I INSOLVENCY LAW, POLICY AND PROCEDURE
i Statutory framework and substantive law
Dutch bankruptcy law for corporations is mainly laid down in the Dutch Bankruptcy Act 1893 (DBA). The DBA contains both rules of procedural law as well as substantive law, including provisions on fraudulent preference, the right to set off claims and the right of retention of a creditor.2
Other statutes also contain provisions relating to insolvency law matters such as directors’ liability and on the position of secured creditors in the Civil Code,3 the preferred creditor position of the tax authorities in the Collection of State Taxes Act, and criminal law issues in the Criminal Code.4 Furthermore, specific regulations applicable to financial institutions are laid down in the Act on Financial Supervision (AFS).
The Council Regulation (EC) No. 1346/2000 on Insolvency Proceedings (EIR) applies to Dutch insolvency proceedings and the recognition of and enforceability of insolvency proceedings of other Member States.
Although the DBA provides for both rescue and liquidation proceedings, until recently, formal insolvency proceedings were rarely used (successfully) to rescue businesses. In the event of financial difficulties, rescue attempts were mainly made outside of formal insolvency proceedings, but Dutch law does not have a mechanism to cram down dissenting creditors outside of insolvency proceedings (a draft bill to introduce a cramdown procedure in the Netherlands is pending). In actual insolvency proceedings, the focus would lie more towards liquidation than rescue.
In the past 10 to 15 years, however, a gradual shift has been made towards rescuing businesses through formal insolvency proceedings. Furthermore, the past years have seen a tendency for companies to use pre-packaged insolvency restructurings to rescue businesses.
iii Insolvency procedures
Insolvency procedures can be commenced in the Netherlands if the Dutch court has jurisdiction, based on the fact that (1) the company has (had) its corporate seat or place of business in the Netherlands, (2) has its centre of main interest (COMI) in the Netherlands or (3) has an establishment in the Netherlands. Whether a company has its COMI or an establishment in the Netherlands is a matter of fact.
Pursuant to Dutch law two types of insolvency proceedings exist under the DBA: restructuring proceedings involving suspension of payments (moratorium) and liquidation proceedings being bankruptcy.
Suspension of payments5
Suspension of payments can be used to restructure debts due to non-preferred, non-secured creditors that are subject to the suspension of payments (ordinary creditors). Preferred and secured creditors fall outside the scope of suspension of payments. If the composition plan is accepted by the (required majority of) ordinary creditors and confirmed by the court, the suspension of payments proceedings are terminated and the debtor emerges from the insolvency proceedings.
The contents of the composition plan can be flexible (debt-to-equity swaps are allowed). Dutch law does not differentiate between classes of ordinary creditors (and secured creditors cannot be bound by a composition plan). Nonetheless, different treatment of different ordinary creditors has been accepted in practice.
The thresholds for adoption of the composition plan are (1) a simple majority of creditors (2) representing at least 50 per cent of the claims recognised and admitted. Even if the composition plan does not reach the required thresholds, a plan may be deemed approved by the court if three-quarters of the recognised and admitted creditors voted in favour, but the plan was rejected because one or more creditors voted against who, in the circumstances, could not reasonably have voted in such a way.
In a suspension of payments, payments to ordinary creditors (other than through the plan) can only be made pro rata. Ordinary creditors are prohibited from taking recourse against assets of the debtor. Existing seizures are suspended (and cancelled once suspension of payments or ratification of a composition plan becomes final). A suspension of payments does not suspend or affect pending court proceedings, nor does it prevent the commencement of new ones.
A suspension of payments has no effect in favour of guarantors and other co-debtors of the debtor.
During the suspension of payments the court can impose a temporary stay, which also binds preferred and secured creditors.
The right of set-off is not adversely affected by the suspension of payments proceedings – if anything, the possibilities for set-off are increased.
Suspension of payments does not alter the validity or the contents of an agreement to which the debtor is a party, but the administrator is not obliged to carry it out. The counterparty can request that the administrator and the debtor declare within a reasonable period of time that they will perform the agreement.
In principle, suspension of payment proceedings are opened for the duration of a maximum of 18 months, but can be extended once or more upon request. In practice, if no successful restructuring has been achieved in due course, the proceedings are often terminated and the company is declared bankrupt.
Bankruptcy6 can be considered a general statutory seizure of the assets of the debtor followed by liquidation thereof. Although bankruptcy is a liquidation proceeding, it is also used to restructure businesses.
In principle, all creditors have an equal right to be paid out on a pro rata basis. An exception applies to preferred creditors (such as tax authorities), secured creditors and creditors with a subordinated claim. Dutch law does not contain a principle of statutory subordination of shareholder loans.
