I OVERVIEW OF RESTRUCTURING AND INSOLVENCY ACTIVITY

i Liquidity and state of the financial markets

Quantitative easing by the European Central Bank and others has resulted in high liquidity levels and low funding costs for Dutch borrowers. Dutch corporates have also had good access to financing because foreign financiers and investors have been showing an increasing appetite for Dutch assets. Notably, in the sub-investment grade market, unitranche lenders are gaining market share in mid-market situations that were traditionally dominated by the Dutch banks (often teaming up in club deals). In the bigger ticket market, borrowers have also had very good access to 'covenant lite' financings provided by institutional investors (as high-yield bonds or as a bank-style leveraged loan). There was so much liquidity in that sector of the market in 2019 that borrowers managed to further erode customary credit protections. The buy-out financings were generally well received in the institutional markets and were often also leveraged further by second lien or senior subordinated financings. A number of deals from as recently as 2018 could also be repriced in 2019.

ii Impact of specific regional or global events

Despite uncertainties around the UK–EU relationship after Brexit, the UK market after Brexit and trade wars unleashed by Donald Trump, 2019 was a bull year for M&A activity in the Netherlands. Bolstered by cheap credit and increased availability of covenant lite financing, deal activity was high both in terms of number of deals and in volume.

Investors have nonetheless remained cautious before investing in sectors affected by the uncertainties described above. Retail remains a sector of concern for investors, too, as fierce competition between low-budget competitors, online platforms and other market disruptors continues to drive changes. The sector has seen the successful players become the subject of very significant M&A scenarios, while players unable to adapt to new market circumstances have often ended up in insolvency, albeit mostly emerging with a significantly reduced number of stores.

iii Market trends in restructuring procedures and techniques employed during 2019

The number of pre-packaged insolvencies (pre-packs) has effectively been halted in the Netherlands as a result of the judgment of the European Court of Justice (ECJ) concerning the Estro pre-pack. While the Dutch legislator continues to work on a broader statutory platform for pre-packs (see Section VI.ii), employee rights have taken centre stage in the discussion. It follows from the Estro case that pre-packs can in most instances no longer be used as a tool to make part of the workforce redundant, at least not without making severance payments. With regard to divestments and the termination of employment contracts, it follows from case law of the Supreme Court that no prior approval of the works council2 is required for the liquidator to decide on asset disposals3 or the dismissal of employees.4 However, such decisions by the liquidator do require prior approval in the event of a going-concern sale pursuant to which (a part of) the debtor's business is continued or if business rescue is facilitated within the same corporate entity (e.g., by the adoption of a composition plan).

In retail insolvencies, one enforcement method that is regularly used includes a liquidation sale conducted by the liquidator under a mandate granted by the secured creditor. Any cash and electronic payments made by customers in respect of encumbered property are deemed to constitute enforcement proceeds available for distribution to the secured creditor.

In recent insolvencies in the retail sector, it appears that landlords increasingly capitalise on hold-out value. The termination of a lease in respect of premises on favourable locations could easily thwart any corporate rescue attempt of the debtor's ailing business. Nevertheless, in most cases where a going-concern sale is viable, the landlord will cooperate in facilitating the sale by accepting the purchaser of the debtor's business as a new lessee.

In larger insolvency proceedings containing numerous (notably financial) creditors, debt restructurings often take place through a consensual deal or a restructuring plan, where necessary combined with a statutory cramdown mechanism in formal proceedings or by using a foreign route (e.g., a scheme of arrangement under English law). In cases where domestic insolvency proceedings are needed, large debtors occasionally petition the court for the appointment of a silent administrator. As further discussed below in Section VI.ii, the silent administrator will generally be appointed by the court as liquidator upon the commencement of formal proceedings and can use the period of silent administration to prepare the future commencement of formal insolvency proceedings (including a possible composition plan or a going-concern sale to be executed swiftly upon the commencement of the proceedings).

At times of great market uncertainty (e.g., as currently applies as a result of the global covid-19 pandemic), proper financial forecasting becomes a major challenge in restructuring financially ailing companies. To prevent the unnecessary failure of viable businesses, courts and liquidators are expected to take such uncertain market conditions into account when addressing matters of transaction avoidance, wrongful trading and liability of directors.

iv Number of formal procedures entered into or exited from during 2019

According to details made available by the Central Bureau of Statistics of the Netherlands (CBS), the total number of corporate bankruptcy proceedings commenced in 2019 amounts to 3,208 new cases (excluding sole proprietors and traders). This represents an increase of approximately 2 per cent compared to the number of new filings in 2018. For the first time since 2013 the number of bankruptcy proceedings increased. However, despite the slight increase, the number of bankruptcy proceedings in 2019 is still at a relatively low level. The low level of bankruptcy proceedings is linked to the recovery of the Dutch economy in recent years.

