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Pre-Packed Bankruptcies: value distroying or value preserving? NL evidence

A recent review of Pre-Packed Bankruptcies I worked on recently featured on the Oxford Business Law blog (see here) .

The work revolves around the value capture, or distruction of value instead, that surrounds various instances of bankruptcy arrangements.

All Souls Quad

With my colleagues at Leiden University we came to the following insigts:

Firms that find themselves in dire circumstances can improve their situation by proactively implementing strategic change to stem survival-threatening performance decline. Asset restructuring is a way to initiate such strategic change and to respond to imminent threats and opportunities in the business environment. As an alternative to conventional bankruptcy proceedings, pre-packed bankruptcy has received much attention in recent years. Pre-packed bankruptcies have been hailed by some for facilitating a debtor-driven restructuring of a distressed business and—compared to conventional bankruptcy proceedings—creating more value for all stakeholders. At the same time, they have been strongly criticized by others for failing to ensure adequate protection of the interests of all of those stakeholders.

In recent years, there has been growing interest in the question whether pre-packed bankruptcy can be a mechanism through which firms facing imminent insolvency can preserve value. Although an extensive body of predominantly legal literature exists on ‘pre-packs’, whether such techniques really preserve value remains ambiguous. 

Strategic bankruptcy
In the strategic management literature, the filing for a type of bankruptcy proceeding is referred to as ‘strategic bankruptcy’. It refers to the use of bankruptcy as a mechanism to enable firms to implement strategic changes to relationships with customers, suppliers, or other stakeholders. It aims to positively alter the firms’ likelihood of sustainable performance and to improve the chances of survival.

On the one hand, strategic bankruptcy is considered an option of last resort, after exploring the out-of-court options. As the ‘downward-spiral decline’ literature suggests, when a firm’s decline is left unchecked, its performance worsens over time and tends to become self-reinforcing, further depleting a firm’s available financial resources (also: ‘resource slack’). On the other hand, bankruptcy can also prove a ‘bridge over troubled water’. This is the core thesis of strategic bankruptcy: financially distressed firms are enabled to restructure and adapt to their changing environments through a bankruptcy proceeding, whilst at the same time limiting bankruptcy costs and public scrutiny. Therefore, a strategic bankruptcy is expected to preserve firm value and—not unimportantly—retain the firm’s employment and other key (intellectual) resources.

In our paper, we contribute to this literature on streamlining the bankruptcy process, taking a Dutch perspective. Using a strategic management research perspective, we focus on the retention rates of employment in two reorganisation-driven scenarios, analysing whether a pre-packed bankruptcy is more efficient and effective in preserving value for employees in terms of employment retention than in a conventional going-concern sale bankruptcy proceeding.

The Dutch Pre-Pack Revisited
In the Netherlands, the informal Dutch pre-packed bankruptcy has seen a strong uptake since 2012, but slowed down in 2017. The rise was in part due to the implementation of Article 5 of the Transfer of Undertakings Directive (TOU Directive) which provides an exemption from employee protection granted by Articles 3 and 4 of the TOU Directive in the case of insolvency proceedings. It introduced the feature for the pre-packed bankruptcy, that when the business is transferred post-bankruptcy—which is different from for instance the UK—employees could be dismissed by the transferee. In the cases of Smallsteps (2017) and Plessers (2019), the Court of Justice of the European Union decided that for these transfers of undertakings in bankruptcy proceedings, the exception of Article 5(1) TOU Directive did not apply. Instead, the main rules of the TOU Directive are applicable, which safeguard employees’ rights, including preventing that the transfer itself can constitute a ground for dismissal.

In the context of our empirical case study, we analysed the Dutch experience with pre-packed bankruptcy proceedings and conventional bankruptcy proceedings. By analysing bankruptcy proceedings filed with Dutch courts in the period 2012–2018, through the lenses of real options theory and debt overhang theory, we examined employment retention post-bankruptcy. We tested employment retention both as a consequence of the type of bankruptcy proceeding (pre-packed bankruptcy and conventional bankruptcy) and the severity of pre-bankruptcy financial distress.