Secured creditors may foreclose on their collateral as if no bankruptcy exists, but a temporary stay can affect the right of secured creditors to foreclose on their collateral. The receiver is entitled to set a reasonable period of time during which a secured creditor must foreclose on its collateral.
Lawsuits pending against the debtor are automatically suspended and claims are to be filed in the bankruptcy. If the claim is challenged, the lawsuit is continued. Since the bankrupt debtor has lost its right to administer and dispose of its assets, lawsuits can only be conducted by the receiver.
Bankruptcy alters neither the validity nor the contents of an agreement to which the debtor is a party; however, the receiver is not obliged to perform under the contract. The counterparty may request that the receiver declare in writing that he or she will perform the agreement within a reasonable period of time. If not, the receiver loses his or her right to claim performance. Only in respect of certain specific types of agreements, including employment agreements, lease agreements, hire purchase agreements and future trades does the DBA provide for termination provisions.
The law provides for clawback action by the bankruptcy receiver, invalidating voluntary acts performed by the debtor prior to insolvency proceedings, in situations where such acts were detrimental to the joint creditors and the counterparty knew or ought to have known about such detriment. In certain circumstances, even obligatory acts of the debtor can be challenged.
The right to set off claims remains valid in bankruptcy and the possibilities for set-off are increased.
Bankruptcy proceedings can last as long as several years, depending on the kind and size of the bankruptcy and usually end with the dissolution of the company.
Ancillary proceedings – international context
When Dutch main insolvency proceedings have been opened, the insolvency administrator, as well as creditors, can apply for the opening of secondary proceedings in other EU Member States.7 Where foreign main proceedings have been opened under the EIR, secondary proceedings may be opened in the Netherlands if an establishment exists. Secondary proceedings can only be liquidation proceedings (i.e., leading to bankruptcy).
iv Starting proceedings
Suspension of payments
The company (i.e., its directors) can file for suspension of payments if it foresees that it will not be able to continue to pay its debts as and when they become due, but foresees that restructuring (instead of liquidation) as a going concern, if need be after a composition with creditors, is possible in the future. This is a liquidity test. Dutch law does not provide for a formal balance-sheet test as cause for the opening of insolvency proceedings.
No shareholder approval is required, unless the articles of association provide otherwise. An application for suspension of payments cannot be made by a creditor or a third party.
Upon request, the court will immediately grant a provisional suspension of payments and appoint an administrator (usually a lawyer, specialising in insolvency law) and usually a member of the court as supervisory judge. The provisional suspension of payments may only be converted into a definitive suspension of payments if a meeting of creditors has taken place (to vote thereon).
No other stakeholders, such as creditors or shareholders, are heard prior to the court granting the provisional suspension of payments.
If, in the course of a suspension of payments, the administrator does not foresee that all claims will be settled, or dealt with through a composition plan, he or she must file for termination of the suspension of payments; creditors may equally request for termination of the suspension of payments. The court can (and generally will) open bankruptcy proceedings when terminating the suspension of payments. Thus, once the company has filed for suspension of payments, there is a risk that an administrator will file for bankruptcy against the directors’ intentions.
When a request for suspension of payments and a prior third-party request for bankruptcy are pending concurrently, the request for suspension of payments will be heard first.
If a debtor has ceased to pay its debts as they fall due, it will be declared bankrupt by the court, either on its own request or on the request of one or more creditors. To have ceased to pay its debts, there must be at least two creditors, one of whom has a claim that is due and payable and which the debtor cannot pay or refuses to pay. If the petitioner is the company, the directors need shareholder approval to file. If the petitioner is a creditor, the petition must contain prima facie evidence of the petitioner’s claim against the debtor. Again, the test for bankruptcy is also a liquidity test. Dutch law does not provide for a formal balance-sheet test for the opening of insolvency proceedings.
If the bankruptcy request is filed by a creditor, the court will usually allow the debtor to be heard before deciding on the request. Usually, such hearing takes place within two to three weeks and the decision is taken within a week of the hearing. If the debtor objects to the filing, the court may stay the proceedings, for example, to see whether the filing creditor and the debtor can find an alternative solution.
If the debtor files voluntarily, it is at the court’s discretion whether it wants to hear the debtor before deciding on the request. In principle, creditors and other stakeholders are not invited to be heard prior to deciding on a voluntary filing. A decision on a voluntary filing (albeit including hearing the debtor) will usually be taken within one to two weeks after filing.
