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After long litigation, a judgement finally comes down in your favour. The other party has to pay your claim. But now, when you want to enforce the judgement, it turns out that the legal entity is empty (and has no assets left). There is nothing to recover from the opposing party, making the judgment basically useless. You then note that another company has been set up by effectively the same people with effectively the same activities. This, of course, feels a bit crooked.
Nevertheless, there is an opportunity to recover the claim if the other party is a shell legal entity. This may be possible through identification. Conjunction means that a new legal entity is established that has actually taken over the full identity of the other legal entity and, in the process, also performs the same acts. Often, the second legal entity is incorporated to disadvantage creditors, as these creditors in principle have no claim against the newly incorporated legal entity. However, it should be noted that identification does not apply to a restart in case of bankruptcy. Indeed, the incorporation of a new legal entity is of course not prohibited in theory, but if this is done to avoid liability, rules exist to protect creditors. With identification, the identity difference is eliminated, which means that the claim that should in principle be recovered from the empty legal entity can now be recovered from the newly created legal entity.
To demonstrate identification, one needs to show that there is interrelatedness. Think of the same industry, the same customers, the same working methods, the same agreements, etc. In addition, the incorporation of the new legal entity is often simultaneous with legal proceedings or just before. Another condition is that the assets and other income of the old legal entity, are now in the newly established legal entity. The so-called Rainbow judgment states that the new legal entity can be held liable for e.g. an unexecuted judgment if the new legal entity is a continuation of the old legal entity and its incorporation is intended to disadvantage creditors.
However, this sounds easier than it is, because how do you concretely determine whether there is identification (and thus the same identity)?
By doing a lot of research! Although this is easier said than done. By looking at various aspects, you can conclude whether there is intertwining. For example, comparing the websites of the different legal entities, agreements used and what business activities both legal entities conduct. In the Chamber of Commerce, you can further look at the time of incorporation and the annual accounts of both legal entities and compare them. Do all these aspects match fairly identically? Then they can be said to be intertwined. In short, it is important to scrutinise the issue thoroughly.
All in all, identification is difficult to prove, but certainly not impossible. In this way, the creditor does not have to stand empty-handed if he knocks on the door of an empty BV.
Advice on identification or are you having problems with a non-paying party? Then contact one of our Corporate Law specialists.
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