A contractor's bankruptcy is the worst-case scenario a renovation can bring for the client: the work has stopped, money has already been paid and the house is half open. Yet it is not a situation without rules. The Faillissementswet (Dutch Bankruptcy Act) determines who now decides on your contract, the Burgerlijk Wetboek (BW, Dutch Civil Code) determines who owns the materials lying on the building site, and quality marks and insurance policies determine whether anyone else bears the extra costs. This article goes through the steps in the order in which they come up in practice. The outcome differs from case to case; where large sums are at stake, legal advice, for example through your legal expenses insurance, is no unnecessary luxury.
Step 1: verify the bankruptcy and stop paying the contractor
Rumours are not a bankruptcy. A company is only bankrupt once the court has declared it so; in the same judgment the court appoints a curator (trustee in bankruptcy) (Article 14 of the Faillissementswet). That ruling is entered in the Centraal Insolventieregister (Central Insolvency Register) of the Dutch judiciary (Article 19 of the Faillissementswet), a public register that you can search online yourself by name, KvK number (Chamber of Commerce registration) or postcode and house number. The bankruptcy is also recorded in the KvK Handelsregister (Trade Register), including the name of the curator. If you look up the contractor and find nothing, there may be a suspension of payments, a debt arrangement or simply a contractor who no longer responds; in that last case the ordinary rules for breach of contract apply, with a formal notice of default as the first step.
Once the bankruptcy has been declared, you pay nothing more to the contractor directly. After the judgment the contractor may no longer dispose of their assets; only the curator has that authority. If you still pay an outstanding instalment into the old account, you run the risk that the payment does not discharge your debt and that the curator claims the amount again. Only pay on the written instruction of the curator, and only for work that has actually been carried out.
Step 2: the curator and your contract (Article 37 of the Faillissementswet)
Your construction contract does not end automatically because of the bankruptcy. The law gives the curator the choice of still performing the contract or not. Because you cannot be left in uncertainty indefinitely, you can force that choice: you give the curator a reasonable deadline in writing to state whether they will perform the contract. If the curator does not declare themselves willing within that deadline, they lose the right to demand performance from you (Article 37(1) of the Faillissementswet). If they do declare themselves willing, they must provide security for that performance (Article 37(2)). In practice, with a private renovation a curator rarely chooses to perform: there are no staff left, no credit with suppliers and no benefit to the estate. So expect to have to carry on yourself.
Send that letter by e-mail and by registered post, state the bankruptcy number, enclose the contract and an overview of the instalments paid, and in the same letter ask the curator for a position on the materials on the building site and for release of the works, so that you can bring in another contractor. If no response comes or the curator refuses, you can terminate the contract; the claim arising from that you submit as an unsecured creditor (Article 37a of the Faillissementswet).
Step 3: your prepaid instalments are an unsecured claim
Everything you have paid for work that was not carried out, together with the extra costs a new contractor charges you, makes up your claim against the estate. You submit it to the curator with supporting evidence: the contract, invoices, proof of payment and preferably a record of the state of the work. Lawyers call this "submitting for verification". Do so quickly and completely; on the basis of all the claims submitted, the curator draws up an order of priority and a distribution list.
Be realistic about what it will yield. First the costs of the estate are paid, including the curator's fee, then the preferential creditors, such as the Belastingdienst (Tax and Customs Administration) and the UWV (Employee Insurance Agency), while a bank with a right of pledge or mortgage recovers from its collateral as a secured creditor outside the order of priority, and only after that the ordinary, unsecured creditors, which is where you as the client belong. The KvK puts it bluntly: there is a good chance that an unsecured creditor will get nothing or only a part. Many bankruptcies of small building firms even end "for lack of assets", with no payout at all. So plan your restart as if this money is gone; any payout often only comes after years and is then a bonus. If the business was a sole proprietorship or a general partnership (vof), the business owner is personally liable, but even then you share in the same order of priority.
Step 4: who owns the materials on the building site?
Three situations get mixed up here, and the answer differs for each one.
- Incorporated into the home. Window frames that have been fitted, brickwork that is standing, pipes that have been laid: whatever has been permanently joined to your home has become your property by accession (Article 5:20 in conjunction with 3:4 BW). That also applies if the contractor never paid their supplier. The supplier can no longer take those items back; they only have a claim against the estate.
- Delivered, not yet installed, paid for by you. If the packs of insulation or the bathroom were invoiced in your name and paid for, or if you agreed in writing with the contractor that paid materials are your property, then they belong to you. Present this to the curator with invoices and photos and do not let them be taken away.
- Delivered, not yet installed, not paid for by you. This is the tricky case. Many building suppliers deliver under retention of title (Article 3:92 BW): they remain the owner until the contractor has paid. They can reclaim those materials through the curator. If there is no retention of title, the materials belong to the estate and the curator decides what happens to them. You may not simply start using them; ask the curator in writing whether you can take them over, often for a reasonable fee.
