I INSOLVENCY LAW, POLICY AND PROCEDURE

i Statutory framework and substantive law

Bankruptcy law for corporations is mainly laid down in the Dutch Bankruptcy Act 1893 (DBA). The DBA contains rules of both procedural law and 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).

Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (the Recast Insolvency Regulation), which came into force on 26 June 2017, applies to Dutch insolvency proceedings and the recognition and enforceability of insolvency proceedings opened in other Member States. The Recast Insolvency Regulation replaces Council Regulation (EC) No. 1346/2000 on insolvency proceedings, which had applied since 31 May 2002.

ii Policy

The DBA provides for both rescue and liquidation proceedings. However, Dutch law does not have a mechanism to cram down dissenting creditors outside insolvency proceedings (however, a draft bill to introduce a cramdown procedure in the Netherlands is pending). Therefore, business rescues are mainly done through a going concern sale of the company. In actual insolvency proceedings, the focus is more on liquidation than rescue.

In the past 10 to 15 years, there has been a gradual shift towards rescuing businesses through formal insolvency proceedings. Furthermore, there has been 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) it has its centre of main interest (COMI) in the Netherlands or (2) it has an establishment in the Netherlands, or (3) if the COMI is located in a non-Member State,5 the company has (had) its corporate seat or place of business 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 payments

Suspension of payments6 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 treatments of different ordinary creditors have been accepted in practice to a certain extent.

The thresholds for adoption of a 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 favour.

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 perform executory contracts. The counterparty can request that the administrator and the debtor declare within a reasonable period of time whether they will perform the agreement.

Bankruptcy

Bankruptcy7 can be considered a general statutory seizure of the assets of a 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 a 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 a debtor is a party; however, the receiver is not obliged to perform the contract. The counterparty may request that the receiver declare in writing whether 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. In practice, this will result in the counterparty filing a claim for damages as a result of the receiver not performing the contract. The DBA provides for termination provisions only in respect of certain specific types of agreements (such as including employment agreements, lease agreements, hire purchase agreements and future trades).

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 that 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 the creditors, can apply for the opening of secondary proceedings in other EU Member States.8 When foreign main proceedings have been opened under the Recast Insolvency Regulation, secondary proceedings may be opened in the Netherlands if an establishment exists. Under the Recast Insolvency Regulation, secondary proceedings can be liquidation proceedings (i.e., leading to bankruptcy) or rescue proceedings. The Regulation also provides rules for coordination between insolvency proceedings relating to different companies forming part of a group of companies (such as rules on cooperation between the actors involved in those proceedings and rules on the coordination of group insolvencies, such as the possibility to appoint a group coordinator).9

iv Starting proceedings

Suspension of payments

A 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, and that restructuring (instead of liquidation) as a going concern, if need be following an arrangement with creditors, is possible in the future. This is a liquidity test. Dutch law does not provide for a formal balance-sheet test as grounds 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. No other stakeholders, such as creditors or shareholders, are heard prior to the court granting the provisional suspension of payments.

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). Appeals to the Court of Appeal and subsequently to the Dutch Supreme Court can be lodged by the debtor, or by the creditors who did not vote in favour of the 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; equally, creditors may request 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.

Bankruptcy

If a debtor has ceased to pay its debts as they fall due, it will be declared bankrupt by the court, either at its own request or at 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 a 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 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 hear the debtor before deciding on the request. Usually, such a hearing takes place within two to three weeks of the filing of the petition, and the decision is taken within a week of the hearing. If the debtor objects to the filing, the court may adjourn the hearing, 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 made within a few days or, at most, one week of filing.

Upon declaring bankruptcy, the court will appoint one or more receivers (usually lawyers specialising in insolvency law) and a supervisory judge.

Appeals to the Court of Appeal and subsequently to the Dutch Supreme Court can be lodged by the debtor, 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 internet10 and in the Government Gazette.

v Control of insolvency proceedings

Suspension of payments

Dutch insolvency law does not provide for a true debtor-in-possession procedure. During suspension of payments, the managing board of the debtor is entitled only to administer and dispose of the company's assets with the consent or cooperation of the administrator, and vice versa. However, only the debtor is entitled to propose a composition plan to its creditors, giving the debtor control over the contents of the composition plan.

The supervisory judge in a suspension of payments has a purely advisory role.

Bankruptcy

A debtor loses the right to dispose of its assets and such power is vested in the receiver, albeit subject to certain actions requiring the approval of the supervisory judge.