Value creation by opting for a (Dutch) pre-pack
In our paper, we set out to contribute to a discussion on bankruptcy procedures as a mechanism for strategic change, and the type of bankruptcy proceeding that best serves that change. Drawing from real options theory and debt overhang theory, we argue that strategic bankruptcy limits bankruptcy costs, causes less value destruction in bankruptcy, and subsequently preserves a higher ratio of employees, post-bankruptcy. 

The results of the study show that in the Netherlands, a pre-packed bankruptcy—when compared to a conventional bankruptcy proceeding—positively impacts employment retention rates after bankruptcy. This finding takes the amount of resource slack into account, as well as the differences in firm size, industry employment trend, and annual GDP growth rate. 

Another finding is that the severity of financial distress before bankruptcy does not affect employment retention rates post-bankruptcy. This implies that despite resource slack, the preservation of employees is better served under a pre-packed bankruptcy than a conventional bankruptcy proceeding. This finding is important for insolvency practice as, up to June 2017, employee rights in the Netherlands (including redundancy) were— although not without critiques—not considered to be automatically transferred to the firm acquiring the bankrupt debtor’s assets when a pre-packed bankruptcy was applied.

The management of the distressed debtor plays a pivotal role in choices of strategic bankruptcy. Here we note that the debtor’s management is formally neither tasked with maximising value for the body of creditors nor considering employee retention in their strategic use of bankruptcy proceedings to pursue continuation of the business. However, the debtor-driven pre-packed bankruptcy still results in higher employee retention than going concern sales pursued by a liquidator in conventional bankruptcy. This is in line with real option theory, suggesting that the firm’s management aims for the strategic bankruptcy option that will result in the most beneficial alternative to successfully continue the business in a new legal entity. While only accounting for the impact on employee retention, contrary to current policy making, our empirical analysis highlights that employees can benefit from flexibility, and that flexibility thus can support policy goals in this area.

The underlying version of our paper has been published in the International Insolvency Review 2019(28) as well.

This project has been joint work by:

Rick Aalbers, Associate Professor in Strategy and Innovation at Radboud University.

Jan Adriaanse, Professor of Turnaround Management at Leiden University.

Gert-Jan Boon, Researcher on f Insolvency Law at Leiden University.

Reinout Vriesendorp, Professor of Insolvency Law at Leiden University.

Jean-Pierre van der Rest, Professor of Business Studies at Leiden University.

Frank van Wersch, an affiliated researcher of The Radboud Centre for Organization Restructuring

Rewiring the Intrafirm Network under Downsizing: The Role of Tie Loss on Discretionary Tie Formation

A recent publication in Long Range Planning brings to the fore the interesting phenomenon of network regeneration. Often we believe that networks of all sorts, formal, informal, and especially those that are voluntarily maintained, fall apart as an organization gets temporarily hammered by restructuring.

Interestingly however, some employees actually become more active instead. Reaching out to others not because they are told to, but because they see this as a manner to cope with the uncertainty – or even opportunity – associated with restructuring.

Aalbers, R. (2019) Rewiring the Intrafirm Network under Downsizing: The Role of Tie Loss on Discretionary Tie Formation, Long Range Planning, /

Drawing on the literature on structural embeddedness and self-determination, I assessed the impact of the sudden loss of discretionary maintained ties on the aptitude to establish new discretionary ties as I observed an organization enduring downsizing over time, in this case at a large information technology service provider. Findings outlined in this Long Range Planning article indicate the relevance of local structural as well as global structural embeddedness as a foundation for voluntary future tie activation.

Resilience of information flow during restructuring: Characterizing information value being exchanged and the structure of a network under turmoil

Recent work of mine together with Prof. Wilfred Dolfsma of Wageningen University that appeared in Journal of Business Research addresses the role of sudden organization turmoil on a firms delicate social network.

It demonstrates in particular how downsizing affects an organization’s voluntary ideation network in unexpected ways. Drawing on network theory, we show that the positioning of employees in an organization’s instrumental workflow network prior to a major restructuring determines the degree to which they remain engaged with ideation activity. In addition, drawing on social exchange theory, we predict and find that the value of inputs provided to peers prior to downsizing positively moderates the likelihood that ideation activity persists. So far the article has resulted in some interesting discussions on how to best prepare for a downsizing event with management in both profit and non profit sectors. Please let me know in case you are interested by dropping me an email and I gladly share our insights on this one in more detail with you to propel discussion on effective restructuring strategies forwards.