Similar to previous years, most new bankruptcies have been recorded in the trade sector. Compared to 2018, a total number of 43 more cases were opened in 2019, leading to a total amount of 730 cases.5

II GENERAL INTRODUCTION TO THE RESTRUCTURING AND INSOLVENCY LEGAL FRAMEWORK

i Available insolvency and restructuring procedures6

The Bankruptcy Code provides for three main formal proceedings: bankruptcy, suspension of payments and debt adjustment for natural persons.

Bankruptcy proceedings have been primarily designed as liquidation proceedings, but in practice can function as a restructuring tool (e.g., through a composition plan or by means of a going-concern sale of the debtor's viable business parts). The primary objective of suspension of payments proceedings is the reorganisation and continuation of the debtor's business, but the limited scope of the proceedings – confined to ordinary (i.e., unsecured and non-preferential) insolvency claims – and continued application of transfer of undertaking protection rules render it ineffective for many restructurings.7 The main purpose of debt adjustment for natural persons is to provide heavily indebted natural persons with a fresh start. Considering the focus of this chapter on large corporate debtors, debt adjustment for natural persons will not be discussed further.

The Bank Recovery and Resolution Directive (BRRD)8 and the Single Resolution Mechanism Regulation (the SRM Regulation)9 provide for a European approach towards the recovery and resolution of banks and large investment firms (and certain affiliated entities) in distress. To facilitate a timely intervention in respect of such institutions, national legislation implementing the BRRD and the SRM Regulation grants certain intervention powers to competent resolution authorities. Beyond the scope of the BRRD and the SRM Regulation, special intervention powers are granted by the Financial Supervision Act to the Dutch Central Bank and the Dutch Minister of Finance in relation to certain banks, investment firms and insurance undertakings in distress, where this is necessary to safeguard the stability of the Dutch financial system.

Restructurings often occur beyond the setting of formal insolvency proceedings (e.g., through security enforcement, new or amended financing arrangements, contractual restructuring arrangements or foreign restructuring routes). The main disadvantages of informal restructurings often include the lack of a stay on individual recourse rights of creditors and the absence of a cramdown mechanism in relation to dissenting and non-participating creditors, beyond those mechanisms agreed between creditors. Changes to the statutory framework are expected to be implemented in the near future to enhance attempts to restructure financially distressed companies outside formal insolvency proceedings (see further in Section VI.ii).

ii The taking and enforcement of security

Loans granted to a corporate debtor can be secured over the company's assets. Creation requirements of security rights are governed by general rules of property law and depend on the relevant type of collateral. All-embracing security can be obtained by a combination of pledges and mortgages over assets comprising the debtor's business.

An important effect of the commencement of bankruptcy proceedings is the divestment of the debtor (i.e., the debtor loses the power to dispose of and administer the assets included in the insolvent estate).10 Pledges granted in advance over future property11 can no longer crystallise after the debtor's divestment.12 During the course of bankruptcy proceedings, the liquidator is exclusively entitled to dispose of and administer the insolvent estate.13

The secured creditor in Dutch insolvency proceedings can enforce its rights as if the proceedings had not been opened.14 Enforcement of security can only be temporarily stayed by the order of a moratorium at the time of the bankruptcy adjudication or subsequently by the supervisory judge.15 Such a moratorium can last for a maximum period of four months (including extensions). The liquidator has powers to expedite enforcement of security by demanding that the secured creditor realises the collateral within a reasonable time period.16 Failure to enforce within that time period will result in a loss of enforcement rights and an obligation to share in the general realisation costs of the proceedings.17 A final limitation on the position of the secured creditor is that it cannot enforce its security in respect of all claims that might arise after the opening of insolvency proceedings.18

In practice, the secured creditor and the liquidator often agree on the realisation of the secured asset by the latter against the deduction of a nominal fee from the realisation proceeds.

iii Duties of directors of companies in financial difficulties

No statutory obligation exists for directors of a financially distressed company to file for insolvency proceedings. Nevertheless, governance of the company may be placed under increased scrutiny by third parties and continued trading may give rise to director's liability.

In essence, directors would face liability if their behaviour was negligent towards a third party and constituted serious personal wrongdoing.19 A prominent ground for personal liability is when directors allowed the debtor to execute a transaction with a third party while they knew (or should have known) that the debtor would be unable to meet its obligations under that transaction and that the deprived counterparty would not have sufficient recourse for its damages.20 Director's liability can also arise from actions that resulted in default and non-recoverability of damages,21 as well as selective payments (e.g., non-payment to a particular creditor based solely on unwillingness of the director to allow such payment to be made).22

Each director can also be held personally liable for the entire deficit of the bankrupt estate if their improper management caused the bankruptcy.23 By statute, improper management is established if books and records of the bankrupt company have not been properly maintained or if directors failed to meet obligations regarding the company's annual accounts. Subject to proof to the contrary, that improper management is also assumed to have caused the bankruptcy.24

Directors can also be held liable by the company for improper performance of management tasks allocated to them by law or the articles of association.25 Examples of circumstances in which directors can be held liable include violation of the law or articles of association, procuring reckless and irresponsible financial behaviour of the company and utilising assets of the company for personal benefit.26

iv Clawback actions

During bankruptcy proceedings, a liquidator may invoke the actio Pauliana to invalidate antecedent transactions that are detrimental to the insolvent estate. Clawback generally requires prejudice, which will materialise if creditors receive a lower distribution on their claims as a result of a transaction.

