Direct Pay's bankruptcy: a case of debt, investors and conflicts of interest

The financial industry is no stranger to scandals and unexpected falls. However, when these stories come to light, it can cause a shock. Thanks to a disclosure from the FD (and a tip from Dynamite Netherlands), we gained insight into the recent bankruptcy of Direct Pay (DP), a story that takes us into a complex web of debt, suspicious links and losses for investors.

The Principals:

1. Direct Pay (DP):
   DP, once a prominent debt merchant, had a simple but profitable method: they bought up consumers' unpaid bills and sent these debtors a collection letter. If the bill was not paid, they took the debtors to court, often increasing the value of the receivables.
2. CE Credit Management Invest Bond Fund:
   Investors had the promise of attractive returns in mind when they collectively invested €75 mln in DP through this fund. However, following DP's bankruptcy, they now find themselves in troubled waters.
3. Rabobank:
   This bank, once a major lender to DP, is now in a complicated legal battle, trying to recover its €20 mln from the bond fund.

Conflicts of interest and alleged unsound governance:

The interconnectedness between the bond fund management and DP cannot be ignored. With Ron Klaassen at the helm of the bond fund and his brother, Kees Klaassen, as top executive at DP, questions were raised about possible conflicts of interest. Especially when it emerged that the fund had lent €4.8 mln to DP when the company was already on shaky legs.

The real victims - the consumers:

We must not forget that behind every debt there is a person. DP's bankruptcy had not only financial consequences, but also personal ones. By raising collection fees and litigating against people in debt, DP caused suffering to many consumers. In addition, 21,000 consumers faced BKR registration due to the bankruptcy. This is a worrying consequence, given the barriers it creates for future financial transactions such as taking out a mortgage. Fortunately, the BKR recently decided to remove these registrations, alleviating some of the concerns of these debtors.

The failure of Direct Pay highlights the fragility and complexity of the financial sector. It reminds us that ethics must be a core value for any financial entity. And as the legal battle continues, we must consider the broader impact: preventing such a situation from occurring in the future.