Resilience of information flow during restructuring: Characterizing information value being exchanged and the structure of a network under turmoil – HL Aalbers, W Dolfsma (2019) Journal of Business Research 100, 299-310

Beaufort Corporate Consulting en het Centre for Organization Restructuring verkennen het Nederlandse zorgdomein

Beaufort Corporate Consulting en het Centre for Organization Restructuring verkennen het  Nederlandse zorgdomein.

Centraal thema: Gesprekken met bestuurders over vastgoed, efficiëntie en innovatie binnen de Nederlandse vvt-instelling

 De Nederlandse zorg is uitstekend, maar heeft te maken met een grote uitdaging. De vraag naar goede zorg groeit, onder meer door vergrijzing, nieuwe behandelmogelijkheden en daarnaast hogere eisen aan de kwaliteit van de zorg. Tegelijkertijd is er een noodzaak tot kostenbesparing. Hoe realiseren we kwalitatief betere zorg met minder geld?

Beaufort schreef eerder vanuit haar jarenlange ervaring een boek over herstructurering in de zorg. Recentelijk werkte het adviesbureau samen met het Centre for Organization Restructuring van de Radboud Universiteit aan een tweede boek binnen het zorgdomein. Deze maal gericht op strategische vraagstukken gerelateerd aan de vastgoedkeuze binnen de zorg. In het licht van veranderingen in de wet- en regelgeving voor VVT-instellingen, stapte Beaufort in de zomer van 2017 in de auto om samen met Dr. Rick Aalbers van de Radboud Universiteit Nijmegen diverse prangende vragen voor te leggen aan bestuurders. De uitkomsten zijn samengevat in het boek “4.000 kilometer door het zorglandschap”.

De aanleiding van het onderzoek was de volgende:

De afgelopen jaren zijn de kosten van de zorg in Nederland enorm toegenomen. In 1972 waren de totale kosten aan zorg en welzijn nog 6,45 miljard euro. In 2016 waren de totale kosten opgelopen tot 96,2 miljard euro. Een toename van bijna 90 miljard euro. Dit is enerzijds te verklaren door een andere demografische samenstelling van onze samenleving als gevolg van de ‘babyboom’, anderzijds heeft ook de toenemende welvaart geleid tot een gestegen eisenpakket dat wij aan onze eigen (ouderen)zorg opleggen. In een poging om de kosten te drukken, introduceerde de Nederlandse wetgever voor de vvt in 2015 nieuwe wetgeving waarin ‘extramuralisering’ centraal stond. In feite wijst dit begrip op de weg die de wetgever is ingeslagen. Men probeert dezelfde zorg aan te bieden buiten de muren van een vvt-instelling. De nieuwe wetgeving zorgt ervoor dat de verhuizing van ouderen naar een vvt-instelling zo lang mogelijk wordt uitgesteld. Ouderen blijven langer thuis wonen, waar zij de zorg krijgen die zij nodig hebben.

De extramuralisering heeft ingrijpende effecten op vvt-instellingen. Was het verzorgingsgebied van vvt-instellingen vanuit het verleden goed afgebakend, nu zien zij ineens hun (intramurale) cliënten­aantallen als gevolg van de nieuwe wetgeving afnemen. In veel gevallen heeft dit een fors effect op de financiële prestaties van de vvt-instellingen. Zij blijven immers zitten met (deels) leegstaand en oud vastgoed voor intramurale zorg. Er wordt meer geconcur­reerd om cliënten te werven die wél een indicatie krijgen voor intramurale zorg. Veel instellingen worstelen met de vraag hoe zij het beste kunnen omgaan met deze nieuwe omstandigheden.