The supervision of the supervisory judge entails, inter alia, that, for 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 an act or refrain from performing an act.

Although 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 bookkeeping 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 institutions11 and insurance companies.12 Furthermore, the AFS contains specific provisions on the recovery of, and resolution plan proceedings for, financial institutions and insurance companies.13

On 13 June 2012, the Intervention Act was incorporated into 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 Act relies on the 'no-creditor-worse-off' principle in the event of the transfer of part of the assets or liabilities. The Act gives the Dutch Central Bank powers that relate to the sale of the shares in the struggling institution, its deposits (with funding from the deposit guarantee scheme) or its assets or liabilities to a private party. Furthermore, if there is a serious and immediate threat to the stability of the financial system as a result of the struggling institution's situation, the Minister of Finance has the power to intervene in the internal powers of the financial institution or to 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 Bank (which led to much litigation, which is still ongoing).

If insolvency proceedings are initiated in the Netherlands with regard to several companies within one group, the courts may appoint one administrator for all the entities; however, if the interests of the different entities do not coincide, the courts can appoint separate administrators. In the latter case, each administrator will have to act primarily in the interests 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 on Cross-Border Insolvency (the Model Law).

Dutch private international law applies the principle of territoriality, meaning that foreign insolvency proceedings (outside the European Union) will not automatically be recognised in principle. A general seizure of assets pursuant to foreign insolvency proceedings does not affect the assets of an insolvent debtor located in the Netherlands and the consequences of a 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 generally accepted and confirmed in case law, however, 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 recognised in principle, provided that the foreign insolvency proceedings have not been opened in a manner contrary to Dutch public policy.14

In practice, Dutch courts are generally open to assisting foreign courts, provided that the assistance is not contrary to the 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 the opening of insolvency proceedings.

European insolvency regulation

Foreign insolvency proceedings within the European Union are recognised pursuant to the Recast Insolvency Regulation. Thus, insolvency proceedings opened in the other EU Member States (except Denmark) are automatically recognised in the Netherlands in accordance with the Recast Insolvency Regulation.

II INSOLVENCY METRICS

The Dutch economy has been showing signs of sustained improvement. According to Statistics Netherlands (CBS), the Dutch economy grew by 2.7 per cent in 2018,15 which is the second highest growth since 2007. Gross domestic product is forecast to continue to grow less steadily in the coming years (1.5 per cent in 2019 and 2020). The growth seen in 2018 is mainly as a result of domestic spending, such as consumption and investment, which is mainly due to increased employment. The unemployment rate fell from 4.9 per cent in 2017 to 3.8 per cent in 2018.

As the economy has picked up, the number of bankruptcies has continued to decline. The number of businesses and institutions (excluding one-man businesses) that were declared bankrupt in 2018 was 3,145, which is more than 4 per cent less than in 2017 and the lowest number so far this century. The decrease is much smaller than in the four previous years. The number of bankruptcies reached a peak of 8,376 in 2013, since when the number has decreased steadily in line with the improving economic situation during this period.

III PLENARY INSOLVENCY PROCEEDINGS

i Pre-packs – silent administrators

Possibly the most significant development in the past few years in Dutch insolvency proceedings has been 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 Parliament), the courts have been 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 the entity outside 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 the informal administrator and under the supervision of an (informal) supervisory judge. This increases the chances of a successful restructuring in formal insolvency proceedings.

In the past, all types of businesses – retail, fashion and flower exports, healthcare and hospitals, media and entertainment – have made use of the involvement of (silent) administrators prior to bankruptcy to restructure the business.16 Furthermore, a diversity of courts and administrators have been involved, meaning that the use of silent administrators and pre-packs has developed throughout the Netherlands.

Most cases that have made use of this tool concerned operational businesses (many of which had suffered as a result of the economic crisis) that were in need of (considerable) debt reduction but, 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 during the past five years. Critics mainly claim that the bidding process lacks transparency and that pre-packs are misused to shed jobs (owing to non-applicability of the rules on transfer of undertaking). This has led to a judgment of the European Court of Justice (ECJ) dated 22 June 2017 in the Estro case described in Section III.ii. The negative publicity regarding the case and the ECJ Estro ruling has resulted in the reluctance of courts to facilitate pre-packs and silent administrations, and in a draft bill concerning the rights of employees in the event of the transfer of a company into bankruptcy (see Section V.ii).

ii Estro Groep BV

Estro Groep BV et al (Estro), the largest Dutch childcare provider, was declared bankrupt on 5 July 2014. Of Estro's 380 locations, 130 were closed, and the employment contracts of about 1,000 employees (of a total of roughly 3,600) were 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, so as to continue the business in a smaller form. The owner of Smallsteps BV is HIG Capital, which also owns Estro.

