Restructuring and Insolvency in Netherlands 2024

Restructuring and Insolvency in Netherlands 2024 - Supreme Court of the Netherlands

RESTRUCTURING AND INSOLVENCY 2024

NETHERLANDS

Charlotte Ausema, Juliette Willems, Tim Elkerbout

(Freshfields Bruckhaus Deringer)

GENERAL

Legislation

What main legislation is applicable to insolvencies and reorganizations?

The Dutch Bankruptcy Act currently provides for the following types of insolvency proceedings:

bankruptcy, applying to companies, other legal entities and natural persons;
preliminary and definitive suspension of payments, which can be granted to most companies and legal entities or natural persons carrying out a profession or business;
pre-insolvency restructuring proceedings applying to companies (other than banks and insurance companies); and
debt reorganizationof natural persons.

At the EU level, there are several legislative frameworks in the insolvency context. The most important of these is Regulation (EU) 2015/848 (the Recast Insolvency Regulation). The Recast Insolvency Regulation aims to establish common rules on cross-border insolvency proceedings, based on principles of mutual recognition and cooperation.

There are specific provisions in the Dutch Bankruptcy Act and in the Dutch Financial Supervision Act (DFSA) for the bankruptcy, recovery and resolution of credit institutions and insurance companies. These provisions are based on:

Directive 2001/24/EC on the reorganizationand winding-up of credit institutions;
Directive 2001/17/EC on the reorganizationand winding-up of insurance undertakings;
The Bank Recovery and Resolution Directive 2014/59/EU (BRRD); and
Regulation (EU) No. 806/2014 on establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms (SRM).

Provisions regarding the settlement finality in payment and securities settlement in the Dutch Bankruptcy Act are based on Directive 98/26/EC on settlement finality in payment and securities settlement systems (SFD).

Finally, Directive (EU) 2019/1023 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 (the Restructuring Directive) was formally adopted on 20 June 2019 and came into effect on 17 July 2019. The Restructuring Directive’s objectives are to contribute to the proper functioning of the internal market and to remove obstacles to the exercise of fundamental freedoms.

The Implementation Act Restructuring Directive (the Implementation Act) formally implements the Restructuring Directive into Dutch law and entered into force on 1 January 2023. It slightly amends the Act on Court Confirmation of a Private Restructuring Plan that entered into force on 1 January 2021, which already tied in with the aim of the Restructuring Directive to ensure that EU member states have a preventive restructuring framework in place.

The existing Debt Restructuring (Natural Persons) Act already provided for the second chance system as provided for in the Restructuring Directive.

Excluded entities and excluded assets

What entities are excluded from customary insolvency or reorganizationproceedings and what legislation applies to them? What assets are excluded or exempt from claims of creditors?

Excluded entities

Dutch courts cannot open insolvency proceedings against a foreign state. It is unlikely that insolvency proceedings could be opened against the Dutch state and local authorities, such as municipalities and provinces, although the Dutch Bankruptcy Act does not explicitly contain exceptions. For other Dutch government organizations, this is less clear.

Excluded assets

There are a number of statutory exceptions that stipulate the exemption of certain assets to insolvency proceedings, namely:

assets that cannot be encumbered with attachments (in certain circumstances also copyright);
the statutorily exempt part of an individual’s income;
monies reserved for the bankrupted party derived from a statutory duty of support or maintenance;
a supervisory judge may determine that property under administration is exempt from insolvency proceedings;
monies that have been paid into court;
assets under a regime of administration that have not been claimed by any creditor;
based on case law, certain assets are exempt that are reserved from a prior bankruptcy;
certain rights of use and the right of occupancy; and
rights of a highly personal nature (eg, a right under an occupational pension scheme).

In certain situations, it may prove difficult to determine whether an asset is excluded from insolvency proceedings. All relevant circumstances of each individual case may be taken into account. Also, in certain cases, the cooperation of third parties may be important (eg, in situations in which third parties will need to surrender their rights).

Public enterprises

What procedures are followed in the insolvency of a government-owned enterprise? What remedies do creditors of insolvent public enterprises have?

All entities in the sphere of private law can be declared bankrupt in accordance with the Dutch Bankruptcy Act. It is not certain if government bodies and administrative authorities of these entities can be declared bankrupt. However, the bankruptcy estate will not include assets that are destined for public service. Dutch law also provides for lower government bodies qualifying for supplemental support from the state, subject to those bodies relinquishing part of their financial policy autonomy to the state.

Protection for large financial institutions

Has your country enacted legislation to deal with the financial difficulties of institutions that are considered ‘too big to fail’?

Background

The BRRD and the SRM have created an EU legislative framework that deals with the failure of credit institutions and investment firms. The BRRD and the SRM are key components of the EU banking union’s ‘single rulebook’ regulatory framework, which also applies in the Netherlands.

The BRRD is a (minimum harmonizing) EU directive and provides authorities with a common approach and a wide range of measures that can be taken to deal with failing credit institutions and investment firms. These measures can be divided into three phases:

preparatory and preventative;
early intervention; and
resolution.

The SRM is an EU regulation that is closely connected to the BRRD and creates a centralized resolution system that deals with failing banks. The regulation has direct effect and prevails over national law. The SRM confers special authority and powers to a new EU-level authority, the Single Resolution Board (SRB). Under the supervision of the SRB, each national resolution authority (in the Netherlands, the Dutch Central Bank) will be in charge of the execution of a resolution scheme.

With respect to the recovery and resolution of failing insurers, the Act on Recovery and Resolution of Insurers provides the Dutch Central Bank with more resolution tools and a wider authority to be able to act on an individual basis regarding failing insurers.

Implementation in the Netherlands

The BRRD has been implemented in the Netherlands through the Dutch Implementation Act for the European Framework for the Recovery and Resolution of Banks and Investment Firms (the Dutch Recovery and Resolution Implementation Act), which entered into force on 1 January 2016. The Dutch Recovery and Resolution Implementation Act also purports to facilitate the application of the SRM.

The Act, however, only covers areas of the BRRD that are not specifically provided for in the SRM (because of the direct applicability of the SRM). Therefore, both the SRM and the Dutch Recovery and Resolution Implementation Act need to be consulted to gain insight into the implementation and application of the new EU legislative framework within the Netherlands.

The SRM and the Dutch Recovery and Resolution Implementation Act both replace – in large part – the previous legislative framework, provided by the Dutch Intervention Act. The Dutch Intervention Act provided similar prevention, intervention and crisis-management tools for distressed financial institutions that were deemed too big to fail.

Under the Dutch Recovery and Resolution Implementation Act, various amendments have been made to, among others, the DFSA, the Dutch Civil Code and the Dutch Bankruptcy Act. A large part of the most significant changes can be found in the DFSA, which introduces – among other things – a new sub-Chapter (3A) titled ‘Special Measures and Provisions regarding Financial Undertakings’.

On 20 May 2019, the BRRD II and the SRMR II were adopted by the European Commission. The BRRD II amends the BRRD to reduce further risk and to incorporate the ‘total loss-absorbing capacity’ requirement that applies to global systemically important institutions. The total loss-absorbing capacity requirement has the same objective as the minimum requirement for own funds and the eligible liabilities requirement (which is used in the BRRD). The BRRD II aims to harmonize these two requirements.

Recovery and resolution measures within the BRRD legal framework

The Dutch Recovery and Resolution Implementation Act mirrors the same three-phase approach as set out in the BRRD (and SRM):

preparatory and preventative;
early intervention; and
resolution.

