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1. Insolvency and restructuring procedures
1.1 – What are the main insolvency and restructuring procedures applicable to companies?
Bankruptcy (faillissement), suspension of payments (surseance van betaling) and restructuring plan proceedings under the Act on Court Confirmation of Extrajudicial Restructuring Plans (WHOA). There are also certain specific procedures and insolvency rules applicable to financial institutions. For instance, the following can apply to banks: an expropriation measure from the Dutch Ministry of Finance in accordance with Chapter 6.1 of the Financial Supervision Act or a resolution tool or power as referred to in Directive (EU) No. 2014/59 (the Banks Recovery and Resolution Directive, as implemented in the Financial Supervision Act) and/or the Regulation (EU) No. 2014/806 (the Single Resolution Mechanism Regulation).
1.2 – Can a company obtain a moratorium whilst it prepares a restructuring plan? If so, what is the effect of the moratorium?
After the debtor has filed a statement in respect of the preparation of an extrajudicial restructuring plan and provided its restructuring proposal to its creditors, the court may grant a cooling off period (afkoelingsperiode) for a maximum of four months, which may be extended up to a maximum of eight months, during which the creditors of the debtor are prevented from taking recourse against the assets of the debtor.
1.3 – How long will it generally take for a creditor to achieve the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?
In the event of a bankruptcy, generally it would take a few weeks between the filing of a bankruptcy request and the court declaring the debtor/company bankrupt.
1.4 – Does your jurisdiction make use of a distressed sale process by which the business/assets of the company can be sold?
A secured creditor may enforce its security rights by way of a sale of the assets through a public auction, a private sale with consent of the pledgor after the security has become enforceable or a private sale with court consent. The secured creditor may also request the court to consent to an appropriation of the assets for a purchase price to be determined by the court. Security over receivables is generally enforced through the collection of the receivables from the relevant debtors.
2. Insolvency office-holders and courts
2.1 – Who can act as an insolvency office-holder?
There are no statutory limitations as to whom can be appointed as bankruptcy trustee (curator), but in practice the courts almost always appoint lawyers to the role. In larger or more complex cases, two bankruptcy trustees are usually appointed. In some specific cases, e.g. for banks or financial institutions, the courts have appointed a lawyer and an auditor as bankruptcy trustees.
2.2 – Who decides the identity of the insolvency office-holder, and what restrictions apply?
There are no statutory or formal requirements, but in recent years the courts have limited the number of eligible insolvency practitioners and tend to appoint bankruptcy trustees on the basis of seniority and experience. Courts maintain a list of appropriate bankruptcy trustees.
2.3 – Are insolvency cases heard by specialist judges, or in the general commercial courts?
Insolvency cases are heard by the insolvency divisions of the courts, which operate separately from the general civil/commercial divisions. Many of the bankruptcy judges have followed specialist training of the Dutch Association of Insolvency Practitioners (INSOLAD).
3. Position of directors
3.1 – To what extent do the directors of the company remain in control of its affairs during any of the procedures described above?
During bankruptcy, formally the directors of the debtor do not have an active role in the management of the company as the debtor is no longer authorised to dispose of its assets. The court appointed bankruptcy trustee is tasked with the management and realisation of the debtor’s assets. The bankruptcy trustee can sometimes request management to cooperate with the bankruptcy trustee to facilitate an orderly process. During suspension of payments, the debtor can only dispose of its assets with the co-operation of a court appointed administrator (bewindvoerder), so the debtor is effectively managed by the management and the administrator acting jointly. During restructuring plan proceedings under the Act on Court Confirmation of Extrajudicial Restructuring Plan (WHOA), which is a so called debtor-in-possession procedure, the debtor retains the power to dispose of its assets.
3.2 – Are there circumstances in which directors are obliged to file for insolvency proceedings? If so, when do those circumstances arise?
There is generally no statutory obligation for directors to file for bankruptcy or apply for suspension of payments. However, a creditor may hold a director of a company personally liable if he concluded an agreement on behalf of the company while he knew or reasonably should have known that the company would be unable to meet its obligations and would not offer recourse for the resulting damages (“wrongful trading”). In the event of a (voluntary) liquidation of the company, the directors/liquidators are under a statutory obligation to file for bankruptcy if the debts of the company are likely to exceed the company’s assets.
3.3 – What are the risks facing the directors of an insolvent company?