This pre-packed bankruptcy sale is one of many transactions and restructurings that have taken place by means of a pre-pack. 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 criticism.

In February 2015, the 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 based its claim on the fact that the European rules of transfer of undertakings should apply in this case, despite those rules not being applicable, in principle, in a Dutch bankruptcy. Council Directive 2001/23/EC relating to the safeguarding of employees' rights in the event of transfers of (or parts of) undertakings provides that the requirement to assume all employment contracts does not apply when the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings that have been instituted with a view to the liquidation of the assets of the transferor. Based on that Directive, Dutch law stipulates that the rules of transfer of undertakings do not apply in the case of a transfer of undertaking by a transferor in bankruptcy.

AbvaKabo FNV has asserted that the Estro case was not a bankruptcy instituted with a view to the liquidation of the assets of the company and a subsequent sale of a viable part of an otherwise bankrupt enterprise, but a bankruptcy and subsequent sale with the aim of restarting the business. Therefore, the actions of Estro should be considered a proper transfer of an undertaking to which the regular rules of the transfer of undertakings should apply, which were circumvented through an abuse of Dutch bankruptcy law. On 24 February 2016, the court of first instance asked for a preliminary ruling from the ECJ on whether a pre-pack sale has to be considered a transfer of undertaking. The ECJ delivered its judgment on 22 June 2017. It ruled that the protection of workers guaranteed by Directive 2001/23/EC does apply in a situation, such as in the main proceedings, in which the transfer of an undertaking in the context of a pre-pack prepared before the declaration of insolvency and put into effect immediately after the declaration of insolvency.

The exact consequences and legal implications of this ruling for future pre-packs and pre-packs that have been carried out in the past remain unclear. As a result of this ruling, Dutch courts have become more reluctant to facilitate pre-packs without a clear legal basis (for which a draft bill is still pending). The ruling also resulted in a separate draft bill concerning the rights of employees in the event of the transfer of a company into bankruptcy. This bill is described in Section V.ii.

The bankruptcy of Estro Group BV is interesting since it is the first Dutch bankruptcy in which the receiver has requested the Enterprise Chamber, on the basis of a new statutory provision, to investigate the policy of the company. In the Netherlands, a receiver is obliged to investigate the causes of the bankruptcy and the DBA provides him or her with the tools to do so. However, an investigator appointed by the Enterprise Chamber has more investigative powers than a Dutch receiver. The request is still pending before the Enterprise Chamber and a decision on the opening of the investigation is expected in 2019.

iii 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 São 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 has been declining in recent years.

The largest debts of the Oi Group stem from loans and bonds (the total debt was reported to be approximately 65 billion reais). Around April 2016, Oi Group entered into negotiations with its creditors (including the note holders of the Dutch special purpose vehicles) 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 within the 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, the Dutch companies were subjected to Dutch suspension of payment proceedings, and both the composition plan offered and the creditors' meeting due to vote on the plan have been aligned with the Brazilian RJ, meaning that the aim is for the Brazilian and Dutch insolvency proceedings to run concurrently and in cooperation. Further, the suspension of payments proceedings was 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 for using silent administration in Dutch insolvency practice (rather than for a pre-packed sale). On 19 April 2017, the suspension of payments granted to the two Dutch companies were converted into bankruptcy proceedings by the Amsterdam Court of Appeal at the request of a group of bondholders. The two Dutch companies also remained in the Brazilian RJ within which the Oi Group still strived to come a restructuring of the Oi Group. On 19 and 20 December 2017, Oi Group creditors voted in favour of a restructuring plan (the RJ Plan) in the Brazilian RJ proceedings.

As mentioned in Section I.vii, Dutch private international law applies the principle of territoriality, meaning that foreign insolvency proceedings (i.e., outside the European Union) will not be recognised automatically, in principle. Therefore, to ensure that all material aspects of the RJ Plan are given binding effect in the Netherlands, as part of the Dutch bankruptcy proceedings the Dutch entities offered a composition plan to their creditors that mirrors the RJ Plan. The creditors of the Dutch companies voted in favour of the Dutch composition plan on 1 June 2018 and the court approved the plan on 11 June 2018. As the Dutch composition plan has now become final and binding, the Dutch bankruptcy of the Dutch companies has ended successfully, with the companies emerging from bankruptcy.

iv Steinhoff Group

Steinhoff is a South African international retail holding company that has dual listing in Germany. Steinhoff deals mainly in furniture and household goods, and operates in Europe, Africa, Asia, the United States, Australia and New Zealand. Two Dutch companies are part of the Steinhoff Group (International Holdings NV, the head of the group, and Hemisphere International Properties BV).