Upon declaring bankruptcy, the court will appoint one or more receivers (usually lawyers, specialising in insolvency law) as well as a supervisory judge.
Appeals to the Court of Appeal and subsequently to the Dutch Supreme Court can be lodged by the debtor, by the creditors, or interested parties against a judgment declaring or refusing to declare the bankruptcy of the debtor.
All suspension of payments and bankruptcies are published in the register of the District Court where they were ordered, in a central public register that is accessible on the internet8 and in the Government Gazette.
v Control of insolvency proceedings
Suspension of payments
Dutch insolvency law does not provide for debtor-in-possession procedure. During suspension of payments, the managing board of the debtor is only entitled to administer and dispose of the company’s assets with the consent or cooperation of the administrator and vice versa.
The supervisory judge in a suspension of payments has a purely advisory role.
In bankruptcy, the debtor loses the right to dispose of its assets and such power is vested in the receiver, albeit certain actions require the approval of the supervisory judge.
The supervision of the supervisory judge entails – inter alia – that in a number of actions (e.g., a private sale of assets of the bankrupt estate or the (temporary) continuation of the business of the debtor) consent of the supervisory judge is required. In addition, each creditor (as well as the debtor itself) may file a petition with the supervisory judge to object to any act by the receiver or to request an order that the receiver perform or refrain from performing an act.
While the directors of a bankrupt company keep their corporate authorities, they can no longer control, administer or dispose of the assets of the bankrupt company. An important duty of the board of directors is to provide the receiver with necessary information and the administration of the company.
Dutch law does not grant a right to creditors to appoint or replace an administrator or receiver. This decision is conferred on the supervisory judge and replacement is subject to the administrator not fulfilling his or her task properly. Creditors may request that the supervisory judge do so, but this is rare.
vi Special regimes
The DBA contains specific provisions for the bankruptcy of credit institutions9 and insurance companies.10 Furthermore, the AFS contains specific provisions on emergency rescue proceedings for financial institutions.11
On 13 June 2012, the Intervention Act has been incorporated in the AFS. The Intervention Act allows the Dutch Central Bank and the Dutch Minister of Finance to intervene in situations where major financial institutions are in financial difficulties. The Intervention Act relies on the ‘no-creditor-worse-off’ principle in the event of transfer of part of the assets or liabilities.
The Intervention Act gives the Dutch Central Bank powers that relate to the sale of the shares in the problem institution, its deposits (with funding from the deposit guarantee scheme) or its assets or liabilities to a private party, including splitting up into a good bank and a bad bank.
Furthermore, if there is a serious and immediate threat to the stability of the financial system as a result of the situation of the problem institution, the Minister of Finance has the power to intervene in the internal powers of the financial institution or expropriate the assets of, or shares in, that financial institution. The Minister of Finance exercised this power in February 2013, with the expropriation of SNS (see Section III, infra).
If insolvency proceedings are initiated in the Netherlands with regard to several companies within one group, the courts may appoint one administrator for different entities; however, if the interests of the different entities do not coincide, the courts can appoint separate administrators. In that case, each administrator will have to primarily act in the interest of the creditors of his or her estate. Substantive consolidation is not recognised under Dutch insolvency law.
vii Cross-border issues
The Netherlands has not adopted the UNCITRAL Model Law.
Dutch private international law applies the principle of territoriality, meaning that foreign insolvency proceedings (outside the EU) will not automatically be recognised. A general seizure of assets pursuant to foreign insolvency proceedings does not affect the assets of the (insolvent) debtor located in the Netherlands and the consequences of such foreign insolvency cannot be invoked in the Netherlands to the extent that this means that the creditors could no longer take recourse from the assets located in the Netherlands.
It is, however, generally accepted and confirmed in case law that foreign insolvency law rules relating to the authority of a foreign administrator to represent the insolvent debtor and to dispose of its assets are in principle recognised, provided that the foreign insolvency proceedings have not been opened in a manner contrary to Dutch public policy. The Supreme Court has recently confirmed this principle in relation to the authority of the Russian insolvency administrator of Yukos Oil to dispose of the shares in Yukos Finance BV.12
In practice, Dutch courts are generally open to assisting foreign courts, provided that such assistance is not contrary to rules of public policy.
With regard to issues such as forum shopping, the Dutch courts tend to take a critical approach; international principles of COMI and establishment are given due consideration when hearing a request for opening of insolvency proceedings.