Daarmee samenhangend spelen bedrijven handig in op de ontwikkeling dat ouderen langer thuis blijven wonen. Zij introdu­ceren diverse producten en diensten, zoals automatische medicijn-dispensers en apparaten waarmee waardes in bloed- of urine­monsters kunnen worden getest, maar ook apps en apparaten die bijvoorbeeld beeldbellen mogelijk maken of die de communicatie tussen de oudere en zijn of haar arts versoepelen. De verwachting is dat deze ontwikkelingen de autonomie van ouderen vergaand zullen vergroten. vvt-instellingen zullen ook op deze ontwikke­lingen moeten reageren.

Bovengenoemde ontwikkelingen zorgen ervoor dat het vast­goed van vvt-instellingen wellicht onder druk komt te staan. Nu ouderen minder gemakkelijk in een vvt-instelling terecht kunnen, lopen de vvt-instellingen het risico op lege kamers. Dit uitgangspunt was voor ons de aanleiding om na te gaan wat voor vvt-instellingen beter is: vastgoed kopen of huren. Aan beide keuzes zijn voor- en nadelen verbonden. Het kopen van vastgoed geeft de eigenaar voordelen, zoals de volledige controle, financiële voordelen wanneer het vastgoed meer waard wordt en de mogelijkheid om aan specifieke wensen te voldoen, bijvoor­beeld met betrekking tot woonconcepten. Eigendom heeft echter ook nadelen. Het is kapitaalintensief en vraagt daarmee veel geld in de vorm van leningen en investeringen. Dit beperkt de opera­tionele cash flow die nodig kan zijn voor operationele doeleinden. Het brengt voorts risico’s met zich mee, zoals het beleggingsrisico en leegstandsrisico. Als het vastgoed minder waard wordt, levert dat nadeel op voor de eigenaar van het vastgoed. Daarnaast is het beheren van vastgoed doorgaans niet de kerntaak van vvt-instellingen. Professionele vastgoedbeheerders zijn daartoe beter uitgerust. En dan is er nog huren….

Beide opties hebben voor- en nadelen. Maar welke leidt tot een betere financiële prestatie? Door middel van een kwantitatief onderzoek hebben wij deze vraag de afgelopen periode gezamenlijk getoetst. De resultaten van het onderzoek presenteren wij u in het het boek “4.000 kilometer door het zorglandschap”. Wilt u deze publicatie ook ontvangen, stuur dan een email naar .

Beaufort Corporate Strategy geldt als een strategisch partner van het Centre en is een boetiek adviesbureau dat zich specialiseert in corporate restructuring. Beaufort is landelijk actief voor middelgrote en grote ondernemingen en instellingen. De focus van Beaufort ligt op het bedrijfskundig en financieel adviseren en ondersteunen van aandeelhouders, management en raden van bestuur. Beaufort kenmerkt zich door haar persoonlijke en betrokken benadering. Vanuit haar herstructureringspraktijk is Beaufort aangesloten bij de Turnaround Management Association en is Beaufort EACTP gecertificeerd. Beaufort kenmerkt zich door korte lijnen en een no nonsense mentaliteit.

On Orchestras as creative cultural heritage

On Orchestras as creative cultural heritage.

NWO (the Dutch Organisation for Scientific Research) has allocated a KIEM grant to the project “Collaborative networks as a safety net in the performing arts: a network based approach to employment resilience in a struggling sector”, a research project initiated by Dr. Rick Aalbers (main applicant, Radboud) and Dr. Alex Alexiev (co-applicant, UvA) to further the understanding of downsizing dynamics in the creative sector.  A project conducted together with Sander Smit, member of the Radboud Centre for Organization Restructuring.

Downsizing forms a disruptive instrument to achieve organizational recovery with frequent application in economically struggling domain, such as certain parts of the creative sector. Inability of artists to recover, being unable to regain a position in other orchestras, inflicts not only direct costs upon society as resulting social security expenses escalate, but also increases the costs to the creative domain at large as less artists are able to perform, potentially wasting creative potential. Creative industries research has rarely looked into the individual strategies of artistic professionals in difficult times.

