutinise a number of management decisions, transaction (both intercompany transactions and transactions with third parties) and other acts of the bankrupt company.
In this connection, the bankruptcy trustee has at its disposal various audit instruments and far-reaching and powerful weapons. For example, with the investigating magistrate’s authorisation, the bankruptcy trustee can enter various locations (such as homes and offices) without permission, can have passports flagged and declared expired, have directors (and third parties also) formally examined by the investigating magistrate in court and can even have a director “held hostage” (whereby the director will actually be detained and remanded in custody until they cooperate), if they do not provide any information, do not cooperate sufficiently and/or do not fulfil their obligations. Naturally, we assist directors in all these cases during the trustee’s exercise of these extensive powers.
In specific cases, the trustee’s audit will result in their invoking directors’ liability. This can have very drastic consequences for a director, because this form of liability, even when the director is a company, is in principle immediately applied privately to the director behind the corporate veil. Therefore, a whole lot can be at stake.
Many acts resulting in directors’ liability can also have consequences for third parties who contracted with the company (which was not yet bankrupt at the time). Accordingly, we touch upon the Actio Pauliana doctrine, whereby the trustee can nullify legal acts performed prior to the bankruptcy with a third party (such as the conclusion of contracts of sale or the establishment of a security interest, for example) on the grounds of their being detrimental to the bankruptcy estate. This is complex stuff and a specialist’s assistance is necessary.
In our practice, we notice that many trustees resort to invoking directors’ liability and/or the Action Pauliana doctrine too easily. Through our vast experience in this area, we have been able, as lawyers, to successfully defend trustees’ claims in several cases and we were therefore able to induce the trustee to reach a suitable settlement at least.