A pre-pack is the term used for the restructuring of a company through a transaction that is prepared as much as possible outside of formal insolvency proceedings, and whereby the enterprise survives but some or all of the company's debt is restructured. The aim of preparing the transaction in advance is to ensure the maximum preservation of value. Several structures can be distinguished.
The term is mostly used for the structure whereby the Dutch court is requested to appoint a so-called silent trustee, who participates in negotiations with the relevant stakeholders (usually management, senior creditors and the sponsors of the surviving entity) resulting in a transaction that is effectuated after the commencement of formal bankruptcy proceedings. Typically, the time between the opening of the bankruptcy proceedings and the signing and closing of the transaction is very short - hours, rather than days. To date, there have been two successful large restructurings that were accomplished in this manner; NautaDutilh was involved in the largest of the two (Schoenenreus).
The Dutch Bankruptcy Act ("DBA") does not provide for the appointment of a silent trustee. However, many Dutch courts (including the Amsterdam district court) have shown a willingness to notify the parties beforehand of who they intend to appoint as trustee in the event a formal bankruptcy application is filed at a later time. The conditions attached to such notification are, briefly put, that the relevant individual (the silent trustee) is given access to all necessary information and be given all cooperation that he or she requires, and furthermore that the company is willing to pay the silent trustee's fees (time spent) and out-of-pocket expenses should no formal insolvency proceedings follow. Recent success stories have shown that the lack of a statutory basis does not in and of itself prevent a successful restructuring. However, these developments as well as suggestions from practitioners have prompted the Minister of Justice to inform the Dutch parliament that he is looking into the possibility of codifying the appointment of a silent trustee and the rules surrounding such appointment. Future legislation is likely to address issues such as the duration of the silent insolvency, transparency, reporting and accountability of the silent trustee, and the applicability of claw-back provisions in the period between the appointment of the silent trustee and the actual insolvency proceedings.
The appointment of a silent trustee can be useful in situations where the survival of the business requires more than just a haircut for some or all of the creditors, namely where it is necessary to take advantage of specific provisions in the DBA. Typically, the provisions concerning the termination and transfer of certain contracts (lease, employment) are relevant. A Dutch pre-pack is therefore an option to consider in situations where the company's business is only viable with amended leases and/or staff cuts.
Another non-traditional manner in which restructurings have been carried out in the Netherlands is through the enforcement of security by means of court-approved private sales. Such security can be a share pledge or a pledge on receivables, real estate, or other assets. For the enforcement of security, no formal insolvency proceedings are required. Schoeller Arca was the first case where a restructuring was successfully accomplished in this manner; more recent examples are the restructurings of Uni-Invest and Eurocommerce (both real estate companies). NautaDutilh was involved in all of these cases.
Following the recent use of a composition plan in the Dutch Lehman bankruptcy, the composition plan under the DBA has attracted renewed attention as an instrument for restructuring certain types of businesses (particularly finance and holding companies) in a way that could provide an attractive and quick alternative to other options in the Netherlands and abroad. A composition plan can be effectuated in as little as six weeks, and makes it possible for the entity to survive and for any opposing minority to be bound by the plan's conditions (typically a write-off of creditors' claims) following court approval. With these alternatives and the innovative new applications thereof, the Netherlands has again proven itself to be an interesting venue for restructurings of companies in financial distress whilst respecting the traditionally strong position of (secured) creditors.