In conjunction with the SRM, the Dutch Recovery and Resolution Implementation Act provides specific rules and tools for each of those phases with respect to banks and investment firms (or groups containing such a bank or investment firm) that are based in the Netherlands.

Regarding the preparatory and preventative phase, there are new rules for recovery plans, intragroup financial support and resolution plans (which are prepared by the national resolution authority (ie, the Dutch Central Bank)).

In the early intervention phase, new intervention tools are provided to the resolution authority that aim to prevent the need for resolution of the bank or investment firm. Early intervention tools include the supervisory authority instructing the relevant institution to implement a recovery plan, or to replace or remove members of its senior management or management body. Under certain circumstances, it is also possible to appoint a temporary administrator whose powers and authority are determined on a case-by-case basis.

Regarding the resolution phase, the resolution authority is responsible for determining when and how a bank or investment firm becomes subject to resolution, provided that:

the entity is failing or is likely to fail;
there is no reasonable prospect that any alternative private sector measure or supervisory action would prevent the failure of that entity; and
a resolution action is necessary in the public interest.

If these conditions are met, the resolution authority may resolve to write down and convert capital instruments of the failing entity. If the resolution authority anticipates that the sole write-down and conversion of the capital instruments is insufficient to restore the financial soundness of the entity, then the resolution tools (individually or combined) may be applied, namely:

the sale of business;
the bridge institution;
the assets separation; and
the bail-in tool.

The bail-in tool is a new provision under Dutch law, but the nationalization of Dutch bank and insurer SNS Reaal (on 1 February 2013) effectively also involved a bail-in of subordinated debt of SNS Reaal and SNS Bank-issued debt instruments.

When a failing entity becomes subject to prevention or crisis management measures taken by the resolution authority, the Dutch Recovery and Resolution Implementation Act provides that under certain conditions the resolution authority is allowed to unilaterally terminate or amend contracts with third parties.

Subject to certain requirements, the resolution authority may also decide to suspend payment or delivery obligations, or restrict or suspend, or both, the exercise of contractual termination rights (which also includes rights to accelerate, close-out, set-off or net) and security interests.

These powers aim to enhance the effectiveness of the resolution tools. Some of these suspension powers are only applicable if the possibility for the counterparty to exercise their right is a result of a crisis prevention measure or crisis management measure, or any event directly linked to the application of the measure. Furthermore, some suspension powers can only be applied temporarily. Finally, in some situations, the use of these suspension powers is only allowed if the failing entity continues to meet the key obligations under the relevant contract, including the provision of collateral.

Safeguards to protect shareholders and creditors

The EU legislative framework provides for several safeguards to protect the position of shareholders and creditors of a failed entity if the resolution authority decides to use resolution tools. One of these is the ‘no creditor worse off’ principle.

Another safeguard is the protection of counterparties in certain agreements (ie, security arrangements, financial collateral arrangements, set-off arrangements, netting arrangements, covered bonds and structured finance arrangements), who are confronted with the partial transfer of assets, rights and liabilities of a failed entity under resolution or in the event of forced contractual modifications (ie, amendment or termination).

The Dutch Recovery and Resolution Implementation Act protects these counterparties by providing that the rights under those agreements may not be affected by a partial transfer. This means that if the resolution authority has decided to apply a partial transfer or if contractual modification takes place, then the resolution authority may not apply the partial transfer or contractual modification to certain agreements (eg, set-off arrangements or financial collateral arrangements). Furthermore, the resolution authority will also:

not transfer an asset against which a liability is secured without also transferring the liability and the benefit of the security;
not transfer a secured liability unless the benefit of the security is also transferred; or
only transfer assets and liabilities jointly if they relate to a structured finance arrangement or covered bond.

Insurers

On 1 January 2019, the Act on Recovery and Resolution of Insurers entered into force. This Act expands and strengthens the framework for the recovery and resolution of insurers and replaces the previous legislative framework offered under the Dutch Intervention Act. As a result, the Dutch Intervention Act has officially lapsed (although a few of its provisions have survived by moving them to, for instance, the Dutch Bankruptcy Act).

Under the Act on Recovery and Resolution of Insurers, there are several new obligations for insurers (or insurance groups) that fall under its scope, as well as for the Dutch supervisory authority (in this case, the Dutch Central Bank). For instance, insurers now need to prepare a contingency (or crisis) plan that deals with the occurrence of financial difficulties. This plan must be approved by the Dutch Central Bank. In addition, the Dutch Central Bank now must prepare a plan that deals with the resolution of an insurer.

Also, the Dutch Central Bank now has several intervention, resolution and recovery tools that are similar to the tools available to a supervisory authority under the BRRD, such as the authority to unilaterally terminate or amend contracts to which the insurer is a party, and the bail-in tool.

While similar, the tools offered under the Act on Recovery and Resolution of Insurers differ in some aspects from the BRRD due to the operational, legislative and commercial differences between the business of a bank and that of an insurer. For instance, the bail-in tool under this Act is aimed at the protection of the interests of policyholders and beneficiaries by continuing the insurance policies themselves (as opposed to the aim of continuing the institution itself, which is the case under the BRRD).

The act to amend the ‘settlement finality’ provisions in the Dutch Bankruptcy Act

To improve the competitiveness of Dutch financial institutions operating in the international market, the Dutch legislator has amended the Dutch Bankruptcy Act by expanding the definition of ‘settlement system’ to also include systems in other non-EU countries with adequate supervision. The most significant result of qualifying as a ‘system’ is that the rights and obligations of the participant in relation to the system are governed by the laws governing the system instead of the laws of the country where the participant is declared bankrupt.

Moreover, settlement transactions in relation to systems that are governed by the laws of other non-EU countries but that do not qualify as ‘system’ under the Dutch Bankruptcy Act are also exempted from the retroactive effect of a Dutch bankruptcy judgment.

Since the implementation of Directive 98/26/EC on settlement finality in payment and securities settlement systems (the Settlement Finality Directive) in 1999, the Dutch Bankruptcy Act contains specific provisions that ensure that insolvency proceedings against a participant in a settlement system do not retroactively affect the rights and obligations of other participants, nor their reliance on the normal financial guarantees inherent to a transaction in the system.

For instance, the Dutch Bankruptcy Act specifically provides that the bankruptcy of a participant (eg, a bank) in a payment or securities settlement system (eg, TARGET2) will not have retroactive effect with respect to certain settlement transactions (eg, payments, set-off, netting and other transfer orders) involving the bankrupt participant, nor will the granting of a cooling-off period affect the ability of a participant to seek recourse against the assets of the bankrupt participant.

This protection only applied in relation to settlement systems that are:

specifically identified as such by the Minister of Finance;
governed by the laws of an EU member state; or
specifically acknowledged as such by an EU member state and registered with the European Commission.

This effectively meant that a Dutch bank participating in a settlement system that does not meet these criteria would not be able to guarantee to its counterpart that settlement transactions would not be retroactively affected if the Dutch bank were to become the subject of insolvency proceedings. To lift this disparity, the Dutch Bankruptcy Act has been amended as of March 2019.

Courts and appeals

What courts are involved? What are the rights of appeal from court orders? Does an appellant have an automatic right of appeal or must it obtain permission? Is there a requirement to post security to proceed with an appeal?