European insolvency regulation
Foreign insolvency proceedings within the EU are recognised pursuant to the EIR. Thus, insolvency proceedings adjudicated by (most of) the other EU Member States are automatically recognised in the Netherlands in accordance with the EIR.
ii INSOLVENCY METRICS
Like most of Europe, the real economy in the Netherlands has been in crisis for a number of years. However, the most recent numbers published by Statistics Netherlands (CBS) indicate that the Dutch economy is showing sustained improvement. According to recent press releases in August 2016,13 the Dutch economy showed nine consecutive quarters of economic improvement. As the first estimate indicates, the size of the Dutch economy increased by 2.3 per cent on the same quarter in 2015. The increase is mainly because of higher exports volumes, rising investments and more consumption.
According to a report published by the economic bureau of ING Bank, 2,700 businesses and institutions (excluding one-man businesses) were declared bankrupt in the first half-year of 2016 (i.e., 18 per cent down from the same period in 2015). The financial services industry was hit hard in 2016. This sector suffered in past years because of developments on the financial markets and the introduction of a ban on paying or receiving commission for complex financial products, such as mortgages and life insurance, which was introduced on 1 January 2013. In addition, the healthcare sector had a tough year with an increase of bankruptcies by 6 per cent in the first half of 2016 on the first half of 2015. The problems in healthcare are mostly a consequence of governmental budget cuts.
However, the construction industry is recovering owing to the growing economy and low interest rates. The order books of most construction companies are back at the level before the financial crisis in 2008. The number of bankruptcies in the construction industry has since dropped by one-third.14
iii PLENARY INSOLVENCY PROCEEDINGS
i Pre-packs – silent administrators
Possibly the most significant development in the past years in Dutch insolvency proceedings is the increasing use of ‘pre-packs’ (i.e., pre-packaged insolvency restructurings) and the use of silent administrators (and recognition of the added value thereof across the Dutch legal profession).
Although it currently has no formal basis in Dutch statute (though a draft bill has been submitted to the Parliament), the courts are increasingly willing to hear a debtor’s request for (and in rare cases, even upon a formal application by a creditor) and to appoint (informally) a silent insolvency administrator prior to the opening of formal procedures. This allows for the debtor and the silent administrator to try to restructure outside of formal proceedings. If this is not feasible, it allows for a sale or restructuring of the debtor’s business to be pre-arranged with the assistance of such informal administrator and under supervision of an (informal) supervisory judge. This increases the chances of a successful restructuring in formal insolvency proceedings. A large advantage over the English law pre-packaged administration sale is that, in Dutch bankruptcy proceedings, the transfer of undertaking rules do not apply and consequently, employee cuts can be achieved.
In past years, all types of business ranging from retail; fashion and flower export; healthcare or hospitals; and media and entertainment have made use of the involvement of (silent) administrators prior to the bankruptcy to restructure the business.15 Furthermore, a diversity of courts and administrators were involved, meaning that the use of silent administrators and ‘pre-packs’ has developed (and continues to develop) throughout the Netherlands.
Most cases that made use of this tool concerned operational businesses (many of whom have suffered as a result of the economic crisis) that were in need of (considerable) debt reduction, but that in principle were viable businesses. The successful restructurings were mostly done in cooperation with the secured creditors (mostly senior bank debt) and the debtor.
After a rather positive start, with a lot of success stories, Dutch pre-pack practice has faced growing criticism over the past three years. Critics mainly claim that the bidding process lacks transparency and that pre-packs are misused to shed jobs (due to non-applicability of the rules on transfer of undertaking).
The following is a high-profile insolvency proceeding involving a pre-pack, which is still subject to a legal dispute.
Estro Groep BV
Estro Groep BV et al (Estro), the largest Dutch childcare operator, was declared bankrupt on 5 July 2014. Of 380 locations and roughly 3,600 employees, 130 locations were closed and the employment of roughly 1,000 employees was terminated. By means of a pre-packed bankruptcy sale, and immediately upon the opening of the formal bankruptcy proceedings, the viable parts of the underlying business of Estro were transferred as a going concern to Smallsteps BV, in order to continue the business in a smaller form. The owner of Smallsteps BV is the same as for Estro, being HIG Capital. This pre-packed bankruptcy sale is one of many recent successful transactions and restructurings that have taken place by means of a pre-pack, a relatively new tool in Dutch restructurings. Nonetheless, and possibly since the bankruptcy of Estro caused a lot of employees to lose their jobs, the case has received a lot of press attention and has received considerable criticism.
