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What are the main insolvency procedures applicable to companies in your jurisdiction?
- Suspension of payments
- Pre-pack bankruptcy
Suspension of payments – A company that foresees it will not be able to pay its creditors can petition the court to grant a suspension of payments. The purpose of a suspension of payments is to enable the company to continue to trade and avoid bankruptcy. If the application is granted, the court will appoint an administrator (“bewindvoerder”) and a supervisory judge (“rechtercommissaris”). Generally the company will continue its business, however, if it cannot agree a composition with its creditors, secure refinancing or agree a restructuring plan within a few days then suspension of payments will usually end in bankruptcy.
Bankruptcy – The company or a creditor can file for bankruptcy. If the company is declared bankrupt the court appoints a bankruptcy trustee (“curator”) and a supervisory judge (“rechtercommissaris”). The bankruptcy trustee will interview the management board of the company, terminate all contracts of employment, realise the company’s assets and investigate whether the directors are liable to the company for misfeasance. The bankruptcy trustee must file regular bankruptcy reports with the court.
Pre-pack – A bankruptcy can be used to effect a pre-packaged sale of the business of a company in financial distress. Although not yet a formally recognised insolvency procedure, prior to a formal bankruptcy the court will appoint a ‘silent trustee’, who participates in negotiations with stakeholders in order to agree the sale of the company’s business. Once agreed, the company is put into bankruptcy and the bankruptcy trustee (usually the former silent trustee) makes the sale on the agreed terms.
Can a company obtain a moratorium whilst it prepares a restructuring plan?
No, Dutch law does not provide for a moratorium (“afkoelingsperiode”) outside insolvency procedures.
To what extent do the directors of the company remain in control of its affairs during any of the above procedures?
During a suspension of payments, the directors remain in office but require the approval of the administrator to enter into transactions.
On the court declaring a company bankrupt, the powers of the directors cease and the bankruptcy trustee takes control of the company.
Timeline to commence liquidation
How quickly can a creditor generally commence the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?
Between four and six weeks from filing the petition with the court.
Do your courts recognise insolvency proceedings commenced in the courts of another jurisdiction?
Yes - insolvency proceedings commenced in the courts of other EU members states will be automatically recognised under the EC insolvency regulation.
Insolvency proceedings commenced in a court of a non-EU member state may be recognised if provided for in a relevant treaty.
Position of creditors
Forms of security
What are the main forms of security over movable and immovable property?
Security over real estate, aircraft and large ships is taken by a mortgage (“hypotheekrecht”), registered in the public land register (“Kadaster”).
Security over movable property, receivables, bank accounts and shares is taken by a pledge (“pandrecht”).
Which classes of creditor are given preferential status? Are any classes subordinated?
The following debts are preferred:
- the fees and expenses of the bankruptcy trustee
- debts owed to employees
- the Employee Insurance Agency (which will pay certain debts owed to employees)
Debts can be contractually subordinated.
Treatment of foreign creditors
Are foreign creditors treated equally to domestic creditors?
Termination of contract by reason of insolvency
Are contract terms permitting termination of the contract by reason of insolvency valid?
Retention of title
Are retention of title clauses effective?
Yes, provided that (i) the clause is incorporated in the contract between the parties (the supplier and the debtor) and (ii) the goods in question can be identified. The party claiming a retention of title must prove its claim to the administrator or bankruptcy trustee.
Setting aside transactions
Transaction avoidance provisions
What are the main transaction avoidance provisions, and who can challenge transactions?
The bankruptcy trustee can nullify pre-bankruptcy legal acts which had a prejudicial effect on other creditors as voidable preferences (“actio pauliana”).
Dutch law distinguishes between legal acts where there is a due and payable obligation (obligatory acts), eg payment of a debt on a due date, and where there is not a due and payable obligation (voluntary acts), eg a transaction at an undervalue.
The bankruptcy trustee can nullify voluntary acts where both the company and the counterparty knew or should have known that the act would prejudice other creditors of the company. Where the act took place within the year prior to the commencement of bankruptcy and the counterparty was a connected party (a majority shareholder, director or company in the same group) such knowledge is rebuttably presumed.
A bankruptcy trustee can only nullify obligatory acts where either:
(a) the counterparty knew that a bankruptcy petition was pending against the company at the time the legal act was performed; or
(b) the company and the counterparty conspired to prejudice other creditors by entering in to the transaction.
Position of directors
Risks for directors
What are the risks facing the directors of an insolvent company?
Directors can be held civilly liable to make good the losses caused to creditors by:
- mismanagement of the company - rebuttably presumed if the directors fail to ensure the company’s accounts are published in accordance with the law
- mismanagement of the company causing taxes or contributions to pension funds to be unpaid - rebuttably presumed if the directors did not inform the tax authorities or pension trustees in time that the company would be unable to pay its debts
- causing the company to enter into contracts - at a time when the director knew or should have known that the company would be unable to fulfill its obligations under the contract
Directors can be held criminally liable for fraudulently removing assets from the company before or during bankruptcy.