The district court of the district where the debtor is or was last domiciled (for companies, this is the place of the statutory seat) has exclusive jurisdiction to open insolvency proceedings. If the debtor is not domiciled in the Netherlands, but has or had an establishment in the Netherlands, the district court of the district in which the establishment is or was located has exclusive authority to open the insolvency proceedings.

Under Dutch bankruptcy law, a debtor, a creditor, the Public Prosecution Service or any other interested party are each granted rights to appeal (or oppose) a decision on a bankruptcy request. These rights arise automatically. Permission to appeal (or oppose) a decision on a bankruptcy request is not required. The various rights of appeal (or opposition) can be summarized in the following scenarios.

rights of appeal when the court rejects a bankruptcy request:
if a bankruptcy application is rejected by the court, then the applicant (either a debtor who applied for their own bankruptcy, a creditor or the Public Prosecution Service) is entitled to lodge an appeal against that decision with the court of appeal within eight days after the date of the rejection (this appeal option is not open to a creditor that did not file for the debtor’s bankruptcy);
rights of appeal and opposition when the court grants a bankruptcy request:
the debtor who was declared bankrupt at the request of a creditor or the Public Prosecution Service can appeal against this decision with the court of appeal within eight days after the day of the bankruptcy declaration;
if the debtor has not been heard by the court prior to the bankruptcy declaration, it has 14 days after the day of the bankruptcy declaration to oppose that decision at the court that decided on the bankruptcy application (this does not apply if a debtor filed for their own bankruptcy). The 14-day term can be extended to a month if it concerns a debtor who – at the time of the bankruptcy declaration – was not located within the borders of the Netherlands. If the court upholds the bankruptcy declaration in these opposition proceedings, then the debtor may lodge an appeal against that judgment with the court of appeal within eight days of the day of the court’s decision on the opposition; and
a creditor that did not file for the debtor’s bankruptcy or any other interested party also has the right to oppose a bankruptcy declaration. For such parties, the opposition term expires eight days after the day of the bankruptcy declaration. If the court upholds the bankruptcy declaration in these opposition proceedings, then the creditor or interested party may lodge an appeal against that judgment with the court of appeal within eight days of the day of the court’s decision on the opposition; and
rights of appeal when an opposition against a bankruptcy declaration is successful:
if the opposition by a creditor or interested party is granted and subsequently the initial decision to declare the debtor bankrupt is annulled, then the debtor, the creditor who filed the bankruptcy request or the Public Prosecution Service has the right to appeal against that decision within eight days.

If any of the appeal or opposition scenarios set out above lead to a decision by the court of appeal, then that decision can also be appealed against by anyone who was a party to the appeal procedure. The appeal must be lodged with the Supreme Court within eight days of the day of the decision by the court of appeal.

Appeal is not available against court decisions in pre-insolvency restructuring proceedings under the current Act on Court Confirmation of a Private Restructuring Plan.

There is no statutory requirement to post security when bringing an appeal before a Dutch court. A defendant can request the court to order the claimant to post security for payment of the litigation costs (usually by way of a bank guarantee), but only if the claimant does not live (or does not have an office) in the Netherlands. However, there are numerous exceptions to this rule.

For instance, if the claimant is from a country in which Regulation (EU) 2021/167 (the Enforcement Regulation) or the Civil Procedure Convention 1954 is applicable, the request cannot be made. Also, under certain circumstances, ordering a party to post security can be a violation of the ‘equality of arms principle’. Because of the various exceptions, the practical use of the possibility for a defendant to request the court to order the claimant to post security is limited.

TYPES OF LIQUIDATION AND REORGANIZATION PROCESSES

Voluntary liquidations

What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

Principally, a debtor can implement a voluntary liquidation of its business in accordance with general corporate procedures if it is able to pay its debts or if it can agree a composition with its creditors. The relevant corporate procedure is liquidation by means of dissolution, whereby the shareholders’ general meeting adopts a resolution to dissolve the company.

The Dutch Bankruptcy Act also allows the debtor itself to:

apply for pre-insolvency restructuring proceedings; or
request bankruptcy, in each case, as a means to liquidate its assets.

A liquidation through pre-insolvency restructuring proceedings is available if that is likely to yield a better result than liquidation in bankruptcy. The directors of a company can only file for bankruptcy if the shareholders’ general meeting has instructed them to do so, unless the articles of association provide otherwise. The filing on behalf of the company can be made by the directors and no assistance of an attorney is required, although it is advised. Works council advise may be required.

Voluntary reorganizations

What are the requirements for a debtor commencing a voluntary reorganizationand what are the effects?

Pre-insolvency restructuring proceedings

On 1 January 2021, the Act on Court Confirmation of a Private Restructuring Plan entered into force. Under this new Act, a debtor can initiate a procedure to restructure a company’s business through a scheme between the company and (all or certain of) its (secured) creditors or shareholders, with the possibility of a court-approved cramdown if just one ‘in the money’ class has voted in favour of the plan.

After confirmation by the court, the plan is binding on all creditors and shareholders who are involved in the plan and who were entitled to vote (including out of the money classes).

The procedure is intended as an option of last resort when a consensual restructuring process is unsuccessful. A plan can be prepared and initiated by a debtor if it is reasonably plausible that it will not be able to pay its debts when fully due. Also, one or more creditors, shareholders or a works council or trade union have the right to initiate the debtor’s restructuring.

They can request the court to appoint a restructuring expert who prepares and starts the process that could lead to the confirmation of the plan. The procedure can be used not only for a ‘going concern’ restructuring, but also for a controlled winding-up of the business. In both situations the reorganization of the company must generate added value for the stakeholders that must be distributed fairly.

In practice, the procedure does not always lead to a court-confirmed restructuring plan; it is also still possible to reach consensus during the process ending the formal process.

Suspension of payments

A suspension of payments is the formal Dutch voluntary reorganization proceeding for companies, legal entities and for natural persons conducting a business. The debtor can apply to the court for a suspension of payments if it anticipates that it will be unable to pay its debts as they fall due. The directors of a company can request a suspension of payments and they do not need the approval of the shareholders’ general meeting, unless the articles of association provide otherwise. Creditors of the company cannot apply for its suspension of payments.

Following the application, the court will grant a preliminary suspension of payments and will appoint an administrator and, in practice, a supervisory judge. The supervisory judge has a limited advisory role. With retroactive effect from midnight as of the date of the preliminary suspension of payments, the directors need the prior approval or cooperation of the administrator to enter into obligations that affect the assets of the company.

A suspension of payments can be granted for a maximum of three years. It only affects ordinary creditors, who are not allowed to enforce payment of their claims. Preferential and secured creditors are not affected, unless a cooling-off period of two months (which may be extended for another two months) has been granted. A suspension of payments does not suspend or affect pending court proceedings, nor does it prevent creditors (including ordinary unsecured creditors) from initiating new court proceedings.

However, a judgment that requires the debtor to pay cannot be enforced during (preliminary) suspension of payments. During a suspension of payments, a debtor can offer a composition with creditors, but this might not be effective, as preferential and secured creditors are not bound by the composition unless they agree otherwise.

In a suspension of payments procedure, it is possible for the debtor to offer a composition plan to its (ordinary) creditors. There are, however, in principle no opportunities to force a creditor to accept a composition (contrary to the Act on Court Confirmation of a Private Restructuring Plan).