In February 2015, trade union AbvaKabo FNV initiated legal proceedings against Estro/Smallsteps for abuse of bankruptcy proceedings (merely) for the termination of the employment of roughly 1,000 employees. The trade union motivates its claim on the basis that the (European) rules of transfer of undertaking should apply in this case, despite the fact that in principle, the rules of transfer of undertaking do not apply in a Dutch bankruptcy (as a rule of Dutch law). Council Directive 2001/23/EC relating to the safeguarding of employee rights in the event of transfers of (a part of) undertakings provides that the requirement to assume all employment contracts does not apply where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor. Based on that Directive, Dutch law stipulates that rules of transfer of undertaking do not apply in case of a transfer of undertaking by a transferor in bankruptcy. The trade union asserts that the Estro case was not a proper bankruptcy and a subsequent sale of a viable part of an otherwise bankrupt enterprise. Instead, the actions of Estro should be considered a proper transfer of an undertaking to which the regular rules of transfer of undertakings should apply, which rules were circumvented through an abuse of Dutch bankruptcy law. If the court follows the arguments brought by the trade union, this could seriously affect the means to restructure businesses through bankruptcy proceedings. On 24 February 2016 the court in first instance asked prejudicial questions on whether a pre-pack sale has to be considered a transfer of undertaking.
ii Oi Group
The Oi Group is one of the world’s largest integrated telecommunications service providers, with its operations primarily located in Brazil. Oi’s shares are listed on the Sao Paulo and New York Stock Exchanges. Oi Group has two main financing companies incorporated in the Netherlands.
Owing to a combination of factors, the financial situation of the Oi Group had declined over the last years.
The largest debts of the Oi Group stem from loans and bonds. The total debt of the Oi Group was reported to be approximately 65 billion reais. Around April 2016, Oi Group entered into negotiations with its creditors (including the noteholders of the Dutch SPV’s) in order to reach an agreement on an out-of-court restructuring.
As the Oi Group was unable to reach such an agreement, it filed for in-court restructuring proceedings in Brazil (recuperação judicial (RJ)) for certain entities of the Oi Group, including the two Dutch companies, being the first Dutch entities to be subjected to Brazilian insolvency proceedings. This filing is considered the largest reorganisation petition in Brazil’s history. In June 2016, the Brazilian court opened the RJ proceedings for certain entities in the Oi Group (including the two Dutch companies). Since Brazilian insolvency proceedings are not automatically recognised in the Netherlands, one of the Dutch companies, Oi Coop, was subjected to Dutch suspension of payment proceedings and the composition plan offered and the creditors meeting set to vote on such plan, have been aligned with the Brazilian RJ, meaning that the Brazilian and Dutch insolvency proceedings are aimed to run concurrently and in cooperation. Also, the suspension of payments proceedings were preceded by a silent administration period, to allow the administrator and the court to be informed of the contemplated alignment of the Brazilian and Dutch proceedings, which was a new purpose to use silent administration in Dutch insolvency practice (rather than for the purposes of a pre-packed sale).
iii OSX Group
OSX Group, a Brazilian shipbuilding and oil services company, is part of what used to be one of the largest companies in South America. In July 2014 and April 2015, insolvency proceedings were opened for several Dutch special purpose vehicles of the OSX Group. The OSX Group is headed by the Brazilian parent company OSX Brazil. OSX Brazil was a sister company of OGX. The latter was established in 2007, after wells of oil and gas had been discovered on the coast of Brazil. OGX had the ambitious plan of exploiting these newfound wells. OSX was established as a shipbuilding and oil services company in 2010. OGX and OSX Brazil entered into a strategic alliance on the basis of which OSX would supply OGX with equipment for gas and oil extraction. OSX stored its most important assets, such as vessels, offshore oil-production ships and drilling packaging units, in special purpose vehicles (mainly in the Dutch entities). The Brazilian wells turned out to be far less bountiful than OGX had forecast. This led to OGX being in financial distress and eventually to the insolvency of OGX in Brazil. Subsequently, OSX faced financial problems due to the fact that its main customer was the insolvent OGX. This led to the recent opening of insolvency proceedings for the Brazilian parent company of the OSX Group in November 2013. This in turn led to the downfall of the Dutch special purpose vehicles, which in turn led to insolvency proceedings being opened for the Dutch OSX vehicles in July 2014 and April 2015. At the time of the insolvency, the vessels and drilling units were still under construction. Currently, several cases are pending between the bankrupt OSX entities and companies hired to build the vessels and drilling units, whereas these companies levied attachments prior to insolvency and are exercising rights of retention with regards to said equipment. Due to the fact that the vessels and drilling units are located in different countries (among others, Brazil, Norway and Singapore), a lot of cross-border issues have arisen in the winding-up of the Dutch OSX entities. Furthermore, discussions with financing parties are taking place, giving rise to (inter alia) complex cross-border security enforcement issues.