Prejudice would typically be the result of a reduction in the total value of the debtor's estate as a result of a transaction (transactions at an undervalue) or as a result of a disturbance of the statutory waterfall of priorities when a company is already insolvent (preferences). The liquidator should look at the entire transaction (including beneficial aspects of the transaction) and, therefore, has no right to cherry-pick by only looking at one particular provision of a document as a clause that has a negative impact on the recourse position of the joint creditors. If the disputed act was part of a set of transactions, the positive or negative effects of the combined set should also be considered.27

Where prejudice has been established, the right to challenge the prejudicial action depends on further circumstances. The avoidance of an act entered into without a pre-existing obligation to perform the relevant act requires that the debtor (and in the case of a transaction against consideration, also the counterparty) knew or should reasonably have known that such prejudice would materialise.28

Knowledge of a mere chance that prejudice may occur is insufficient to invoke the actio Pauliana. Knowledge must relate to a reasonable degree of likeliness that insolvency proceedings will be opened and that the insolvency estate contains a deficit.29 In certain cases, the onus of proof regarding knowledge of prejudice is reversed by law (e.g., in the event of certain transactions executed between related parties within a period of one year prior to the bankruptcy date).30

A compulsory or involuntary legal act, on the other hand, can only be avoided either in the event that the transaction occurred at a time when the counterparty knew or ought to have known that a petition was submitted for the commencement of insolvency proceedings against the debtor,31 or in the event of a concerted action by the debtor and the creditor aimed at facilitating preferential treatment of the latter (collusion).32

Finally, set-off effected in the period immediately prior to the commencement of insolvency proceedings could be clawed back if the creditor effecting the set-off acted in bad faith when acquiring its claim or debt on which it relied when setting off.33 Bad faith is, notably, given when the creditor knew or should have known that the insolvency could reasonably be expected.34 A similar rule applies to the right of an account bank to exercise its pledge over monies standing to the credit of bank accounts of its clients (such a pledge is generally stipulated in the general terms and conditions used by the relevant account bank). The pledge cannot be exercised by account banks in relation to monies paid into the account at a time when the account bank is considered to be in bad faith (as defined above).35

III RECENT LEGAL DEVELOPMENTS

i Legal position and personal liability of silent administrator

Reference has already been made to the use of a silent administrator prior to the commencement of formal insolvency proceedings. A judgment of the Supreme Court concerning the bankruptcy proceedings of the Ruwaard van Putten Hospital considers the legal position and possible personal liability of a silent administrator.36 Since the current Bankruptcy Code does not provide for a statutory framework concerning the appointment of a silent administrator, the appointing court primarily determines the legal position and tasks of the silent administrator. Guidelines have also been prepared by the Dutch Insolvency Association INSOLAD. In any case, the activities of the silent administrator must be aimed at preparing an expedient and efficient course of future insolvency proceedings. Personal liability can only be established in exceptional circumstances. The general rule – as also applies to liquidators37 – is that no liability is incurred if the silent administrator has acted in a way that can reasonably be expected from such an office holder who has sufficient knowledge and experience and who performs his or her tasks in a diligent and dedicated manner.

ii Insolvency and commercial partnerships

A Supreme Court judgment was delivered in 2019 concerning the bankruptcy of a commercial partnership. Such a commercial partnership concerns a legal relationship that can be established by agreement and that aims to exploit a business under a common name in a durable collaboration.38 A commercial partnership does not constitute a corporate entity. Nevertheless, a certain autonomous position is granted to the commercial partnership by law (e.g., the right to bring actions in its own name39 and its eligibility to be declared bankrupt40). The commercial partnership has an estate that is segregated from that of the private estates of the relevant partners. Although the partners remain personally liable on a joint and several basis for the debts of the commercial partnership,41 the bankruptcy adjudication of the commercial partnership does not automatically result in the bankruptcy of the individual partners.42 Whether insolvency proceedings are opened in respect of the partners must be determined on the basis of the (financial) state of each individual partner. With regard to the ranking of certain 'claims against the estate' (i.e., expense claims) in the case of concurrent proceedings against both the commercial partnership and individual partners, the Supreme Court recently held that a claim against the estate in the insolvency proceedings of the commercial partnership may acquire a similar status in the concurrent proceedings opened against a partner.43 The case concerned salaries and certain related social security premiums, which were considered to constitute claims against the estate as from the bankruptcy date of the commercial partnership. The same status could be invoked in insolvency proceedings of a partner provided that the relevant claims originated after the commencement date of the concurrent proceedings opened against the relevant partner.