Debtors can also negotiate compositions with creditors outside formal insolvency proceedings. The disadvantage is that there are – except in rare situations – no opportunities to force a creditor to accept a general composition and that the composition is not court-supervised or approved. In this respect, the Act on Court Confirmation of a Private Restructuring Plan provides for a more effective restructuring tool outside formal insolvency procedures.

Pre-pack procedure

In practice, a process has been developed as part of which the debtor in certain circumstances may seek the appointment of a bankruptcy trustee designated by the court in the period before the formal insolvency filing. The purpose is to investigate restructuring options or to prepare for a formal filing, or both. The bankruptcy trustee designate is appointed by the court prior to the commencement of a formal insolvency procedure.

The debtor and its stakeholders (creditors, including lenders) act on the assumption that the bankruptcy trustee designate is to be appointed by the court as the insolvency office holder once a formal insolvency procedure is opened. In 2015, the pre-pack procedure was codified in a legislative proposal to provide a legal basis for the procedure, the Continuity of Companies Act I, which has been pending before the Dutch Senate since 2016.

The decision of the Court of Justice of the European Union (CJEU) in FNV v Smallsteps BV (Case C-126 16) in 2017 caused uncertainty about the efficiency of such a prepackaged sale, because of the possible applicability of protection rules for employees (making the use of a pre-pack procedure less attractive).

However, in April 2022, the CJEU in FNV v Heiploeg (Case C-237/20) decided that the employee protection in the event of a transfer of an undertaking did not apply to the pre-pack in that case because the pre-pack procedure can be deemed instituted with a view to the liquidation of the assets of the transferor (contrary to the pre-pack procedure in the Smallsteps case, which was not aimed at the liquidation of the business).

The CJEU added the condition that, in view of legal certainty, the pre-pack must be regulated by a statutory or administrative regulation to provide a framework for application of the exception to the employee protection rules (the ‘bankruptcy exception’).

The CJEU’s decision was a result of preliminary questions by the Dutch Supreme Court in the FNV v Heiploeg case. A final ruling from the Dutch Supreme Court is expected at the end of 2023. In March 2023, the advocate-general at the Dutch Supreme Court stated in his opinion that the primary purpose of the pre-pack and bankruptcy proceedings is the liquidation of the debtor’s assets for the benefit of the joint creditors.

Moreover, the bankruptcy trustee designate is under the supervision of the intended supervisory judge and therefore under government supervision.

The material conditions of the bankruptcy exception are therefore met. However, the formal condition that the pre-pack is enshrined in a statutory regulation, as stated by the CJEU, is not met, because the pre-pack has been developed in case law (and the legislative proposal regarding the pre-pack has not been enacted yet). In the absence of the legal basis for the pre-pack as required by the CJEU, the advocate-general concludes that the bankruptcy exception does not apply (and, therefore, employees would be protected during a pre-pack procedure).

The legislative proposal for a pre-pack was amended in May 2021 to apply to companies engaging in activities that serve a public interest purpose.

Another draft legislative proposal about the position of employees in a transfer of undertaking emerged, the Act on Transfer of Undertaking in Insolvency. It introduces rules concerning the rights of employees in insolvency, in particular, in the event of transfers of undertakings.

The draft proposal, for which the public consultation closed in August 2019, stipulates that there is, in principle, an automatic transfer of employees with the same employment conditions in the case of a transfer of undertaking out of insolvency, but leaving behind any related liabilities and employees that do not fit the acquirer’s business case. The employee group that may transfer must be objectively selected (regardless of age and experience).

A court-appointed bankruptcy trustee must abide by this law once implemented. The draft proposal is being treated together with the legislative proposal for a pre-pack; both are still on hold, possibly until a final ruling of the Dutch Supreme Court in the Heiploeg case.

The legislator might also wait until a final text is reached on the current outline of pre-pack proceedings in all EU member states as outlined in the European Commission’s proposal for a directive harmonizing certain aspects of insolvency law (COM (2022) 702; 2022/0408/COD). The proposal outlines the introduction of pre-pack proceedings in all EU member states.

Successful reorganizations

How are creditors classified for purposes of a reorganizationplan and how is the plan approved? Can a reorganization plan release non-debtor parties from liability and, if so, in what circumstances?

Outside insolvency

The Act on Court Confirmation of a Private Restructuring Plan offers an efficient and relatively informal process to create a compulsory composition between the company and all or certain of its (secured) creditors and shareholders.

All creditors and shareholders whose rights are affected by the plan are entitled to vote. Different categories of creditors or shareholders, based on their rank in bankruptcy, need to be placed in different voting classes. The plan will be voted on by each class separately. A class has accepted the proposed plan if the group of creditors who vote in favor of it represents at least two-thirds in value of the total value of claims within that class.

In the case of shareholders, that group needs to represent at least two-thirds of the issued capital within that class. The debtor can submit the plan for court confirmation if the plan is approved by at least one of the ‘in the money’ classes. Until the day of the hearing, all creditors and shareholders eligible to vote can submit a reasoned request to the court to refuse the confirmation of the plan based on one of the limited general or additional grounds of refusal as provided for in the Act.

The court will refuse confirmation based on one of the general grounds at its own motion or at the request of a creditor or shareholder if, for example, formal requirements have not been met.

The court will confirm the plan if it has no reason to refuse confirmation on the basis of one of the general grounds for refusal and no creditors or shareholders have objected on the basis of the additional grounds of refusal – that is, if under the plan the creditors or shareholders would receive less than they would upon liquidation (‘best interest of creditors’ test’) or if the going concern value of the company would not be distributed fairly among the creditors or shareholders in accordance with their statutory ranking (the ‘priority rule’).

Additional grounds for refusal can be invoked only by creditors or shareholders who voted against the plan.

If group guarantees have been issued by entities that are connected to the debtor in such a way that they together form a group, the plan (as well as protective measures) during the plan process can also extend to these group entities in a similar way as to the debtor itself, and as such can modify creditors’ claims and contractual rights against these group entities. This requires that:

the rights of the creditors against the related group entities serve to satisfy or secure the fulfillmentof the debtor’s obligations against the creditors;
the related group entities are themselves in a position in which they are insolvent or it is reasonably foreseeable that they will become insolvent in the future;
the related group entities approve of the proposed amendments of the creditors’ rights through the restructuring plan (unless a restructuring expert has been appointed); and
the competent court for the application and conformation of the restructuring plan regarding the debtor would also qualify as the competent court of the related group.

However, several group entities with differing (relatively) competent courts can also file a request with one of these courts to ascertain that only that specific court will be competent to address all requests relating to the restructuring plan process.

Importantly, if the above-mentioned criteria are met, the debtor or its appointed restructuring expert can (exclusively) petition the court for a general or tailored stay period on behalf of the third-party group security providers. Their liabilities vis-à-vis the debtor’s creditors can also be reduced or discharged, which is known as the application of a ‘broad scheme’, but only if as the confirmation criteria are met for each group company.

In relation to other third parties that are liable for the debt of the debtor (such as third-party guarantors and co-debtors), the rights of creditors vis-á-vis third parties are not affected by a plan and thus remain in place. Therefore, the creditor remains entitled to hold a third party liable for payment of his claim. The third party cannot take recourse against the debtor.

Within insolvency

A reorganization plan may be proposed by the debtor in a bankruptcy or a suspension of payments.

There are no mandatory features of a reorganization plan except that it should take into account the statutory grounds for rejection. A successful reorganization, however, often relies on preparation and securing the cooperation and commitment of major creditors before filing for a suspension of payments.