There is a plethora of risks directors may face. Directors of an insolvent company face several risks such as, among others, joint and several liability towards the company for mismanagement (onbehoorlijk bestuur), joint and several liability towards the bankrupt estate for the deficit of the company (more likely to occur in the event that management has failed to publish the annual accounts on time or keep proper records), individual liability towards creditors or other third parties in tort (e.g. wrongful trading, selective payment or fraudulent conveyance), joint and several liability towards tax and social security authorities, criminal liability and director disqualification (e.g. in case of mismanagement or fraud). Finally, although not a basis for a risk by itself directly, the risk of the phenomenon “piercing the corporate veil” can also be relevant.
4. Position of creditors
4.1 – What are the main forms of security over movable and immovable property?
Dutch law differentiates between two forms of in rem security rights: a right of mortgage (hypotheekrecht) and a right of pledge (pandrecht). A mortgage (e.g. on registered property (registergoederen) such as real estate, vessels and aircraft) is created by way of a notarial deed of mortgage and registration thereof in the land registry. A pledge is created by way of a deed of pledge. In case of movable assets and receivables, the pledge can be possessory or non-possessory and disclosed or undisclosed, respectively. If non-possessory and undisclosed, respectively, the deed needs to be date-stamped by the tax authorities or signed as a notarial deed. In case of shares, the pledge is created by way of a notarial deed of pledge.
4.2 – How does the opening of insolvency proceedings affect the rights of secured creditors?
A secured creditor may enforce its security rights as if there were no bankruptcy, provided that it could be subjected to:
- a cooling off period (afkoelingsperiode) for a maximum of four months during which the right to enforce a security right is temporarily suspended;
- a request from the bankruptcy trustee to enforce the security right within a reasonable term; and
- although there is debate in the legal literature in this regard, having to notify the tax authority in respect of the execution of certain movable assets which qualify as bodemzaken.
In case the secured creditor fails to exercise its rights as a so-called “separatist” within a reasonable term, including its right of summary foreclosure (parate executie) or in respect of receivables, to collect such receivables, the bankruptcy trustee may sell the assets, in which event the secured creditor retains its right of priority to the proceeds, but has to share in the bankruptcy costs.
4.3 – Where a debt owed to a secured creditor exceeds the value of the security, is the secured creditor entitled to claim for the shortfall?
Yes, but as an unsecured ordinary creditor.
4.4 – Which classes of creditor are given preferential status? Are any classes subordinated?
The most important preferential claims arising from statutory provisions include claims secured by a right of pledge or a right of mortgage, a retention right, tax claims, social security claims and certain employee claims. Creditors can agree subordination of their claims to all or to certain other claims of other creditors by contract.
4.5 – Is there a date by which creditors must make claims in the insolvency proceedings? If so, what are the consequences of failing to claim by that date?
If there is a need to assess individual claims of creditors, the bankruptcy trustee will ask the court to set a date for the so-called “claims admission meeting” (verificatievergadering). The deadline for the submission of claims is linked to the date of such meeting. Any claims should in principle be submitted no later than 14 days in advance. The supervisory judge can order a final deadline (bar date) in relation to the submission of claims. Any claims which are not submitted in time will not be taken into account.
4.6 – Are contractual rights of set-off and/or netting effective in insolvency?
The creditor of an insolvent debtor has a broad right of set-off in insolvency. It may invoke its right of set-off provided that both the claim and the debt date from before the bankruptcy or result from acts performed before the bankruptcy. However, a creditor is not allowed to set off any claims which it acquired from third parties before the bankruptcy if it did not act in good faith with respect to such acquisition. Claims or debts acquired after the bankruptcy cannot be set off.
4.7 – Are contract terms permitting termination of a contract by reason of insolvency (“ipso facto clauses”) effective?
Yes, except under the Act on Court Confirmation of Extrajudicial Restructuring Plan (WHOA).
4.8 – Are retention of title clauses enforceable and (if applicable) what are the main requirements for enforceability?
Retention of title clauses are in principle enforceable in the Netherlands, both in and outside bankruptcy. A retention of title has to be agreed between the supplier and the buyer (e.g. in a sales contract or via the supplier’s general terms and conditions) and is subject to certain limitations in respect of the claims which it may secure. Issues may arise if a supplier wishes to claim back any goods which are subject to a retention of title, but such goods can no longer be identified.
4.9 – Are foreign creditors treated equally to domestic creditors?
Yes.
5. Setting aside transactions
5.1 – What are the main transaction avoidance provisions applicable to the proceedings referred to above?