iv OW Bunker
The originally Danish OW Bunker was one of world’s largest independent traders and suppliers of marine fuel. OW Bunker’s business model was, broadly speaking, buying oil in order to sell it for a higher price at a later stage. In March 2014, the company listed on the NASDAQ OMX Copenhagen exchange after one of the biggest initial public offerings in Danish history. On the first day of trading, share prices went up about 20 per cent and the company was worth nearly US$1 billion. The Danish mother company had two wholly owned subsidiaries located in the Netherlands, namely the Dutch OW Bunker (Netherlands) BV and the Rotterdam Branch of the Swiss OW Global Trading. Employees of the Dutch entity, OW Bunker (Netherlands) BV, were responsible for purchasing oil in the regions of Amsterdam, Rotterdam and Antwerp. In 2014 the turnover of this entity was more than US$850 million. The Dutch entities were entirely dependent on the Danish parent company for the financing of their daily work. The parent company was financed by a consortium of banks, which money was lent on by the parent company to its subsidiaries. The OW Group found itself in major financial problems in mid-2014. Three main causes for these problems were identified. First, the drop in oil prices in Q3 of 2014. Second, a fraud had been discovered in a Singapore-based subsidiary; said fraud resulting in a loss of US$125 million. The third cause was a risk management loss on the basis of which OW Bunker’s risk management exposure was around US$150 million. The main assets of the insolvent Dutch OW Bunker (Netherlands) were the oil present in Antwerp and Rotterdam and oil present in tanks of ships chartered by OW Bunker (Netherlands) when the business came to a standstill. The trustees of OW Bunker are currently in the process of monetising this oil.
v Bankruptcies in the non-food retail industry
The past years have been tough for companies within the non-food retail sector. Many well-known players within this sector have gone bankrupt. Examples include retail chains of bike and car accessories (Halfords, 102 locations and over 530 employees), women’s clothing shops (Etam Groep, 200 locations and around 2,000 employees), shoe stores (Schoenenreus, 206 locations and 1,500 employees), jewellery (Siebel, 36 locations and 170 employees) fashion houses (Mexx, 315 locations throughout Europe and 1,500 employees in 50 countries and McGregor) and sports stores (Unlimited Sports Group, which owned Perry Sport and Aktie Sport with a total of 2,300 employees). On 5 January 2016 one of the largest Dutch department store groups, V&D (63 locations in the Netherlands and over 10,000 employees) was declared bankrupt. There are three main causes for this trend. The fierce competition from online shopping can be pointed out as the first reason for said trend. Many of these companies had a traditional sales model with its main focus on sales from physical shops, rather than sales via the internet. The second reason is that these companies still suffered from the impact of the relatively low consumer trust. The third reason is the high accommodation costs these companies often pay. Most of these companies have been renting premises against high market prices that date from before the economic crisis. These high running costs (combined with the low sales) often pose a threat to the continuity of the business. Whereas Dutch law does not yet provide for a mechanism to cram down creditors outside insolvency proceedings, these companies had to go through formal bankruptcy proceedings to try to restructure their businesses. Most notably, V&D was even unable to be restructured or partially sold during the bankruptcy (with the exception of the La Place food & restaurant division), resulting in the piecemeal liquidation of assets and loss of all jobs.
vi Imtech Group
Imtech Group was one of the largest European technical service providers in the fields of electrical engineering, machine construction and automation. At the time of its bankruptcy, Imtech Group had approximately 22,000 employees in 14 countries and in seven divisions. Imtech Group realised an annual profit of approximately €4 billion in 2014. The shares of The Royal Imtech NV, the principal holding company of the Imtech Group, are listed on Euronext Amsterdam. Imtech was declared bankrupt in August 2015. The bankruptcy of Imtech was preceded by a silent administration (pre-pack), which was subsequently followed by formal suspension of payment proceedings. Imtech’s bankruptcy is considered one of the largest Dutch bankruptcies in history.
In the years leading up to the bankruptcy of Imtech, the group had suffered financially, among other things, because of a large fraud investigation into the activities of the Imtech Germany and Eastern Europe divisions. In December 2012, an analyst of ABN AMRO published a critical report on Imtech Germany expressing concerns regarding the division and whether Imtech Group would run into problems with bank covenants in the short term. In February 2013, possible irregularities with projects in Imtech’s Germany and Poland branches were reported and in June 2013, Imtech Group reported that investigations had shown, inter alia, that the primary cause for the substantial losses suffered by Imtech Group were fraudulent actions in Germany and Poland. This resulted in a write-off of €370 million on projects carried out by Imtech Germany and Poland.