A plan that is accepted by a majority of creditors and approved by the court will be binding on all unsecured creditors (regardless of whether they submitted their claims and whether they voted in favour of or against the plan). Preferential and secured creditors are not bound by the plan, unless they so agree.

Unsecured creditors that submitted their claims (which were accepted or conditionally admitted) and are present at the meeting of creditors must approve the plan by a simple majority representing at least 50 percent of the total value of the admitted unsecured claims against the debtor.

If the required majority do not vote in favor of the plan, the supervisory judge may, upon request, nevertheless approve the plan if at least 75 percent of those creditors who submitted their claims (which were accepted or conditionally admitted) approved the plan, provided that the rejection of the plan is due to one or more creditors who could not reasonably have been expected to vote against the plan.

The court will not approve the plan (even if the thresholds referred to above have voted in favor of the plan) if:

the value of the assets in the estate is significantly higher than the amount offered to the creditors;
the performance of the plan is not sufficiently guaranteed;
the plan has been accepted as a result of fraud, preferential treatment of certain creditors or as a result of other unfair methods; or
there are any other grounds why the court believes that the plan should not be approved.

Acceptance of a reorganization plan does not automatically result in a release in favour of third parties. Any type of release in favour of third parties will need to be specifically negotiated and agreed upon.

Involuntary liquidations

What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

A court may proclaim a debtor bankrupt when there is prima facie evidence that the debtor has ceased to make payments. If a creditor petitions for the debtor’s bankruptcy, the creditor also must show prima facie evidence of their claim against the debtor. Pursuant to Dutch bankruptcy law, a debtor has ceased to make payments when the following criteria are satisfied:

there must be multiple creditors and at least one of the creditor’s claims is due and payable; and
the debtor must have stopped making payments.

Bankruptcy

A debtor can be declared bankrupt when it has ceased to pay its debts. A creditor petitioning for a debtor’s bankruptcy should therefore provide prima facie evidence that it has a claim against the debtor, the debtor has ceased paying its debts and there is at least one other creditor. The second creditor’s claim can also be an intercompany claim or a recourse claim arising from a (counter) guarantee.

If the court declares the debtor bankrupt, the court will appoint at least one bankruptcy trustee and a supervisory judge. Once the bankruptcy proceeding has been opened, there is no material difference to voluntarily opened proceedings. With retroactive effect from midnight as of the date of the bankruptcy judgment, the debtor is no longer authorized to manage and dispose of its assets – only the bankruptcy trustee may do so.

The trustee is charged with the administration and liquidation of the bankrupt estate. The trustee needs the approval of the supervisory judge for certain acts, including the disposal of assets, termination of employment agreements and initiation of legal proceedings.

During bankruptcy, there is a general moratorium in which ordinary and preferential creditors may no longer enforce their claims against the debtor’s assets. Secured creditors are in general not affected by bankruptcy, unless a cooling-off period for two months (which may be extended for another period of two months) has been granted.

Also, there is the possibility for the bankruptcy trustee to set a time frame wherein the secured assets need to be sold by the mortgagee or pledgee. Failure to do so will result in loss of the right to foreclose on the assets (although their claims will continue to have a high preference, they will have to share in the costs of the bankruptcy).

Winding up by order

The Dutch Civil Code also allows the relevant chamber of commerce or district court (at the request of any interested party or of the public prosecutor service) to dissolve a company if it has consistently failed to comply with certain statutory obligations or if its business operations are contrary to public order.

Involuntary reorganizations

What are the requirements for creditors commencing an involuntary reorganizationand what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

Under the Act on Court Confirmation of a Private Restructuring Plan, creditors do not have the ability to offer a plan, only the company or the restructuring expert (if appointed) can do so. Creditors or shareholders, however, can request the court to appoint a restructuring expert who prepares and starts the process that could lead to the confirmation of the restructuring.

If a restructuring expert is appointed, the expert is exclusively authorized to prepare and propose a restructuring plan (although the debtor can still provide its own plan to the restructuring expert with the request to put it up to vote, which request the restructuring expert must comply with). Once the restructuring plan proceeding has been opened, there is no material difference to voluntarily opened proceedings under the Act on Court Confirmation of a Private Restructuring Plan.

In bankruptcy, if a bankruptcy petition is presented against the debtor, it can counter with a request for a suspension of payments by the debtor, often with the aim of avoiding bankruptcy for as long as possible. By law, a petition for a suspension of payments is dealt with prior to a petition for bankruptcy, or with the commencement of a pre-restructuring procedure, which will then be dealt with first.

Expedited reorganizations

Do procedures exist for expedited reorganizations(eg, ‘prepackaged’ reorganizations)?

Officially, there is no special provision for expedited reorganizations. However, in practice, bankruptcies have been prepackaged in the sense that sale of the business to a newly incorporated entity is organized. A pre-pack takes place through the appointment of a bankruptcy trustee designate, who is appointed by the court at the request of the debtor. The court will test whether the appointment of a bankruptcy trustee designate is justifiable.

This procedure has been developed in the legal practice, but so far lacked a statutory foundation. A legislative proposal that intends to codify this procedure has been pending before the Dutch Lower House since 2016. In May 2021, it was amended to apply to companies engaging in activities that serve a public interest purpose (ie, hospitals).

The CJEU decision in FNV v Smallsteps BV (Case C-126 16) in 2017 caused uncertainty about the efficiency of the pre-pack by providing that the transfer of undertaking protection rules for employees – as laid down in Directive 2001/23/EC (the Transfer of Undertakings Directive) – may find application in pre-pack proceedings (making such proceedings less attractive).

Whether the employee protection rules concerning the transfer of undertakings find application in a particular case should be determined in accordance with the Smallsteps rule on a case-by-case basis. Since the CJEU’s decision, there have been several instances of sales out of the bankruptcy estate where the (lower) courts decided that the rules regarding the transfer of undertaking did not apply.

On 17 April 2020, the Dutch Supreme Court in Heiploeg requested a preliminary ruling from the CJEU regarding the question of when the transfer of undertaking rules as laid down in the Transfer of Undertakings Directive apply in the case of a prepackaged business sale. More specifically, it asked for clarity regarding the requirements that the proceedings must be instituted with a view to liquidate the assets and that the proceedings must be under the supervision of a competent public authority.

In response, in April 2022, the CJEU in FNV v Heiploeg (Case C-237/20) decided that the employee protection in the event of a transfer of an undertaking did not apply to the pre-pack in that case. The pre-pack procedure in that case, together with the subsequent bankruptcy procedure, can be deemed instituted with a view to the liquidation of the assets of the transferor (contrary to the pre-pack procedure in the Smallsteps case, which was not aimed at the liquidation of the business), according to the CJEU.

The insolvency of the transferor was inevitable, and the primary objective of the bankruptcy procedure and the preceding pre-pack procedure was to obtain the highest possible return for all creditors. Therefore, the pre-pack procedure can be considered a procedure instituted with the aim to liquidate the assets of the transferor, meaning that the exception to the employee protection rules applies and that employees do not automatically need to be transferred under the same employment conditions.

The CJEU, however, stressed that the pre-pack procedure, to be lawful under European law, must be governed by statutory or regulatory provisions to provide a framework for application of the exception to the employee protection rules (the ‘bankruptcy exception’).