iii Multilateral insolvency set-off

Insolvency set-off does not automatically occur by operation of law. A creditor is entitled to set off any mutual payment obligations vis-à-vis the insolvent debtor provided that the reciprocal payments obligations existed prior to the commencement of insolvency proceedings or originate from a pre-commencement legal relationship.44 In a recently published case, the Supreme Court has confirmed the view that parties are free to generally extend or limit set-off rights beyond the scope of the statutory default rule on insolvency set-off (except for the origination date of the payment obligations, as described above).45 For example, parties are at liberty to deviate from the reciprocity requirement of having direct claims against each other. Any pre-commencement agreement permitting multilateral set-off upon a party being declared insolvent should generally be considered valid and enforceable.

iv Ranking disputes between secured creditors and tax authorities

As a general rule, secured creditors have priority over preferential creditors.46 A controversial exception concerns the preferential status of particular tax liabilities in respect of certain tangible movable assets (eg inventory and certain machinery) which are situated on the debtor's premises. In the event that such assets are encumbered with a non-possessory right of pledge, the tax authorities can claim senior ranking in the distribution of enforcement proceeds.47 A practice was developed pursuant to which the pledgee executed a lease agreement under which the debtor's premises were leased by the pledgee. Since the pledged assets would no longer be situated on the debtor's premises, the senior preferential status of the tax authorities would be lost.48 Although such practices have effectively been halted by new statutory notification obligations,49 recent case law addresses certain remaining issues concerning lease transactions executed by the pledgee prior to the implementation of the new statutory rules. The Supreme Court has endorsed the view that lease instalments owed by the pledgee or lessee can be set off against any outstanding secured liabilities.50 This rule deviates from earlier case law of the Supreme Court, pursuant to which a lessee is not entitled to set off lease instalments owed by him or her against any random claims that he or she may have against an insolvent lessor.51 The main reasons that justify such deviation include (1) the lease agreement executed between the debtor and the pledgee generally has a limited duration in time; and (2) the main purpose of the lease is to enable the pledgee to enforce its security as a separatist in the proceedings.52 Consequently, no (unjustified) infringement of the pari passu principle can be said to exist.

v Tort claims of insolvency creditors against third parties pursued by the liquidator (Peeters-Gatzen action)

According to established case law, a liquidator may be entitled to bring a claim for damages against a third party tortfeasor where the tort claim belongs to a creditor of the insolvent debtor.53 Such action – also commonly referred to as the Peeters-Gatzen action – may only be pursued by the liquidator to the extent that loss was suffered by the general body of creditors as a result of an unlawful act performed by the third party tortfeasor.54 This matter was relevant in the recent case of the Supreme Court in the bankruptcy proceedings of Indover Bank.55 The liquidators of Indover Bank instituted a claim against its holding entity Bank Indonesia on the grounds that it had committed a tort by knowingly allowing a company that structurally made losses and could not survive without the support of Bank Indonesia to continue to exist instead of winding up the company and informing creditors. The claim could, however, not be heard, as the liquidators failed to demonstrate that the joint insolvency creditors were harmed by this behaviour of Bank Indonesia (instead of only a part of the total population of creditors). In respect of the Peeters-Gatzen action, it should also be noted that the proceeds collected by the liquidator accrue to the insolvency estate and will be distributed to insolvency creditors in accordance with the statutory waterfall of priorities (despite the fact that the tort claim does not belong to the insolvency estate). The action is considered to be closely linked to the general duties of the liquidator to manage and administer the insolvency estate for the benefit of the joint creditors.

In cross-border cases, the jurisdiction of courts to entertain proceedings in relation to a Peeters-Gatzen action was considered by the ECJ in a recent preliminary ruling.56 It follows from the ruling that a Peeters-Gatzen action falls within the material scope of the Brussels I Regulation (recast)57 (instead of that of the EU Insolvency Regulation (recast)).58 In this respect the following main observations were made by the ECJ:

  1. the fact that – after the opening of insolvency proceedings – a claim is brought by the liquidator appointed in those proceedings and that he or she acts in the interests of the creditors does not substantially amend the nature of the claim – which is independent from the insolvency proceedings and remains subject – in terms of the substance of the matter, to the rules of ordinary law;
  2. the action is based on the ordinary rules of civil and commercial law and not on the derogating rules specific to insolvency proceedings; and
  3. an action may be brought by the creditors individually (whether before, during or after the conduct of the insolvency proceedings).59

IV SIGNIFICANT TRANSACTIONS, KEY DEVELOPMENTS AND MOST ACTIVE INDUSTRIES

Below is an overview of significant restructuring and insolvency procedures commenced in or still pending in 2019:

  1. Bankruptcy proceedings (including liquidations and going-concern sales):
    • Bretonière Group (retail)
    • CoolCat (retail)
    • Intertoys (retail)
    • Key Music (retail)
    • MyCom (retail)
    • Roto Smeets (printing services)
    • SecurCash (security and money transport)
    • Sissy-Boy (retail)
    • TCP group entities (payroll and managed services)
    • Thomas Cook Netherlands (tourism)
    • Vidrea Retail (retail)
  2. Suspension of payments proceedings:
    • Hudson's Bay Netherlands (retail)60
  3. Informal debt restructuring proceedings:
    • Steinhoff group (retail)
  4. Debt for equity swap (outside formal insolvency proceedings):
    • Lebara (telecom sector)
  5. M&A (outside formal insolvency proceedings):
    • Vivat (insurance company): takeover by Athora
    • Yarden (funeral services): takeover by DELA

V INTERNATIONAL

i General cross-border insolvency framework

The general legal framework pertaining to cross-border insolvency proceedings is primarily of European origin. Dutch courts recognise foreign insolvency proceedings that fall within the ambit of the Recast of the European Insolvency Regulation (Recast EIR)61 and the Winding-Up Directives concerning credit institutions and insurance undertakings.62 To date, the Netherlands has not adopted the UNCITRAL Model Law on Cross-Border Insolvency.

In the absence of binding international rules on recognition of foreign insolvency proceedings, other than the said EU law instruments, the fallback position under Dutch law is based on case law only. Under that case law, foreign proceedings outside of the scope of EU law instruments are merely granted territorial effect in the following ways.

  1. assets of a debtor that are situated in the Netherlands are excluded from the scope of a general attachment and a general stay under the lex concursus;
  2. any legal effects of the commencement of insolvency proceedings applicable under the lex concursus cannot be invoked in the Netherlands to the extent that this would prevent the debtor's creditors from taking recourse against assets situated in the Netherlands during or upon the conclusion of the proceedings; and
  3. the application of the territoriality principle does not prevent any other legal effects from being invoked in the Netherlands. For example, a liquidator is entitled to administer and dispose of the debtor's assets situated in the Netherlands, provided that such rights are conferred to him or her under the lex concursus and any attachments levied by an execution creditor prior to such acts by the liquidator are respected.63

ii Recognition of foreign bankruptcy proceedings of Yukos Oil

Numerous judgments of courts have been published in recent years concerning the bankruptcy proceedings opened in Russia against Yukos Oil. These cases primarily revolved around the questions whether (1) the foreign Yukos proceedings should be recognised under Dutch private international law; and (2) whether the legal effects of the foreign proceedings can be enforced in the Netherlands. A new chapter to the Yukos saga was added in a recent judgment of the Supreme Court, in which various recognition issues were addressed.64

As a starting point in the Yukos case, it should first be noted that no automatic recognition of Russian insolvency proceedings can be based on a treaty or other international instrument. Under general Dutch private international law, such proceedings are generally recognised if:

  1. the jurisdiction assumed by the court that ordered the commencement of the proceedings is based on jurisdictional grounds which are generally acceptable from an international perspective;
  2. the foreign opening judgment is reached in court proceedings that comply with proper dispute settlement rules and contain sufficient safeguards for the parties concerned;
  3. the recognition of the foreign opening judgment does not violate Dutch public order; and
  4. the foreign opening judgment is not incompatible with an earlier judgment of a Dutch or foreign court concerning the same parties and the same dispute (with the same subject matter and cause), provided that such earlier foreign judgment can be recognised in the Netherlands.65

In the event that not all domestic remedies that are available under foreign law have been used against the relevant foreign judgment, the Dutch court may take such circumstance into account in determining whether the foreign judgment can be recognised in the Netherlands. However, this fact is not a ground for automatic refusal of such recognition. It is also important to consider whether such domestic remedies can reasonably be considered to constitute effective remedies.

Certain facts and circumstances that preceded the opening judgment may be taken into account by the Dutch court in deciding on the possible recognition of the foreign proceedings. This applied in the Yukos case, where the opening judgment could be linked to violations of Russian (tax) laws in proceedings that preceded the opening judgment and had the (apparent) purpose of enabling the commencement of bankruptcy proceedings against Yukos Oil. A different rule could result in the recognition of foreign insolvency proceedings that were caused by prior proceedings that violate principles and values considered to be fundamental from the perspective of Dutch law.

iii Recognition of UK schemes of arrangement

Dutch companies have regularly used English law-governed schemes of arrangement as a means of implementing debt restructurings. The first case involving a Dutch company in which recognition issues were considered is Re NEF Telecom Company BV.66 Another example entails the scheme offered by Magyar Telecom (a Dutch finance vehicle of a telecommunication group operating in Hungary).67 Other recent examples include Metinvest BV (a Dutch finance vehicle in an Ukrainian based iron ore and steel conglomerate), Indah Kiat International Finance Company BV (a Dutch finance vehicle related to the APP Group, which is primarily engaged in manufacturing paper pulp) and several entities belonging to the Estro Group (active in the childcare services industry) and the Van Gansewinkel Group (a leading group in the Dutch waste management industry).

