An extract from The Insolvency Review, 7th Edition
Insolvency law, policy and procedurei 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.
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, the preferred creditor position of the tax authorities in the Collection of State Taxes Act, and criminal law issues in the Criminal Code. 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, 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 payments can be used to restructure debts due to non-preferred, non-secured creditors that are subject to the suspension of payments (ordinary creditors). Preferred and secured creditors fall outside the scope of suspension of payments. If the composition plan is accepted by the (required majority of) ordinary creditors and confirmed by the court, the suspension of payments proceedings are terminated and the debtor emerges from the insolvency proceedings.
The contents of the composition plan can be flexible (debt-to-equity swaps are allowed). Dutch law does not differentiate between classes of ordinary creditors (and secured creditors cannot be bound by a composition plan). Nonetheless, different 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
Bankruptcy 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. 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).iv Starting proceedingsSuspension 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 internet and in the Government Gazette.v Control of insolvency proceedingsSuspension 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 institutions and insurance companies. Furthermore, the AFS contains specific provisions on the recovery of, and resolution plan proceedings for, financial institutions and insurance companies.
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.
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.
Overview of restructuring and insolvency activity
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, 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.