The final ruling of the Dutch Supreme Court is expected at the end of 2023. In March 2023, the advocate-general of the Dutch Supreme Court stated in his opinion that the primary purpose of the pre-pack and bankruptcy proceedings is the liquidation of the debtor’s assets for the benefit of the joint creditors. Moreover, the bankruptcy trustee designate is under the supervision of the intended supervisory judge and therefore under government supervision.

The material conditions of the bankruptcy exception are therefore met. However, the formal condition that the pre-pack is enshrined in a statutory regulation, as stated by the CJEU, is not met, because the pre-pack has been developed in case law (and the legislative proposal regarding the pre-pack has not been enacted yet). In the absence of the legal basis for the pre-pack as required by the CJEU, the advocate-general concludes that the bankruptcy exception does not apply (and therefore, employees would be protected during a pre-pack procedure).

The legislative proposal regarding the pre-pack will be treated in the parliament together with the legislative proposal for the Act on Transfer of Undertaking in Insolvency. Both are currently still on hold, possibly until a final ruling of the Dutch Supreme Court in the Heiploeg case.

Unsuccessful reorganizations

How is a proposed reorganizationdefeated and what is the effect of a reorganization plan not being approved? What if the debtor fails to perform a plan?

Outside of insolvency

Under the Act on Court Confirmation of a Private Restructuring Plan, until the day of the hearing, all creditors and shareholders with voting rights can submit a substantiated request to the court for refusal of the plan, based on the general or additional grounds for refusal.

The court will refuse the confirmation on the basis of one of the general grounds for refusal at its own motion or at the request of a creditor or shareholder if, for example, certain formal requirements are not met, a class is not properly composed, the pre-insolvency test is not met, a plan is not feasible (feasibility test) or the debtor wishes to attract new financing or to enter into other transactions as part of the plan, but this would not be in the interests of the joint creditors.

The court can also refuse confirmation based on the additional grounds for refusal. For example, if the creditors or shareholders would receive less under the plan than they would upon liquidation (the ‘best interests of creditors test’ or ‘no creditors worse off test’). This ground can be invoked by a creditor or shareholder who has voted against the plan (ie, right of individual creditor).

Some grounds for refusal can only be invoked by creditors or shareholders who have voted against the plan and who are part of a class that has also voted against the plan (ie, class right), and thus in practice only relating to the cross-class cramdown.

The first ground for refusal in this category arises if the reorganization value would not be distributed among the creditors and shareholders in accordance with their statutory or contractual ranking to the detriment of the class that did not vote in favour of the plan, unless there are reasonable grounds to do so and the interests of the creditors or shareholders mentioned are not adversely affected as a result (the ‘priority rule’).

Second, confirmation may be refused if creditors do not have the right to opt for an amount equal to the value they would receive in cash in the event of bankruptcy (the ‘cash-out’). Secured creditors who have provided financing to the debtor on a commercial basis (eg, banks) are not entitled to the cash-out option, but they can request the court to refuse confirmation of the plan if only shares or depositary receipts for shares are offered to them under the plan without the right to opt for a payment in another form.

After confirmation by the court, the plan is binding on all creditors and shareholders who are involved in the plan and who were entitled to vote. This means that ‘out of the money’ classes as well as creditors and shareholders who did not vote or who voted against the plan are bound by the plan. The decision of the court is not subject to appeal.

The decision of court confirmation provides an enforceable title against the debtor and against the persons who have acceded to the restructuring plan as guarantors, to the extent the creditors receive a right to claim cash payment pursuant to the restructuring plan.

This means that creditors can claim performance of the plan by the debtor on the basis of the court decision, should the debtor fail to perform the plan. Also, if the debtor fails to perform the plan (on time), it is obliged to pay damages to the creditors or shareholders caused by the non-performance of the debtor. The creditors and shareholders can also annul the plan (unless this has been excluded in the plan).

In the case of a pre-pack, the debtor’s creditors, the bankruptcy trustee designate and the intended supervisory judge are each entitled to request the court to terminate the pre-pack procedure.

Within insolvency

A reorganization plan in insolvency proceedings is defeated if the majority of creditors does not approve the plan or the court does not approve the plan. In the case of a suspension of payments, the court must consequently terminate the suspension of payments and declare the debtor bankrupt.

If the debtor does not perform the plan after it has been approved by the court, the plan can be dissolved, and the court will open or reopen the bankruptcy proceedings.

Corporate procedures

Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

Yes, under corporate law, a company can be dissolved. In most cases, the company is dissolved pursuant to a shareholders’ resolution. The shareholders will appoint a liquidator, who will liquidate (all assets of) the company. However, if it becomes apparent that the liabilities of the company will exceed the assets of the company, the liquidator is obliged to file for the bankruptcy of the company, unless all known creditors agree with the continuation of the corporate liquidation proceedings.

If there are no known assets left in the company, turbo liquidation is a rapid way to voluntarily dissolve a company without the formal settlement phase. A shareholders’ resolution for the dissolution is required, but a liquidator does not need to be appointed (as there are no benefits and there is nothing to be settled). After the ‘liquidation’, the company ceases to exist immediately.

An important difference to bankruptcy is that the corporate liquidation proceedings are, in principle, not court-supervised.

Conclusion of case

How are liquidation and reorganization cases formally concluded?

Voluntary liquidation terminates as a result of:

a declaration of bankruptcy being made pursuant to an application for bankruptcy by the liquidator; or
payment of the final distribution to creditors and shareholders of the company being made.

Voluntary private reorganization plans (under the Act on Court Confirmation of a Private Restructuring Plan) terminate as a result of:

confirmation by the court of a reorganizationplan;
an insufficient amount of creditors voting in favour of the plan; or
refusal of the court to confirm the reorganization

Crucially, in the case of a situation set out under (2) or (3), the debtor may not prepare another plan under the Act on Court Confirmation of a Private Restructuring Plan within three years of offering the plan.

Suspension of payments terminates as a result of:

revocation of the (preliminary) suspension of payments and conversion into bankruptcy, including:
when the debtor acts in bad faith when administering the estate;
if the debtor tries to bind the estate without the approval of the administrator; or
when it becomes clear that the suspension of payments will not result in the repayment of debts or a reorganizationplan with the creditors;
lapse of time;
refusal of creditors to grant a definitive suspension of payments;
approval by the court of a reorganizationplan, the approval of which has become conclusive; or
payment of all debts at the request of the debtor.

Bankruptcy terminates as a result of:

a successful appeal against the verdict declaring the company bankrupt;
a court decision terminating the bankruptcy as a result of insufficient funds to pay unsecured creditors;
approval by the court of a reorganizationplan, the approval of which has become definitive;
payment of all debts; or
a final distribution to creditors being made if the list concerning the distribution to creditors has become definitive, regardless of whether all creditors have been paid.

INSOLVENCY TESTS AND FILING REQUIREMENTS

Conditions for insolvency

What is the test to determine if a debtor is insolvent?

The insolvency test in the Netherlands is an open criterion, satisfaction of which must be established on the facts at hand. There is no ‘binary’ balance sheet or cash-flow insolvency test. A court may proclaim a debtor bankrupt when there is prima facie evidence that shows that the debtor has ceased to make payments. If a creditor petitions for the debtor’s bankruptcy, the creditor must also show prima facie evidence of its claim against the debtor. Pursuant to Dutch bankruptcy law, a debtor has ceased to make payments when the following criteria are satisfied:

there must be multiple creditors and at least one of the creditors’ claims is due and payable; and
the debtor must have stopped making payments.