The prevailing view in legal literature and practice is that Dutch courts will probably recognise an English court order sanctioning a scheme of arrangement. There is guidance that a scheme of arrangement is within the scope of the Brussels I bis Regulation,68 so that the Dutch court is generally not entitled to dispute the English court's jurisdiction and refuse recognition of the scheme.

Should schemes of arrangement be outside the scope of the Brussels I bis Regulation, then alternative grounds for recognition have been identified, including:

  1. the Rome I Regulation;69
  2. the Convention providing for the Reciprocal Recognition and Enforcement of Judgments in Civil Matters (concluded on a bilateral basis between the Netherlands and the United Kingdom on 17 November 1967); and
  3. general Dutch private international law.

Possible recognition of UK law-governed schemes pursuant to the Convention mentioned above under (b) or general Dutch private international law (c) would mean that schemes can also be recognised in the Netherlands upon the occurrence of a hard Brexit.

VI FUTURE DEVELOPMENTS

i EU instruments

The Dutch restructuring and insolvency regime is increasingly being shaped by EU instruments. An important example concerns the EU Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures.70 The Directive does not attempt to harmonise core aspects of formal insolvency procedures, such as the conditions for opening insolvency proceedings, definitions of insolvency or the ranking of claims. Instead, the Directive focuses, as far as corporate debtors are concerned, on ensuring that a statutory framework is put in place in each Member State that maximises the chances of a company with a viable business being able to restructure its debts before it is forced into liquidation. The Directive was published in the Official Journal in June 2019. Member States will have until 17 July 2021 to transpose the Directive, with the exception of a few provisions that allow for a five-year transposition period. For the full implementation of the Directive a separate Dutch legislative proposal shall be made.

Another example of such future EU developments concerns future EU measures to reduce non-performing loans (NPLs) and prevent their renewed build-up. The EU package of proposed new measures includes a proposal for an EU Directive on credit servicers, credit purchasers and the recovery of collateral.71 The draft Directive proposes measures on credit servicers, credit purchasers and the recovery of collateral. It aims to encourage the development of secondary markets for NPLs by removing barriers to credit servicing and the transfer of bank loans to third parties across the EU. However, the application of many of these proposals is not restricted only to NPLs and portfolio trades, and accordingly they have the potential to impact the wider loan markets more generally. The draft Directive also provides a new framework for secured creditors to recover value efficiently through extrajudicial collateral enforcement for newly originated loans (accelerated extrajudicial collateral enforcement). The new extrajudicial procedure would be accessible only when agreed in advance by both lender and borrower in the loan agreement. It is intended that most of the proposals in the draft Directive would require implementation by Member States by January 2021, with the remainder in force by July 2021.

ii Reform of Dutch law

No full revision of the statutory regime will occur in the foreseeable future. Various proposals are currently pending or have recently been implemented to improve specific parts of the current regime. The main themes of reform include:

  1. combating insolvency fraud through the introduction of director disqualification rules, revision of criminal law aspects of insolvency proceedings and other powers;
  2. the promotion of corporate rescue (e.g., through the introduction of a statutory regime on silent administration, pre-packs and pre-insolvency restructuring plans; as described below); and
  3. the modernisation of insolvency proceedings by enhancing electronic communication modes, abolishing physical claims admission meetings, adding flexibility in the composition of the creditors' committee and other tools.

Specific attention should be drawn to the proposed Business Continuity Act I and the Act on Court Sanctioning of a Private Restructuring Plan (the Private Restructuring Plan Act) as a precaution against bankruptcy. These Acts purport to promote the rescue of financially distressed companies at an early stage.

A proposed amendment of the current regime under the Business Continuity Act I includes the debtor's right to request the court to appoint a silent administrator (and a supervisory judge) prior to the commencement of formal proceedings. The silent administrator will, in principle, be appointed as liquidator in subsequent bankruptcy proceedings. The silent administrator can prepare the future commencement of such proceedings (including a possible composition plan or going-concern pre-packaged sale to be executed swiftly upon the commencement of the proceedings). These preparations beyond the ambit of formal (public) proceedings can have a beneficial impact on, for example, the expected sale proceeds and the preservation of employment opportunities. Debates in Parliament concerning the bill have been temporarily suspended and will be resumed when the bill can be considered further in tandem with the future bill on the Transfer of Undertakings in Bankruptcy Proceedings. This bill will address the position of employees in bankruptcy proceedings (in particular upon a transfer of undertaking). The exact content and scope of future legislation in this area of law remains unclear (notably considering criticism voiced in legal literature and during the public consultation round).