In July 2015, Imtech Group then published a trading update, which showed that it was negotiating an amendment to the financing arrangements with its financiers in order to cover a liquidity shortage of €75 million (in addition to an existing facility of €700 million). These negations did not have a positive outcome for Imtech Group as a result of which Imtech Germany was forced to file for its own bankruptcy. Shortly thereafter, Royal Imtech NV and some of its Dutch subsidiaries were also declared bankrupt after Imtech Group failed to reach an agreement with its financiers in the silent administration (pre-pack) and the subsequent formal suspension of payment proceedings that preceded the bankruptcy. After the bankruptcy of Royal Imtech NV and some of its Dutch subsidiaries, the appointed bankruptcy administrators were able to rapidly sell the activities of Imtech Group. On 11 August 2016, the bankruptcy administrators reported that all parts of Imtech were sold. Currently, the bankruptcy administrators are investigating whether there are other actions to be taken prior to finalising the bankruptcy, such as whether there are grounds to bring directors liability claims, clawback actions and other actions (as is common in Dutch insolvency proceedings).
Iv ANCILLARY INSOLVENCY PROCEEDINGS
No salient ancillary proceedings have been opened in relation to foreign-registered companies in the Netherlands during the past 12 months.
There have, however, been a number of cases where insolvency proceedings were opened in the Netherlands as main proceedings over a Dutch finances company. Such proceedings are, to a certain extent, ancillary to foreign insolvency proceedings. Several foreign groups use Dutch corporates as finance vehicles to extract funds from the market by means of issuing bonds, the proceeds of which are subsequently on-lent to the group. In the past, several of these groups have faced financial difficulties and sought to restructure outside or through formal insolvency proceedings. If, and to the extent, an out-of-court restructuring failed for the group, it inevitably led to the insolvency of the Dutch finance company. High-profile examples include Oi Group, Petroplus International BV, Pfleiderer Finance BV and Global PVQ Netherlands BV, the finance vehicle of the German Q-cells. These finance companies hold major claims in the insolvency of their group companies, and their major creditors often include bondholders or other financial creditors.
Since the only asset of the Dutch company is usually the inter-company claim against the insolvent group members, it is in the immediate interests of the creditors of the Dutch insolvent companies that the insolvencies of the foreign group companies are successfully conducted. Furthermore, as major creditors, the Dutch companies may have a large influence on the conduct of such foreign proceedings. Thus, these Dutch insolvency proceedings can play an important role in these pending foreign insolvency proceedings.
In case of the Oi Group, the Dutch company is subjected to both Brazilian and Dutch proceedings. It is currently not clear whether the Dutch proceedings are ancillary or main proceedings compared to the Brazilian proceedings, since both courts have assumed jurisdiction to open main proceedings and, as there is no treaty in place and since the Netherlands has not adopted the Model Law, there is no formal necessity to establish which proceedings are the main proceedings. However, the petition that the Dutch company filed to open suspension of payments proceedings indicates that the company aims to have the Dutch proceedings assist the successful restructuring of Oi Group in the Brazilian proceedings.
As discussed in this chapter, pre-packaged restructurings are increasingly popular and we expect that this trend will continue.
Another major development in larger restructuring cases, which started in 2012 and 2013 and can be expected to continue, is the use of English-law schemes of arrangement to restructure Dutch corporate entities.16 Thus far, the recognition of such scheme by the Dutch courts has not yet been tested, but across Europe a number of large restructurings have now successfully taken place in that manner.
Financial difficulties can be expected, inter alia, in retail, construction, real estate, healthcare (particularly in home care) and IT and communication. There will likely be an increasing amount of private equity, hedge funds and other financing parties (also including pension funds and insurance companies) buying into (traditional) bank debt, which will include ‘loan-to-own’ activity (as has been seen in some recent consensual restructuring cases).
There is not likely to be any change in the attitude of bankruptcy receivers litigating over directors’ liability. In such economically difficult times, however, more companies may try to use bankruptcy as a means of cutting the costs of distressed businesses – consequently, the number of fraud cases could also increase. The government has indicated that one of its immediate focal points is to improve the system to prevent and punish bankruptcy fraud.
Currently, a number of legislative proposals to amend the Dutch insolvency law are being prepared.17 The topics being dealt with in these proposals include:
- a a statutory basis for a Dutch law pre-pack;
- b a statutory basis for the appointment of a silent administrator to facilitate restructuring or composition outside of formal insolvency proceedings;
- c the introduction of a cramdown mechanism outside formal insolvency proceedings, similar to a scheme of arrangements;
- d improving going concern prospects for businesses emerging from insolvency proceedings;
- e prevention against fraudulent use of bankruptcy proceedings by directors;
- f improving the position of the insolvency administrator or receiver; and
- g modernising Dutch bankruptcy proceedings.