Mandatory filing

Must companies commence insolvency proceedings in particular circumstances?

There is no specific statutory obligation for directors to file for bankruptcy or seek a suspension of payments.

However, in certain circumstances, directors (or shareholders) may be personally liable in tort towards creditors of the company if they decided to continue the business past a certain point in time (and that decision resulted in damage to the creditors) or if the director on behalf of the company enters into a commitment while they knew, or reasonably should have known, that the company would not be able to meet such a commitment (within a reasonable period of time) and that the company would not offer sufficient recourse to the injured counterparty for any damage caused.

Other than under certain circumstances of personal liability for the directors, there are no consequences if a company carries on business while insolvent, save for a Dutch public limited liability company, which is obliged to call a shareholders’ meeting if it has negative equity.

In practice, however, directors may decide to file for a suspension of payments or bankruptcy to mitigate the risk of incurring personal liability in a scenario where failing to do so would likely cause damage to creditors.

Under certain circumstances, directors can be held liable for filing for bankruptcy or suspension of payments, for example if they file for bankruptcy without the prior instruction to do so of the general meeting as required by the Dutch Civil Code. In addition, based on case law, a director can be held liable for filing for bankruptcy too quickly without making sufficient effort to find alternative financing options to avert bankruptcy.

Also, directors are obliged to notify the tax authority or social security or pension funds in writing if the company is no longer able to pay certain taxes, social security premiums or pension fund premiums.

DIRECTORS AND OFFICERS

Directors’ liability – failure to commence proceedings and trading while insolvent

If proceedings are not commenced, what liability can result for directors and officers? What are the consequences for directors and officers if acompany carries on business while insolvent?

There is no specific statutory obligation for directors to file for bankruptcy or seek a suspension of payments.

However, in certain circumstances, directors (or shareholders) may be personally liable in tort towards creditors of the company if they decided to continue the business past a certain point in time (and that decision resulted in damage to the creditors), or if the director on behalf of the company enters into a commitment while they knew or reasonably should have known that the company would not be able to meet such a commitment (within a reasonable period of time) and that the company would not offer sufficient recourse to the injured counterparty for any damage caused.

Conversely, under certain circumstances, directors can be held liable for filing for bankruptcy or suspension of payments, for example if they file for bankruptcy without the prior instruction to do so of the general meeting as required by the Dutch Civil Code. In addition, based on case law, a director can be held liable for filing for bankruptcy too quickly without making sufficient effort to find alternative financing options to avert bankruptcy.

Directors’ liability – other sources of liability

Apart from failure to file for proceedings, are corporate officers and directors personally liable for their corporation’s obligations? Are they liable for corporate pre-insolvency or pre-reorganization actions? Can they be subject to sanctions for other reasons?

As a general rule, directors of Dutch companies are not personally liable for the obligations of the company. There are, however, certain exceptions to this rule. Directors of a company (and certain other legal entities) can be held personally liable for certain debts of the company. This would include the following situations.

Personal liability can result because the directors have neglected to properly discharge their fiduciary duties as regards the company. This action can only be initiated by or on behalf of the company (and in the case of bankruptcy, by the bankruptcy trustee on behalf of the company).
Upon bankruptcy (but not in the case of a suspension of payments), the bankruptcy trustee can hold all directors of a company personally liable on a joint and several basis for the entire deficit of the bankruptcy (ie, for all costs of the bankruptcy and the amount of debt that remains unpaid after liquidation of the assets) if the board of directors has manifestly improperly performed its duties during a period of three years preceding the bankruptcy, and if it is plausible that such improper performance is an important cause of the bankruptcy of the company. If the board of directors has failed to comply with its obligation to conduct a proper administration or to publish the annual accounts in accordance with statutory requirements, the directors are deemed to have performed their duties improperly and it is presumed that the improper performance of duties constitutes an important cause of the bankruptcy. This ground for personal liability applies not only to directors but also to non-executive directors (supervisory board directors if, for example, they have failed to properly supervise the managing directors in relation to their obligations to maintain a proper administration and file annual accounts in a timely manner). The statutory presumption that there is manifestly improper management in the case of a late filing does not apply (temporarily) under certain circumstances if the late filing is related to covid-19.
Directors can be held personally liable for unpaid taxes and social security or pension fund premiums. In particular, directors of a company in financial distress must notify the tax authorities in writing if the company is no longer able to pay certain taxes (including value added tax (VAT) and wage withholding tax), and social security or pension fund premiums that are due. This notification should be made within two weeks of the date that the taxes and social security or pension fund premiums should have been paid, and a failure to do so may result in the directors being held jointly and severally liable if the taxes and social security or pension fund premiums remain unpaid. If a valid notice has been given, directors will only be liable on this basis if they have manifestly performed their duties improperly during a period of three years preceding the bankruptcy and if it is plausible that such improper performance is an important cause of the bankruptcy of the company.
Directors (and even shareholders) may, in certain circumstances, be liable to creditors of the company or other parties on the basis of tort (eg, if the directors created a false representation of creditworthiness of the company or knowingly entered into transactions when they knew or ought to have known that the company was not going to be able to perform its obligations and the company has insufficient assets against which the creditors can take recourse).
Criminal liability may apply, for instance, in situations where managing directors fraudulently withheld assets of the company from the bankruptcy trustee or manipulated the accounts of the company to deceive investors or creditors.
Directors may be held liable to creditors of the company or other parties if the published annual accounts are misleading.
Directors can be held liable if, after a distribution of profits, the company cannot continue to pay its due and payable debts. The directors who were aware of or should have reasonably foreseen this at the time of the profit distribution can be held jointly and severally liable to compensate the company for any shortfall that results from the distribution, plus statutory interest thereon from the date of the distribution.

The bankruptcy of a company can – under certain circumstances – have severe legal consequences for its directors if directors’ duties have not been properly observed.

Following the entry into force of the Director Disqualification Act on 1 July 2016, the Dutch Bankruptcy Act grants the bankruptcy trustee or the Public Prosecution Service the authority to request the court to disqualify a director of a bankrupt company for a maximum duration of five years if certain acts have been perpetrated by the director.

A director who is disqualified following such a request is prohibited to act as a director of a legal entity for the duration set out in the court order. For example, according to recent case law, directors can be disqualified if they seriously fail in the performance of their statutory duties to provide information to and cooperate with the bankruptcy trustee.

In addition, the Penalization of Bankruptcy Fraud Amendment Act entered into effect on 1 July 2016. This amendment Act extended the scope of the criminal liability of (supervisory) directors, for instance, to situations where:

a director fails to keep a proper administration of the company or, in the event of bankruptcy, intentionally does not provide the bankruptcy trustee with such administration; and
a director excessively uses, withholds, disposes of the company’s assets and resources or has granted a creditor an undue preference, which prejudices one or more creditors of the company.

Directors’ liability – defenses

What defenses are available to directors and officers in the context of an insolvency or reorganization?

Directors can be held personally liable for neglecting to properly discharge their fiduciary duties if there is serious blame. The duties of a director consist of all duties that have not been formally delegated to other directors. Additionally, all directors are responsible for the general affairs within the company. Whether serious blame exists is dependent on the specific circumstances of the case.

For a director to defend against liability for improper performance, the director must prove that they cannot be seriously blamed, and that they have not been negligent in taking measures when confronted with the improper task performance of others to further prevent the consequences of improper performance of duties of other directors. Also, the general meeting of shareholders can grant discharge to the (executive and non-executive) directors of liability for improper performance, which in effect is a release.