What you do in every case: take photos of everything that is lying there, secure the building site and don't let anyone collect anything without consulting the curator. If a supplier comes to remove materials without permission, refer them to the curator.
Step 5: subcontractors and suppliers knocking on your door
The plasterer, the installer or the timber merchant who were engaged by your contractor and have not been paid sometimes turn up at your door asking you to settle their invoices, sometimes suggesting that otherwise they will come and remove "their work". Legally it is simple: you have no contract with them. They have a claim against the bankrupt contractor and must submit it to the curator; you owe them nothing. If you pay them out of goodwill, you pay twice for the same work. What you can do: hire a subcontractor who knows the job directly for the remaining work, under a new, written contract and at a new price. In that case, agree explicitly that old claims against the contractor are excluded from that arrangement.
Step 6: quality-mark guarantee, insurance and legal expenses cover
Whether someone else bears the loss depends on what you arranged before the start. With a contractor affiliated with BouwGarant, you could take out a Verbouwgarantie (renovation guarantee) before the work began; in the event of bankruptcy it reimburses the extra costs of completion and after handover it covers hidden defects. The scheme must be taken out before the start, and requires a signed contract with a cost breakdown and a payment schedule in line with BouwGarant's rules; you receive a certificate as proof. If you have that certificate, report the loss immediately. The guarantee certificates of Woningborg and SWK (Dutch new-build guarantee institutions) are intended for buyers of a new-build home: they cover completion if the builder goes bankrupt and warranty complaints after handover, but they do not apply to an ordinary renovation of an existing home, unless your project has been registered under a specific renovation scheme of such a guarantee fund. Exactly what each quality mark covers is explained in Quality marks in construction explained.
A CAR insurance (contractors' all risks) covers physical damage to the works during construction, such as storm, theft or a burst pipe; the bankruptcy itself is not covered damage. If the CAR policy was taken out by the contractor, cover usually lapses with the bankruptcy and your half-finished renovation is left uninsured; inform your buildings insurer and ask whether your own CAR cover for the remaining period is possible. A legal expenses insurance with consumer or housing cover usually pays for legal help with writing to the curator, assessing the new contract and any disputes. If defects in the old work appear after handover, you can no longer recover them from the bankrupt contractor; how warranty works in that case is explained in Warranty after a renovation.
Step 7: carrying on with a new contractor
Before anyone else starts work, record the state of the work. Take detailed photos and video of every room, note what is finished, what is half finished and what is missing, and for a larger renovation have an independent building surveyor produce a condition report. That report is your evidence towards the curator (for your claim), towards the new contractor (to define the scope of their work) and later in case of defects. Ask the curator in writing to confirm that you may release the building site to a third party.
Then ask at least two contractors for a quote based on the condition report and the original drawings. A new contractor usually charges a surcharge for taking over half-finished work: they have to check what their predecessor did and sometimes redo parts. Record in the new contract which work is existing and which is new. Since the Wet kwaliteitsborging voor het bouwen (Wkb, the Dutch Quality Assurance for Construction Act), this is especially important: after handover the contractor is liable for defects that were not discovered at handover, unless those cannot be attributed to them (Article 7:758(4) BW). They will reasonably not want to bear that liability for the work of their bankrupt predecessor, so expect an exclusion for existing work and a separate handover of the new part. If your project falls under quality assurance, also inform the quality assurer and the municipality about the change of contractor. If you are financing with a construction deposit (bouwdepot), report the situation to the bank; some lenders ask for an amended renovation specification.
Preventing it on your next renovation
- Pay according to progress. A limited first instalment, interim instalments at recognisable milestones and a final instalment after handover; after every payment, more work should be in place than you have paid for. What that looks like is explained in Deposits to the contractor.
- Large sums only via a deposit account or guarantee. A notary's escrow deposit or a bank guarantee from the contractor keeps your money outside the estate.
- Materials in your name. Have made-to-measure items with long delivery times invoiced in your name, or record in writing that paid materials are your property.
- Check in advance. Look the company up in the Handelsregister (does it exist, who is the director, how long has it been around) and in the Centraal Insolventieregister; a previous bankruptcy of the same director is a warning sign, not a verdict.
- Choose a quality mark with a completion guarantee and actually take out that guarantee before the start; membership alone covers nothing.
- Watch for signals during the work. Suppliers who stop delivering, staff who disappear, requests to pay instalments early: in that case, hold back payment until the work is visible and ask for an explanation.
A bankruptcy also hits the tradespeople who worked for the contractor. The carpenter or bricklayer who knows your project is often the quickest route to a finished renovation, provided you make the arrangements again and in writing.