An interesting article on Dutch bankruptcy law by respected insolvency academic Dr Jessie Pool[1] at Leiden University, and what she terms “empty estate insolvencies”, or “assetless estates” in our idiom, mirrors similar issues in Australia and may provide options for the Productivity Commission’s inquiry into barriers to business dynamism.
The Dutch findings
Dr Pool’s article – Bankruptcy on a Budget: The Dutch Approach to Empty Estate Insolvencies, outlines the Dutch legal framework governing such cases, examines the practical difficulties involved, and draws on recent empirical findings to illustrate the structural nature of the problem. She offers views on how these assetless insolvencies might be handled to “safeguard procedural integrity and creditor protection”.
As she explains, a mechanism under Dutch corporate insolvency law – the so-called turbo-liquidation (‘turboliquidatie’) – is being applied to individual bankruptcies to address this problem.
There is however concern about this approach in that it is in tension with the established position that the absence of assets is not in itself a valid ground for refusing a bankruptcy petition, nor does it absolve the trustee from conducting an independent investigation into the debtor’s financial affairs – into avoidance claims, directors’ liability, or other sources of asset generation, which may not initially be apparent. Only after this investigation has been conducted can the trustee conclude that the estate contains no funds and, with the court’s approval, close the bankruptcy.
The statistics
She explains that about one quarter (21-27%) of all bankruptcies in the Netherlands result in the trustee’s fees not being paid.
The median amount written off is €7,561 per bankruptcy, amounting to about €7.8 million per year across all cases.
In bankruptcies where the remuneration is not fully paid, trustees must write off 61% of the declared fee.
As she says, this is a structural aspect of the Dutch system:
“trustees are legally required to perform core tasks, but in a substantial share of cases the system provides no financial basis for doing so. The result is an insolvency framework that implicitly depends on trustees accepting significant and recurrent financial losses”.
Other options than bankruptcy?
Dr Pool offers a number of options.
She raises the fundamental question whether every bankruptcy petition should lead to the appointment of a trustee when the debtor clearly has no assets.
Other jurisdictions address this risk by embedding a “quick-scan procedure” that assesses both the likelihood of recoverable assets and indications of misconduct. When the scan suggests no impropriety and no value to be realised, the debtor may instead be routed toward alternative procedures.
But then even with such filtering mechanisms, some bankruptcies will continue to have insufficient assets to fund even the trustee’s core statutory duties.
She then lists various options, listed as follows:
- Cross-subsidisation by richer estates, with creditors in solvent estates indirectly subsidising assetless estates.
- A public trustee, though she says this would require a major redesign of the Dutch system and impose significant costs on the state, while still performing work primarily in the interest of private creditors.
- The creation of a multi-stakeholder fund, financed by “modest contributions from parties with an interest in a well-functioning insolvency system”, entrepreneurs, secured creditors, the tax authority, trustees themselves and the state, reflecting its public interest in orderly market exit.
- Public funding of the investigation of irregularities, fraud, and misconduct might be considered, even when no recovery is possible, the trustee’s work benefiting the public interest rather than the creditors.
As she concludes, these various elements – threshold mechanisms, guaranteed financing of standard tasks, a multi-stakeholder fund, and an expanded publicly funded fraud-investigation framework – form a coherent road-map for addressing the structural financing problems in empty estate bankruptcies.
Australia
Rather uncannily, this largely represents the position in Australia, even though, significantly, we have a publicly funded Official Trustee in Bankruptcy role.
Australia followed the English model in recognising that so many bankruptcies will be assetless that the state should have the task of their administration. Professor Pool’s dismissal of the idea of a public trustee does not acknowledge that this is the system not only in Australia, but also the UK and Singapore, with New Zealand going further and having only the Official Assignee administering bankruptcies.
As to whether being assetless is a defence to bankruptcy, as in the Netherlands, the answer here is no. The unusual leading case involved a religious brother whose defence against a bankruptcy petition, that he had taken a vow of poverty, was dismissed.[2]
Where there are assets, a private profession of around 210 registered trustees administers them.
The problem of assetless estates is also exacerbated by the extensive public interest work done by trustees and liquidators, little acknowledged, and with no direct benefit to creditors but with costs imposed on them.
As an English court has explained, “there are many ways in which costs may be incurred which are not related, principally or even at all, to the assets and liabilities of the estate”.[3]
One response to that, as a guiding principle, is that
“private functions should be performed by the private sector and paid out of funds otherwise available for distribution among creditors, while public functions should be performed by public officials and paid for out of public funds …”.[4]
Hence, as in the Netherlands, it might be said that Australia has
“an insolvency framework that implicitly depends on trustees accepting significant and recurrent financial losses”.
However, and necessarily, there has to be cross-subsidisation by estates with assets, through charge out rates being adjusted accordingly. The creditors in those estates indirectly subsidise work on assetless estates. The system requires that.