We take symphonic orchestras as a case study of the larger phenomenon of employment resilience. The Dutch orchestras experienced perhaps the most drastic changes upon government subsidy reduction. Orchestra productions are stable, standard pieces, and the profiles of musicians and performance of concerts require dedication, mastery and specific capabilities. Existing outplacement policies and methods are not well-tailored for such occupations. We employ a novel approach, that focuses on the collaborative networks and networking activities of such professionals. We will examine the formal and informal networks maintained by members of a leading Dutch orchestra with the objective to render insights on employment resilience of artistic professionals. By mapping out the social networks of those performing in Dutch orchestras, focusing on a recently reorganizing orchestra and its relations to others in the sector in particular, we will study the degree to which social relations promote reemployment opportunities.

Partners of the project are Gelders Orkest, Philharmonie Zuid-Nederland’ and Het Sociaal Fonds Podiumkunsten. The project will unfold over the period 2018-2019 and is a collaboration initiative initiated by the Radboud Centre for Organization Restructuring. The funding agency NWO is the Dutch Organisation for Scientific Research supports a strong system of sciences in the Netherlands by encouraging quality and innovation in science. Its conviction is that scientific research contributes to prosperity and well-being and that it provides for a growing need for knowledge in the face of societal challenges, for economic development and to better understand ourselves and the world.



Improving the value-of-input for ideation by management

A discretionary social network in a firm is where individual employees voluntarily share new, innovative knowledge – activities in this network are essential to firm innovation. These activities are far from simple, and often end in failure due to managerial misunderstanding. This failure may have to do with the fact that ideation is largely a discretionary, voluntary activity. A discetionary activity overmanaged and over monitired with subsequent employee disengagement as a consequence. But then how to get traction for ideation as management while not overmanaging at the same time?

Our study identifies that, contrary to expectation, those employees whose task it is to professionally share valuable, new knowledge attributed the input for future innovation – ideators – fall short in leveraging a favorable position in a firm’s discretionary, informal social network.

Targeted intervention by management in the form of simple taskforce based temporal intervention, however, can change the networked interactions related to ideation within a firm for the better. Involvement in the discretionary social network being largely voluntary, the evolution of this network is likely to differ from that of the formal, workflow network. Yet, many employees in our case study have changed their behaviors, voluntarily increasing both the number of ties in the discretionary social network as well as offering increased value-of-input, without the guarantee of a return. Value-of-input and the number of alters an individual is connected to can ultimately meet with decreasing and possibly negative returns, but such reduced effects may not set in soon. There thus is substantial room to improve ideation activity in the very short term with little investment by management. Tapping into the ideation potential available in a firm as a whole, beyond the group of ideators, may, however, only be possible if a core group of ideators is present to begin with. Based on these insights we submit that both the network position as well as the formal role of an individual both needs to be taken into account to understand the antecedents to the voluntary exchange of valuable inputs within an organization.

For a more detailed read of the undergirding empirics, please see:

Aalbers and Dolfsma (2017) Improving the value-of-input for ideation by management intervention: An intra-organizational network study, Journal of Engineering and Technology Management.

INSOL Europe Academic Forum Annual Conference, Warsaw: Recent work on strategic bankruptcy

recently I presented some work on Strategic Restructuring at the INSOL Europe Academic Forum Annual Conference in Warsaw ( 4-5 October 2017 ).

The work, that is a joint initiative with Leiden University’s Law School, reviews current strategic bankruptcy practice and reflects on alternative strategic modi to move forward given insolvency.

With many growth aspiring firms ending up in turnaround scenario’s instead, this is a highly current theme in strategic management research. below an overview of te project at large:


Although an extensive body exists of research on strategic bankruptcy, the definition and evidence about whether such filings really preserve and/or create value – even as a paradoxical survival mechanism – remain ambiguous. The aim of the study is to investigate whether strategic bankruptcy and financial distress affect employment retention – through the lenses of real options and debt overhang theory. Using a sample of bankruptcies in the period 2012 until 2015, employment retention post-bankruptcy was evaluated as a consequence of the bankruptcy mechanism and the de severity of financial distress pre-bankruptcy. The results indicate that the type of bankruptcy (either strategic or non-strategic filing plays an important role in determining the employment retention rate after bankruptcy. An additional Robust Covariance Matrix Estimation analysis was completed which revealed that the severity of financial distress pre-bankruptcy also plays a marginal role in the employment retention rate post-bankruptcy. Therefore, strategic bankruptcy in its current form may be the best – and only – real option against uncooperative and opportunistic stakeholders in the absence of statutory composition legislation. As to timing of bankruptcy filing, the results indicate that accelerated filing is the preferred option when bankruptcy becomes unavoidable.