The Private Restructuring Plan Act as a precaution against bankruptcy purports to introduce a statutory regime governing restructuring plans outside formal insolvency proceedings. The proposed regime provides for a cramdown in relation to creditors and shareholders dissenting to a debt restructuring supported by a majority of creditors and shareholders in the relevant class of creditors or shareholders. Sanctioning by the court of the arrangement will be binding on all creditors and shareholders involved in the settlement. A restructuring plan can be offered to individual classes. A number of final amendments to the bill are currently being discussed in Parliament. The Act is expected to enter into force in the course of 2020.


Footnotes

1 Paul Kuipers is a partner at Linklaters LLP.

2 Such prior approval is governed by Article 25 of the Works Council Act.

3 Article 176 of the Bankruptcy Code.

4 Such dismissal may occur pursuant to Article 40 of the Bankruptcy Code. Cf. Supreme Court 2 June 2017, JOR 2017/248 (DA).

6 See further on available insolvency and restructuring procedures: Dennis Faber and Niels Vermunt, 'National Report for the Netherlands', in: Dennis Faber et al. (eds), Commencement of Insolvency Proceedings, Oxford International and Comparative Insolvency Law Series, Volume 1, Oxford University Press 2012, page 428 ff.

7 Article 232 of the Bankruptcy Code, Article 7:663 and Article 7:666 of the Civil Code. Following the aforementioned decision of the ECJ concerning the Estro pre-pack, such rules may also apply in case of a going-concern sale implemented in bankruptcy proceedings (prepared as a pre-pack).

8 Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No. 1093/2010 and (EU) No. 648/2012, of the European Parliament and of the Council.

9 Regulation (EU) No. 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No. 1093/2010.

10 Article 23 of the Bankruptcy Code.

11 Mortgages cannot be granted in advance over future immovable assets, registered ships and registered aircraft. See Articles 3:97(1) and 3:98 of the Civil Code.

12 Articles 23 and 35(2) of the Bankruptcy Code.

13 Article 68(1) of the Bankruptcy Code.

14 Article 57(1) of the Bankruptcy Code.

15 Article 63a of the Bankruptcy Code.

16 Article 58(1) of the Bankruptcy Code.

17 Articles 58(1) and 182 of the Bankruptcy Code.

18 It follows from Article 132(2) of the Bankruptcy Code and Article 483e of the Civil Procedure Code that security can only be enforced during insolvency proceedings for (1) pre-commencement secured claims; and (2) post-commencement secured claims which originate from a pre-commencement legal relationship. Cf. also Supreme Court 16 October 2015, JOR 2016/20 (DLL/Van Logtestijn).

19 Article 6:162 of the Civil Code.

20 Supreme Court 6 October 1989, NJ 1990, 286 (Beklamel).

21 Supreme Court 18 February 2000, JOR 2000/56 (New Holland Belgium/Oosterhof) and Supreme Court 8 December 2006, JOR 2007/38 (Ontvanger/Roelofsen).

22 Cf. e.g. Supreme Court 26 March 2010, JOR 2010/127 (Zandvliet/ING). See also recently on personal liability of directors for procuring selective payments of certain creditors in the twilight zone preceding formal proceedings: Supreme Court 17 January 2020, JOR 2020/55 (Ingwersen q.q./Source BV).

23 Article 2:138(1) and Article 2:248(1) of the Civil Code regarding public and private limited companies. Such improper management must have occurred within three years of the commencement of the bankruptcy proceedings. See Article 2:138(6) and Article 2:248(6) of the Bankruptcy Code. The scope of the provision is extended to shadow directors pursuant to Article 2:138(7) and Article 2:248(7) of the Civil Code.

24 Article 2:10 of the Civil Code.

25 Article 2:9(1) of the Civil Code.

26 Other circumstances that may be relevant include the nature of the company's activities and corresponding risks, the allocation of tasks within the board of directors, possible guidelines applicable to management, the information available to directors at the time of scrutinised actions and decisions, and the knowledge and prudence that may generally be expected of a director who is sufficiently prepared and performs his or her task in a diligent manner. See Supreme Court 10 January 1997, JOR 1997/29 (Staleman/Van de Ven).

27 Supreme Court 10 December 1976, NJ 1977, 617 (Eneca) and Supreme Court 8 July 2005, JOR 2005/230 (Van Dooren q.q./ABN AMRO Bank II).

28 Article 42 of the Bankruptcy Code.

29 Cf. Supreme Court 22 December 2009, JOR 2011/19 (ABN AMRO Bank/Van Dooren q.q. III).

30 Article 43 of the Bankruptcy Code.

31 Knowledge of the mere likelihood that insolvency proceedings may be opened is insufficient to meet this requirement. See Supreme Court 16 June 2000, NJ 2000, 578 (Van Dooren q.q./ABN AMRO Bank I).

32 Supreme Court 24 March 1995, NJ 1995, 628 (Gispen q.q./IFN) and Supreme Court 20 November 1998, JOR 1999/19 (Verkerk/Tiethoff q.q.).