In December 2017, Steinhoff's chief executive officer (CEO) resigned after the company announced possible accounting irregularities. The share price dropped by 66 per cent and later by more than 90 per cent as it became public knowledge that the company had overstated profits and assets by nearly US$12 billion. From an investigation by PwC, it followed that eight people, including former Steinhoff executives, were involved in a scheme whereby potential intercompany transactions worth €6.5 billion were fraudulently recorded as external income to prop up profits and hide costs in money-losing subsidiaries. In March 2019, the company share price was still 96 per cent down on its value before the scandal erupted.

Steinhoff is now under new management and is working to clean up its balance sheet following the fraud, with a view to implementing a financial restructuring of the group to restructure almost US$12 billion of debt. Steinhoff itself initiated legal proceedings against its former CEO.

Steinhoff is subject to several investigations and is facing a string of law suits. The Dutch court assumed jurisdiction to review class actions against the group. The case concerns a group of investors who claim to have suffered losses as a result of the accounting fraud. From this decision, it follows that the Netherlands can play a part in cross-border class actions when Dutch group companies are included as defendants (or co-defendants). As many multinationals use Dutch companies as holding or finance companies within their group, this is noteworthy. The judgment further illustrates how Dutch courts are willing to take on cases even when similar proceedings are pending in other jurisdictions (in this case Germany and South Africa).

v Agrokor Group

Agrokor was a conglomerate, largely centred in agribusiness and with headquarters in Croatia. The company was founded in 1976 and expanded its operations significantly by acquiring a number of large companies in Croatia and south-east Europe. The Agrokor Group had an annual sales revenue of €6.465 billion in 2015, making it the second largest retailer and the eleventh largest of all companies in south-east Europe. As at 31 December 2017, Agrokor employed around 50,900 people.

Early in 2017, it became clear that Agrokor was suffering financial difficulties. To avoid a collapse that would have badly affected Croatia's economic stability, the government, in March 2017, hastily drafted and passed the Law on Extraordinary Administration Procedure in Enterprises of Systematic Importance for the Republic of Croatia, introducing a court-supervised restructuring procedure on the basis of a going concern. Eventually, a successful settlement plan was constructed and the group revived after a major and complex restructuring in respect of its €5.8 billion of debt.

Although the company is mainly centred in south-east Europe, the restructuring also had a Dutch law angle. The group's companies were transferred to the Fortenova Group on 1 April 2019. The holding structure of the Fortenova Group comprises three legal entities based in the Netherlands. Under the settlement plan, claims by Agrokor's creditors have been assigned to the Fortenova Group, in consideration of new equity in the form of depositary receipts issued by a Dutch foundation (stichting administratiekantoor) and convertible bonds issued by the top Dutch holding company within the Fortenova Group. The purpose of the 'foundation' structure is to separate legal and beneficial ownership of the shares. The sole legal shareholder exercises the voting rights and other meeting rights corresponding with such shares and will be obliged to pass on all the financial benefits it derives from the shares to the holders of the depository receipts.

vi Bankruptcies in the non-food retail industry

The past few years have been tough for companies within the non-food retail sector and many well-known companies have gone bankrupt. Examples include retail chains selling bike and car accessories (Halfords, 102 locations and more than 530 employees), women's clothes (Etam Groep, 200 locations and around 2,000 employees), shoes (Schoenenreus, 206 locations and 1,500 employees; Fred de la Bretoniere), jewellery (Siebel, 36 locations and 170 employees), sports goods (Unlimited Sports Group, which owned Perry Sport and Aktie Sport with a total of 2,300 employees), toys (Intertoys, 286 locations and 3,200 employees), fashion and homeland (Sissy-Boy, 45 locations and 600 employees), as well as fashion houses (Mexx, 315 locations throughout Europe and 1,500 employees in 50 countries; McGregor; Coolcat; Men At Work; Supertrash) and budget pharmacies (Op=Op Voordeelshop, 130 locations and 1,164 employees).