Rick Aalbers*, Jan Adriaanse**, Jean Piere van Rest**, Frank van Wersch*, *Radboud University, Institute for Management Research, Centre for Organization Restructuring, ** Leiden University, Department of Business & Law



The hidden dilemmas of a downsizing executioner

In  a forthcoming exploratory study on those directly tasked with the carrying out of a layoff event, we (Philippos Philippou of Treppides & Co and I) look into the personal dilemma’s faced by downsizing executioner’s. We explore how downsizing executioners, those carrying out a downsizing task, are affected in terms of perceived role stress and ethical conflict. Based on individual level data collected for both internally and externally associated downsizing executioners that together represent 43 individual organizations that each laid of a percentage of at least 5% of their workforce, we explore the role of ethical conflict. Based on a scenario-based scale that captures the main ethical aspects of a downsizing event, our findings suggest that internal executioners are more likely to report higher levels of perceived role stress compared to external executioners, while higher levels of ethical conflict among executioners lead to higher levels of perceived role stress.

The results, forthcoming in Routledge’s 2017 Handbook on Organization Turnaround Management (Adriaanse & van Rest eds.), offer a number of managerial implications worth pointing out here, next to being a pilot study for further research on the impact of reorganizations in SME’s. Commonly discarded, firstly downsizing events can cause negative effects on the managers who implement them. It is important for organizations to find ways to reduce and minimize this impact because especially internal downsizing executioners remain in the organization after the downsizing process is completed and are required to adapt to the changes and manage the organization while having to suffer the negative consequences. In many cases these consequences are largely informal, hard to see for top level management. These effects however may impact an organization only in the medium to longer run as social relations falter and follow up to informal discretionary activity of the kind that forms the organization’s informal safety net gets disbanded.

Strategic choice in inter-firm tech networks

Networks are certainly complex systems. Whom to pair up with for collaboration is a challenge already within the boundaries of a firm, let alone when looking beyond these boundaries, beyond geographical boundaries, beyond one’s own technology, all in the pursuit of the next chartbuster innovation. A recent study conducted together with Killian McCarthy (RuG) on the impact of geography on post-acquisition innovative performance appearing in Research Policy shows the complexity of technology driven acquisitions. Our empirical study considers the impact of geography on post-acquisition performance for technological acquisitions. Relying on insights from the transaction costs and international business literatures wesuggest that both geographic distance and borders influence post-acquisition innovative performance. Examining the patent portfolios of 3683 high tech acquirers in the period 2000–2012 we support a ‘liability of distance’ hypothesis and show that every 1000 km between the target and the acquirer costs as much as 19 lost patent applications. We do not find support for a ‘liability of foreignness’ hypothesis, however, but show in fact, that else equal, cross-border deals result in 3.15 additional patent applications. For high tech acquirers we find that ‘foreignness’ appears, therefore, to be more of an ‘asset’ than a ‘liability’. We find that the lion’s share of this is attributable to cultural differences.


For full details, contact me or see: McCarthy, K. and Aalbers, H.L. (2017) Technological Acquisitions: The Impact of Geography on Post-Acquisition Innovation Performance, Research Policy. (forthcoming)


Diversity in command

Corporate Boards that tap into a diversity of sources for information can be expected to make better decisions. Diversity in a team and a board can, however, also impede team performance, recent work we presented in Management Decision points out.

Measuring the diversity of boards in four different ways, two of which are person-related (age and gender) and two information-based (education and tenure), we analyze which kind of diversity ensures that the firm governed by a board will invest more R&D.


We find, unexpectedly, that tenure diversity leads to firms being less innovative, while education diversity and gender diversity make firms more innovative. Why? Find out more here.

Dolfsma, W. Midavaine, J. & Aalbers, H.L. (2016). Board Diversity and R&D Investment.Management Decision.