33 Article 54(1) of the Bankruptcy Code.

34 Supreme Court 7 October 1988, NJ 1989, 449 (AMRO/THB).

35 Cf. Supreme Court 23 November 2018, JOR 2019/27 (Eurocommerce).

36 Supreme Court 4 October 2019, JOR 2019/269 (Ruwaard van Putten Hospital).

37 Supreme Court 19 April 1996, JOR 1996/48 (Maclou).

38 Article 16 of the Commercial Code and article 7A:1655 of the Civil Code.

39 Article 51 (2) Civil Procedure Code.

40 Article 4 (3) of the Bankruptcy Code.

41 Article 18 of the Commercial Code.

42 Cf. e.g. Supreme Court 3 December 1971, NJ 1972, 117 (Hotel Jan Luyken); Supreme Court 6 February 2015, JOR 2015/181 (Bepro); and Supreme Court 2 June 2017, JOR 2017/249 (X/A).

43 Supreme Court 19 April 2019, JOR 2019/173 (UWV/X).

44 Article 53 of the Bankruptcy Code.

45 See Supreme Court 15 November 2019, JOR 2020/22 (X/Y).

46 Article 3:279 of the Civil Code.

47 Articles 21(2) and 22(3) of the Tax Collection Act.

48 A general tax preference would remain pursuant to Article 21(1) of the Tax Collection Act. However, such general tax preference is subordinated to the senior ranking of the pledgee by virtue of Article 3:279 of the Civil Code.

49 Article 22bis of the Tax Collection Act imposes a duty on the pledgee to first notify the tax authorities of its intention to lease the debtor's premises (or to perform any other acts which would frustrate the special tax preference). Such acts can only be performed after four weeks following the date on which notification was served. In the meantime, the tax authorities are entitled to take any steps necessary to enforce their senior preferential status.

50 Supreme Court 21 June 2019, JOR 2019/262 (Houtman q.q./Rabobank).

51 Supreme Court 22 December 1989, NJ 1990/661 (Tiethoff q.q./NMB).

52 See on the position of the secured creditor as a separatist in insolvency proceedings above at Section II.ii.

53 Cf. e.g. Supreme Court 14 January 1983, NJ 1983, 597 (Peeters q.q./Gatzen); Supreme Court 21 December 2001, JOR 2002/37 (Lunderstädt/De Kok); Supreme Court 21 December 2001, JOR 2002/38 (SOBI/Hurks).

54 Cf. Supreme Court 16 September 2005, JOR 2006/52 (De Bont/Bannenberg q.q.).

55 Hoge Raad 28 June 2019, JOR 2019/263 (Liquidators Indover/Bank Indonesia).

56 ECJ 6 February 2019, C-535/17 (NK v BNP Paribas Fortis).

57 Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ 2012, L 351/1. Considering the timing of the proceedings, the case was formally decided on the basis of the Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ 2001, L 12/1. The ECJ ruling can be deemed to apply mutatis mutandis to the Brussels I Regulation (recast).

58 Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast), OJ 2015, L 141/19.

59 Depending on the circumstances of the case, the action of the liquidator may have priority over a competing action of the relevant creditor. Cf. Supreme Court 21 December 2001, JOR 2002/37 (Lunderstädt/De Kok).

60 Converted into bankruptcy proceedings on 2 January 2020.

61 Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings.

62 Council Regulation (EC) No. 1346/2000 of 29 May 2000 on insolvency proceedings, OJ 2000, L160/1, Directive 2001/17/EC of the European Parliament and of the Council of 19 March 2001 on the reorganisation and winding up of insurance undertakings, OJ 2001, L110/28 and Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit institutions, OJ 2001, L125/15.

63 See Supreme Court 2 June 1967, NJ 1968, 16 (Hiret/Chiotakis); Supreme Court 31 May 1996, JOR 1996/75 (Coppoolse/De Vleeschmeesters); Supreme Court 24 October 1997, JOR 1997/146 (Gustafsen q.q./Mosk); Supreme Court 19 December 2008, JOR 2009/94 (Yukos I) and Supreme Court 13 September 2013, JOR 2014/50 (Yukos IV).

64 Supreme Court 18 January 2019, JOR 2019/165 (Yukos).

65 Supreme Court 26 September 2014, JOR 2014/350 (Gazprombank/Bensadon).

66 [2012] EWHC 2944 (Comm); recognition issues do not appear to have been raised in a prior case of a Dutch company proposing a scheme, Re DAP Holding NV [2005] EWHC 2092 (Ch).

67 Re Magyar Telecom [2013] 3800 (Ch).

68 Regulation (EU) No. 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ 2012, L 351/1.

69 Regulation (EC) No. 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations, OJ 2008, L177/6.

70 Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency), OJ 2019, L172/18.

71 Proposal for a Directive of the European Parliament and of the Council on credit servicers, credit purchasers and the recovery of collateral, COM(2018)135.