There have been three main causes for this trend. The first is the fierce competition from online shopping. Many of the above-mentioned companies followed a traditional model with a main focus on sales from physical shops rather than via the internet. The second reason is that these companies were still suffering the effects of relatively low consumer trust. The third reason is the high cost of premises. Most of these companies have been renting premises at 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, one of the largest Dutch department store groups (63 locations in the Netherlands and more than 10,000 employees) was unable even to be restructured or partially sold during its bankruptcy (with the exception of the La Place food and restaurant division), resulting in the piecemeal liquidation of assets and loss of all jobs.

vii Hospitals

In June 2013, the Ruwaard van Putten Ziekenhuis was the first hospital to be declared bankrupt in the Netherlands for more than 20 years. It was suffering financial problems during 2011 and 2012, partly as a result of changes in the national arrangements for financing healthcare, whereby, since 2011, hospitals have to negotiate with insurers themselves about the reimbursements for the care provided. In addition, the financial burden for hospitals had become heavier because the government was no longer contributing to premises costs. At this time, liquidity problems arose at the Ruwaard, which were alleviated with advances from insurers. Further, there was tension between the hospital's management and the partnerships of specialists. The reputation of the Ruwaard suffered at a time when public perception was not positive anyway. This reputational damage became irreversible following the immediate closure of the cardiology department following an order issued by the Healthcare Inspectorate in November 2012.

Two other hospitals in the Netherlands were declared bankrupt in 2018 – the MC Slotervaart and the IJsselmeerziekenhuizen. The financial situation at both hospitals had been deteriorating rapidly in recent years. According to the institutions, this was mainly due to the fact that it became more expensive to hire staff, because of the tight labour market. The receivers are still in the process of investigating the causes of the bankruptcies of these two hospitals.

IV ANCILLARY INSOLVENCY PROCEEDINGS

As the Netherlands has not adopted the Model Law, the concept of ancillary proceedings does not apply. However, there have been a number of cases in which insolvency proceedings were opened in the Netherlands as the main proceedings over a Dutch finances company.

To a certain extent, these types of proceedings are 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, this inevitably led to the insolvency of the Dutch finance company. High-profile cases include Oi Group, Petroplus International BV, Pfleiderer Finance BV and Global PVQ Netherlands BV, the finance vehicle of the German company 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 part in these pending foreign insolvency proceedings.

In the case of the Oi Group, the Dutch companies were subject to both Brazilian and Dutch proceedings. It is currently not clear whether the Dutch proceedings were 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 companies filed to open suspension of payments proceedings indicated that the companies aimed to have the Dutch proceedings assist the successful restructuring of Oi Group in the Brazilian proceedings.

V TRENDS

iThe Netherlands Commercial Court

The Netherlands Commercial Court17 (NCC) has been set up to settle international trade disputes. The NCC, which has been operating since 1 January 2019, enables parties to conduct their Dutch legal proceedings in English. This allows foreign English-speaking parties and lawyers to be actively involved in the proceedings, and decreases the costs of translating pleadings and other documents.

The NCC will apply Dutch civil procedural law.

The judges at the NCC are specialists in international trade law and experts in handling commercial disputes, such as contract disputes, pre-contractual issues and contract breaches. The NCC will focus on international trade disputes in a broad sense, and will not judge cases or claims that fall within the exclusive competence of another court (such as the Patent Court).

A matter may generally be submitted to the NCC when the following requirements are met:

  1. the action is a civil or commercial matter within the autonomy of the parties and is not subject to the jurisdiction of the subdistrict court or the exclusive jurisdiction of any other Dutch chamber or court; 
  2. the matter concerns an international dispute;
  3. the parties to the proceedings have designated the Amsterdam District Court as the forum to hear their case or the Amsterdam District Court has jurisdiction to hear the action on other grounds; and
  4. the parties to the proceedings have expressly agreed in writing that court proceedings will be before the NCC in English.

All parties can lodge an appeal against a judgment by the NCC to the competent Dutch court of appeal and the Supreme Court. The first decision rendered by the NCC concerned the NCC approving an enforcement on shares by the security agent by means of a private sale.

ii Improvements to bankruptcy law

In November 2012, the Minister of Justice launched a legislative programme named the Recalibrating Insolvency Law. The programme aims to improve Dutch insolvency law, with a focus mainly on three areas: insolvency fraud, modernising Dutch bankruptcy law, and the ability to restructure companies.

With regard to insolvency fraud, two bills entered into force on 1 July 2016. The first increases the possibilities for using criminal law in cases of insolvency fraud by, inter alia, simplifying the rules on fraudulent bankruptcy and increasing the penalties for failing to comply with information duties. The second bill concerns the disqualification of directors for five years if they have manifestly improperly performed their tasks during the three years prior to insolvency. A third bill concerning the strengthening of the fraud alert duties of receivers entered into force on 1 July 2017.