In November 2012, the Minister of Justice launched a legislative programme named Rethinking Insolvency Law. The programme aims to improve Dutch insolvency law by way of three main focuses: insolvency fraud; the ability to restructure companies; and modernising Dutch bankruptcy law. Below the status of the first and second areas of focus of the legislative programme are discussed.
With regards to insolvency fraud, two bills have entered into force on 1 July 2016. The first bill increases the possibility to use criminal law in cases of insolvency fraud (among others, the rules on fraudulent bankruptcy are simplified and penalties for failing to comply with information duties are increased). The second bill concerns the disqualification of directors for five years if they manifestly improperly performed their tasks during a period of three years before the insolvency. Currently, a third bill concerning the strengthening of the fraud alert duties of the receivers is pending.
On 22 October 2013 and 14 August 2014, the Dutch government introduced the first draft bills regarding the second focus of the aforementioned programme, being the draft bills on continuity of undertakings I and II respectively. The draft bill on the continuity of undertakings I deals with the above-mentioned item (a). To guarantee legal certainty, this bill creates a legal basis for pre-packs. The draft bill aims to regulate the pre-pack without stripping away its advantages, still granting restructuring practitioners sufficient leeway to apply the pre-pack to very different cases. The draft bill regarding the pre-pack was adopted by the Parliament in July 2016 and sent to the Dutch Upper House subsequently. The Dutch Upper House is only entitled to approve or reject bills. The Dutch Upper House has scheduled to conduct its initial research with regard to the draft bill on 4 October 2016. The draft bill on the continuity of undertakings II addresses the above-mentioned items (c) and (d). It codifies rules that enable entities to restructure their liabilities and to ask the court for a cramdown without having to enter into bankruptcy proceedings. Subsequently, this second draft bill introduces a statutory framework for a pre-insolvency restructuring similar to the UK scheme of arrangements. Although the exact timing for implementation of these and other proposals remains uncertain, the draft bills show a clear trend in the Netherlands towards a more rescue-friendly environment and a more competitive formal insolvency law regime within Europe.
1 Sijmen H de Ranitz is an adviser, Lucas P Kortmann is a partner and Abslem Ourhris is an associate at Resor NV.
2 Articles 42 to 49, 53 to 54 and 60 of the DBA.
3 In particular, Articles 2:138 to 140 and 2:248 to 2:250 on directors’ liability and Article 3:277 et seq. on rights in rem.
4 Such as Articles 340 to 345 relating to fraudulent trading.
5 Articles 214 to 283 of the DBA.
6 Article 1-212 of the DBA.
7 Article 29 of the EIR.
9 Article 212g–212nn of the DBA.
10 Article 213-213kk of the DBA.
11 Article 3:159ai-3:257 of the AFS.
12 Dutch Supreme Court, 13 September 2013 (ECLI:NL:HR:2013:BZ5668) also known as the Yukos case.
13 For the CBS’s recent news updates, see www.cbs.nl/en-GB/menu/home/default.htm.
14 Based on press releases, and revised CBS figures available on 7 August 2015.
For the report of ING Bank, see www.ing.nl/media/ING_EBZ_daling-faillissementen-vlakt-dit-jaar-af_tcm162-107326.pdf.
15 Early examples are Schoenenreus BV (January 2013), DEPT BV (December 2012), Opinion Test en Taste BV (October 2012), Van Straten Bouw BV (October 2012), Harense Smid BV (July 2013), Ruwaard van Putten Ziekenhuis (June 2013), Weijmans Media Groep BV (May 2013), Het Groene Kruis (June 2013), Moes Bouw BV (August 2012), Prime Champ Productions BV (April 2013), Ciccolella (February 2013), Drukkerij Dijkman (June 2013), Pelican Tijdschriften (March 2013), Marlies Dekkers (August 2013).
16 For example, the NEF Telecom case (Re NEF Telecom Co BV  EWHC 2944 (Comm)),Van Gansewinkel (Re Van Gansewinkel  EWHC 2151 (Ch);  WLR (D) 326) and other cases are currently pending, involving Dutch corporates. The scheme of arrangement of Van Gansewinkel, a large Dutch waste management company, was sanctioned in July 2015. The group consisted of five Dutch companies and one Belgian company, headed by the Dutch Van Gansewinkel Groep BV.
17 As set out in the latest letter from the Minister of Security and Justice dated 4 July 2016.