During bankruptcy the bankruptcy trustee has the right to nullify transactions entered into by the debtor prior to the bankruptcy on the basis of voidable preference (actio Pauliana). In this respect a distinction should be made between voluntary transactions and involuntary transactions. A voluntary transaction (i.e. in the absence of a prior legal obligation) can be nullified if the transaction was prejudicial to the company’s creditors and both the company and its counterparty knew or should have known that the relevant transaction would be prejudicial to the company’s creditors. The burden of proof in respect of the knowledge requirement may under certain circumstances shift from the bankruptcy trustee to the third party concerned (e.g. in relation to intragroup transactions or transactions at an undervalue), provided the voluntary transaction took place less than one year before the debtor was declared bankrupt. An involuntary transaction (i.e. pursuant to a prior legal obligation) can be nullified if the transaction was prejudicial to the company’s creditors and the counterparty knew that a petition for the company’s bankruptcy had been filed with the court or the transaction resulted from concerted action of the company and the counterparty aimed at preferring the counterparty to the detriment of the company’s other creditors. Outside bankruptcy the right to nullify transactions on the basis of voidable preference is vested in the creditors of the debtor.
Furthermore, transactions that are not in the corporate interest of a company may be nullified on the basis of ultra vires if they exceeded such company’s corporate interest and this was or without enquiry ought to have been known to the counterparty. Whether a legal act exceeds a company’s corporate interest involves analysing the wording of the objects clause in the company’s articles of association and whether such company derives commercial benefit from the transaction. A transaction which is qualified as ultra vires may be set aside by the bankruptcy trustee or, outside bankruptcy, the company.
5.2 – Who is entitled to challenge transactions under these provisions?
The bankruptcy trustee during bankruptcy and any creditor of the debtor outside bankruptcy.
6. Cross-border insolvency
6.1 – Do your courts recognize insolvency proceedings commenced in the courts of other jurisdictions?
Insolvency proceedings initiated in EU member states (other than Denmark) are automatically recognised in the Netherlands pursuant to the Recast European Insolvency Regulation. The Netherlands does not participate in the UNCITRAL model law on cross-border insolvency. Therefore, in the absence of an applicable international regulation such as the Recast European Insolvency Regulation, the Netherlands does not automatically recognise insolvency proceedings other than those referred above. Insolvency proceedings initiated in other (non-EU) jurisdictions may be recognised by Dutch courts under private international law rules. In principle, unless an international regulation determines otherwise, a foreign insolvency procedure has territorial effect only. However, the consequences of the territoriality concept have been mitigated by the Dutch Supreme Court. In short, a foreign bankruptcy trustee has the power to manage and dispose of the debtor’s assets located in the Netherlands on the basis of the lex concursus (i.e. the law of the state where the insolvency proceedings were opened), unless that would mean that during or after the bankruptcy unpaid creditors would no longer have recourse against such assets. The foregoing applies only to the extent the foreign insolvency judgment is not contrary to Dutch public order.
6.2 – If so, what assistance can your courts provide, following recognition?
Following recognition by a Dutch court of a decision by a court of an EU member state where main insolvency proceedings have been opened, a Dutch court has jurisdiction to open secondary insolvency proceedings the effects of which are restricted to the debtor’s assets located in the Netherlands.
6.3 – Is it possible to commence insolvency proceedings in relation to a foreign company?
Yes, the courts of the Netherlands have jurisdiction to open main insolvency proceedings against a foreign company if such company has its centre of main interests (COMI) in the Netherlands. If the foreign company has its centre of main interests in another EU member state but possesses an establishment in the Netherlands, the courts of the Netherlands have jurisdiction to open secondary insolvency proceedings only.
7. Other matters
7.1 – Please consider whether there is any other feature of your country’s insolvency regime of which a lender, investor or purchasers of distressed debts or businesses should be aware? For example, are there any mistakes that foreign creditors often make?
Typical features to take into consideration for Dutch restructurings are the works council which has certain rights and the Dutch scheme or arrangement (WHOA) which has been very successful in the past years but its effectiveness in certain restructurings is still uncertain due to a recent Supreme Court case. Also, whether or not a Dutch company is deemed to be insolvent is tested through a liquidity test and not on the basis of any solvency or balance sheet test.
7.2 – Are there any other stakeholders or entities (eg governmental or regulatory) which may influence the outcome of any restructuring?
There are many stakeholders that can influence the outcome of restructurings. Some examples include the tax authority which postponed tax debts in the covid-crisis. Whether or not the tax authority is amenable to restructure that debt can significantly influence the success of restructurings. Furthermore, in the past, employees have challenged restarts following bankruptcy, arguing their employment contracts have not terminated on the basis of EU Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the EU member states relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses. Lastly, the Dutch government can in certain situations also block merger and acquisition activity.
7.3 – Are there currently any proposals for significant reform of your insolvency laws?
On 27 May 2024 the Dutch legislator submitted the draft bill on the Act for the Transfer of Undertaking in Bankruptcy (Wetsvoorstel overgang van onderneming in faillissement) for public consultation, which aims to increase the protection of employees in a bankruptcy.
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