This is an issue internationally and useful guidance is offered by the international bodies. See for example the UNCITRAL Legislative Guide on Insolvency Law Part five: Insolvency law for micro-and small enterprises at Section one, and the mechanisms for covering the costs of “simplified insolvency proceedings”.
A risk focused alternative
In the context of the current Productivity Commission inquiry into barriers to business dynamism, such as excessive regulation, the nature of bankruptcies in Australia is such that we could likewise ask whether every bankruptcy petition should lead to the appointment of a trustee when the debtor clearly has no assets.
Algorithmic and related tools can be applied to the data held by the regulators to address any risk by way of assessing both the likelihood of recoverable assets and indications of misconduct. As Dr Pool suggests, when the scan suggests no impropriety and no value, the debtor may instead be routed toward alternative procedures.
Of an adult population of over 22 million in Australia, personal insolvencies lie at about 13,000 per annum. And as AFSA explains, most have low incomes, limited assets, and few financial options.
Hence the personal insolvency system functions primarily as a safety net for financially vulnerable individuals, rather than as a mechanism for resolving high-value financial failures. Hyper and costly regulation must be tempered. Anecdotally, the time spent by public regulators on administering these no asset estates has been put at between 10 minutes and 2 weeks.
Business-related insolvencies
The same approach could be taken with “business-related” insolvencies, being around 27% of all personal insolvencies, with 88.2% of them being bankruptcies, and most being voluntary. Business failure is the most commonly (56.5%) reported reason for entering personal insolvency, including through liabilities from personal guarantees.
The problem of resolving the insolvency of a small business with corporate and personal liabilities involved, is also to be considered by the Productivity Commission, with useful insights and experience offered by the World Bank, UNCITRAL and others. See for example the UNCITRAL Legislative Guide on Insolvency Law Part five: Insolvency law for micro- and small enterprises at Section one, Part N. Treatment of personal guarantees and procedural consolidation and coordination of proceedings.
Funding
As to funding in Australia, the options are few. An Assetless Company Fund supported by a fee imposed on company registrations was recommended by the 1988 Harmer Report but rejected. Australia once toyed with a $200 filing fee for a debtor to go bankrupt, but the politicians reacted badly, and it did not proceed. This is despite the £680 fee in the UK Becoming bankrupt: Applying to become bankrupt – GOV.UK and the high ‘fee’ in initiating an Australian corporate insolvency. Section 305 funding under the Bankruptcy Act is very limited.
Even if there were stronger means to pursue recoveries, Australia allows and even encourages asset protection through trusts and like mechanisms, the business environment is opaque and the litigation and other costs of recovery are high, such that any recoveries may go to meet the otherwise unfunded costs of the trustee.
The value of realisable assets held in business insolvencies is also diminishing.
Data is there but there are impediments to its extraction and use.
Review
The Productivity Commission is looking at the insolvency system as a whole, not confined only to personal insolvency, and largely the same issues arise in corporate where low divided returns from liquidations are comparable.
Dr Pool’s analysis adds to the concerns that Professor Jason Harris and I have raised in Australia over several years about the system being inadequately funded, from INSOL Academics in the Hague in 2013 through to the 2023 PJC Report, to INSOL Academics in San Diego 2024. Our 2022 article – Rebuilding the structure of the Australian insolvency system[5] – remains current and our comments in our Keay’s Insolvency text started with the 7th edition in 2011 and have continued through to the pending 12th edition in 2026.
Answers may be to increase the public role in the system, or reduce the tasks now required of practitioners based on risk focused criteria, or both.
In the context of the need for an efficient and effective insolvency system, Dr Pool’s analysis should assist us in the current productivity inquiry where there is much concern about over-regulation generally, and that may bring focus to the efficiency and effectiveness of Australia’s insolvency regime.
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[1] See Jessie Pool, Associate Professor of Insolvency Law, Leiden University, The Netherlands – Bankruptcy on a Budget: The Dutch Approach to Empty Estate Insolvencies, (2026) 23(3) International Corporate Rescue 164.
[2] Re Darcey [1988] FCA 165. The Federal Court cited Re Field [1977] 3 WLR 937, where Megarry VC warned against pleas of destitution becoming popular, and planned – “a man may indeed be too poor to be made bankrupt: but the burden of proof is heavy”.
[3] Brook v Reed [2011] EWCA Civ 331; [2011] 3 All ER 743.
[4] Paul Heath, Insolvency Law Reform: The Role of the State (1999) NZLRev 569.
[5] INSOL Academics, the Hague, 2013; Australian Academy of Law, 2021 – The roles of the state and the private profession in the insolvency system: do we have the right balance?; our 2022 submissions to the PJC inquiry into corporate insolvency leading to its 2023 Report; INSOL Academics in San Diego, 2024 – Rethinking the Structure of Australian Insolvency Law; and our 2022 article’s reference is (2022) 22(1&2) INSLB 14.