With regard to modernising Dutch bankruptcy law, a bill entered into force on 1 January 2019, the main purposes of which are improving the provision of information to creditors and making bankruptcy proceedings more transparent and better aligned with digital developments.

With regard to restructuring companies, the government is working on several bills. One of these offers a statutory basis for a Dutch law pre-pack or silent administration. The government introduced the Draft Bill on Continuity of Undertakings I on 22 October 2013. The aim of this draft bill is to regulate the pre-pack without stripping away its advantages, but still granting restructuring practitioners sufficient leeway to apply the pre-pack to very different cases. The draft bill was adopted by Parliament in July 2016 and sent to the Dutch Upper House subsequently.

Subsequent to the opinion issued by the advocate general to the ECJ in the aforementioned Estro case, the Dutch Upper House asked Parliament how the case might affect the draft bill in terms of creating a legal basis for pre-packs. In a letter of 11 April 2018, Parliament responded that, despite the Estro case, there was still a need for a Dutch pre-pack and, therefore, it requested the Dutch Upper House to resume the debate on the bill. This debate has resulted in a first draft bill concerning the rights of employees in the event of the transfer of a company into bankruptcy. In short, it is proposed that employees who are employed by a bankrupt employer at the time of a declaration of bankruptcy will, at the time of the transfer of the company, in principle be employed under the same employment conditions for the person who takes over and continues the company in the bankruptcy (hereinafter, the transferee). The transfer itself cannot be a reason for the transferee to deviate from this principle. Only if jobs disappear during the transition, and those losses result from economic circumstances, is the transferee allowed to take on fewer employees. In that case it is determined, in an objective and transparent way, which employees will and will not go. The first draft bill is open for consultation. It is expected to receive a lot of criticism from insolvency lawyers.

Another draft bill introduces a cramdown mechanism outside formal insolvency proceedings, similar to a UK scheme of arrangement. On 8 July 2019, the Dutch government sent a draft bill to Parliament titled 'Act on the confirmation of a private restructuring plan in order to prevent bankruptcy'.18 This draft bill introduces a statutory framework for a pre-insolvency restructuring similar to the UK scheme of arrangements. The previous drafts of the bill were generally well received. The exact timing for implementation of the Dutch bill remains uncertain, but it is expected that it will enter into force in the course of 2020. The bill fits within the framework of Directive (EU) 2019/1023, which is a minimum harmonisation directive on preventing restructuring frameworks, on discharge of debt and disqualifications, on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.

iii Brexit

A major development in larger restructuring cases, which started in 2012 and 2013, is the use of English law schemes of arrangement to restructure Dutch corporate entities.19 Thus far, the recognition of such a scheme by the Dutch courts has not yet been tested, but across Europe a number of large restructurings have successfully taken place in that manner. It is expected that, after Brexit, the English courts will still be willing to sanction foreign company schemes. However, the more difficult question is whether the English law schemes will be recognised in the Netherlands (and other EU Member States) after the United Kingdom has left the European Union.


Footnotes

1 Lucas P Kortmann is a partner and Vera G M Leferink is a senior associate at Resor NV.

2 Dutch Bankruptcy Act 1893 [DBA], Articles 42 to 49, 53 to 54 and 60.

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 Note that Denmark is not a party to Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) [Recast Insolvency Regulation].

6 DBA, Articles 214 to 283.

7 ibid., at Article 1-213.

8 Recast Insolvency Regulation, Article 34.

9 ibid., at Chapter V.

10 Central Insolvency Register of the Dutch judiciary https://insolventies.rechtspraak.nl/#!/zoeken/index.

11 DBA, Article 212, Paragraphs g to nna.

12 ibid., at Article 213 to 213kk.

13 Act on Financial Supervision, Article 3:135-3:149 and 3a:1:-3a138.

14 Dutch Supreme Court, 13 September 2013 (ECLI:NL:HR:2013:BZ5668), also known as the Yukos case.

16 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).

18 The draft bill replaces an earlier similar draft bill titled 'Continuity of Undertakings II', which was introduced on 14 August 2014.

19 For example, Re NEF Telecom Co BV [2012] EWHC 2944 (Comm) and Re Van Gansewinkel [2015] EWHC 2151 (Ch); [2015] WLR (D) 326 and other cases involving Dutch corporates are currently pending. 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.