Bankruptcy administrators need more resources to investigate fraud, researchers say

Bankruptcy fraudsters too often escape capture because bankruptcy administrators do not have the financial resources to investigate their suspicions. An administrator is typically paid from the estate, but about a quarter of bankruptcies have an “empty” estate, so administrators either have to investigate out of their own pocket or let the matter go, De Telegraaf reports based on a study by Leiden University and SEO Economic Research, commissioned by the WODC. According to the researchers, bankruptcy administrators work an average of 8 million euros worth of unpaid hours per year.

The researchers advocate for the introduction of a fund from which bankruptcy administrators are paid a guaranteed basic compensation of 20 hours per bankruptcy. Companies, the Tax Authority, bankruptcy administrators, and the government can all contribute to the fund annually, the researchers suggest. This basic compensation can cover the standard activities for settling a bankruptcy, such as inventorying assets and debts and identifying any irregularities. Then, the researchers want to expand the existing guarantee scheme for administrators to finance fraud investigations.

Something unlawful occurs in 30 to 50 percent of all bankruptcies, researcher Jessie Pool of Leiden University told the Telegraaf. “There is also a strong suspicion that there is more fraud in empty estates, but there are no figures on that.”

Bankruptcy administrators are obligated by law to investigate any irregularities, but the question of who pays for this investigation has been a point of discussion for years, Pool said. The existing guarantee scheme only reimburses very specific costs, and the administrator is expected to reclaim the costs from the director. “As a result, many administrators only do what is necessary and there is no room for extensive fraud investigation.”

If a bankruptcy administrator suspects fraud with an empty estate, they can now have three options. They can either investigate it at their own expense, drop the case, or report it to the FIOD, the Tax Authority’s investigative department. “The FIOD then transfers the case to the police or Public Prosecution Service, but due to capacity problems, many cases are also left pending there,” Pool said.

According to Pool, bankruptcy fraudsters are aware of this shortcoming in the system. “So if you don’t want them to get away with it, the government must guarantee the costs of the fraud investigation, even if no money is immediately returned to the estate.”