This discharge inhibits the company and the bankruptcy trustee from successfully claiming liability on this basis. Note that the discharge is not unlimited; directors can still be held liable for information that is not covered in the annual accounts and a discharge may be voided. Another defence against this claim could be that the claim is expired (the statutory expiry term is five years).

Where directors are liable based on improper performance towards the company, they might be liable against third parties as well. This liability based on tort law uses the same standard as the liability as set out above with the addition of the word ‘personal’; serious personal blame must exist. A claimant must therefore provide evidence to the effect that a director can be personally blamed. Another defence against this claim could be that the claim is expired (the statutory expiry term is five years).

If the board of directors has failed to comply with its obligation to conduct a proper administration or to publish the annual accounts in accordance with statutory requirements, directors are deemed to have manifestly and improperly performed their duties and it is presumed that the manifestly improper performance of duties constitutes an important cause of the bankruptcy.

The statutory evidentiary presumption that the manifestly improper performance of the duties was an important cause of the bankruptcy can be refuted by the directors. To do so, a director needs to show that it is plausible that the bankruptcy was caused by external other circumstances. This is the case if a director can show that it is plausible that a bankruptcy is more than 50 per cent caused by external circumstances.

If the presumption was triggered by the late publishing of the annual accounts, a director can argue that it can be considered an immaterial omission (eg, if it was only a couple of days late). The statutory presumption that there is manifestly improper management in the case of a late filing does not apply under certain circumstances if the late filing is related to covid-19.

Furthermore, a director can argue that the alleged improper performance did not take place within three years before the company was declared bankrupt or the claim is expired (the statutory expiry term is five years), or both. The court has the statutory power to (at its own motion) mitigate a director’s liability for the entire deficit of the bankruptcy estate if the court considers this disproportionate considering the nature and severity of the manifestly improper performance of duties and the other causes of the bankruptcy.

The Dutch Supreme Court in 2023 ruled that the statutory grounds for mitigation are exhaustive; the court will not consider any other matters. Contrary to the above, a discharge granted by the general meeting of shareholders does not affect the possibility to hold directors liable on this basis.

An individual director may be able to exculpate themselves if they cannot be blamed for the manifestly improper performance of duties and if they have not failed to take every measure to prevent the adverse consequences of the manifestly improper task performance.

With respect to liability, if directors of a company in financial distress omit to notify the tax authorities in writing that the company is no longer able to pay certain taxes (including VAT and wage withholding tax), and social security or pension fund premiums that are due within the appropriate time frame, the only defence is to refute that the notice was invalid.

With respect to liability in cases of the published annual accounts being a misleading representation of the situation, a director as a ground for exculpation must prove that they cannot be seriously blamed thereof, taking into account the division of responsibilities, and that they have not been negligent in taking measures to prevent the consequences of improper performance of duties of other directors.

With respect to liability in cases of a profit distribution that led to the company being unable to continue to pay its due and payable debts, a director as a ground for exculpation must prove that they cannot be seriously blamed thereof, taking into account the division of responsibilities, and that they have not been negligent in taking measures to prevent the consequences of the profit distribution.

Shift in directors’ duties

Do the duties that directors owe to the corporation shift to the creditors when an insolvency or reorganization proceeding is likely? When?

Yes, it is generally held that once the company is in financial difficulties, there is a shift in the focus of the directors’ duties towards the interests of the company’s creditors, depending on the circumstances of the case at hand.

Directors’ powers after proceedings commence

What powers can directors and officers exercise after liquidation or reorganization proceedings are commenced by, or against, their corporation?

Reorganization outside insolvency

If the reorganization takes place outside the scope of formal insolvency proceedings, the normal rules of representation will remain effective. This would also apply to the pre-pack procedure and the procedure under the Act on Court Confirmation of a Private Restructuring Plan. The debtor remains in principle authorized to manage and dispose of its assets.

Reorganization within suspension of payments

If reorganization occurs in the context of a suspension of payments, the directors need the prior approval or cooperation of the court-appointed administrator to enter into obligations that affect the assets of the company. If a court-appointed administrator continues a contract with a supplier in a suspension of payments, the supplier may request the administrator to provide security for the obligations of the debtor, which the administrator must comply with.

Bankruptcy

If a bankruptcy trustee continues a contract with a supplier after bankruptcy, the bankruptcy trustee is obliged to provide security in respect of the obligations of the debtor. The corporate law capacities of the directors remain unaltered (eg, capacity to convene a shareholders meeting, appoint directors and deposit accounts with the trade register); however, the directors no longer have the power to bind the company.

The Dutch Bankruptcy Act allows for the appointment of a creditors’ committee by the supervisory judge to advance the interests of the creditors that has certain powers to supervise and advise on the settling of the estate by the bankruptcy trustee. The creditors’ committee can be appointed if the importance or nature of the estate provides a cause to do so.

The task of the creditors’ committee is to give advice and exercise (if necessary) any of the specific powers given to it (eg, to file an objection against any act of the bankruptcy trustee with the supervisory judge). The reason for having a creditors’ committee is to allow a greater degree of involvement by the creditors. However, in practice, creditors’ committees are rarely appointed.

MATTERS ARISING IN A LIQUIDATION OR REORGANIZATION

Stays of proceedings and moratoria

What prohibitions against the continuation of legal proceedings or the enforcement of claims by creditors apply in liquidations and reorganizations? In what circumstances may creditors obtain relief from such prohibitions?

Bankruptcy

As a result of the bankruptcy order, there is an automatic stay, and legal proceedings that require the performance of an obligation by the debtor are suspended. Only a limited number of legal proceedings – for example, where a supplier claims or reclaims ownership – are not affected by the bankruptcy judgment and these can be continued. Secured creditors and creditors that claim or reclaim ownership are not affected by the stay, unless a cooling-off period is ordered by the court.

Suspension of payments

In a suspension of payments, there is only a limited stay unless a cooling-off period is ordered by the court. Preferential and secured creditors are, in the absence of a cooling-off period, not affected by the suspension of payments. Even unsecured ordinary creditors can initiate or continue legal proceedings, although they cannot foreclose a judgment against the assets of the debtor to enforce payment.

Private plan procedures

Under a proceeding pursuant to the Act on Court Confirmation of a Private Restructuring Plan, there is no automatic stay, but the debtor or restructuring expert may request the court to grant a stay for a maximum of four months (which may be extended up to a maximum of eight months in total).

Doing business

When can the debtor carry on business during a liquidation or reorganization? Is any special treatment given to creditors who supply goods or services after the filing? What are the roles of the creditors and the court in supervising the debtor’s business activities?

Reorganization outside insolvency

If the reorganization takes place outside the scope of formal insolvency proceedings, the normal rules of representation will remain effective. However, there may be a directors’ liability risk if the debtor enters into new obligations while the debtor knows or should have understood that it will not meet these and offers no recourse. This would apply to private plan and pre-pack procedures as well. During these procedures, the debtor remains authorized to manage and dispose of its assets.

Under a proceeding pursuant to the Act on Court Confirmation of a Private Restructuring Plan, various protective measures are available to the debtor, including, but not limited to:

suspension of requests to open insolvency proceedings; and
non-availability to creditors of contractual provisions that allow them to terminate, amend or suspend a contract (ipso facto clauses, which remain inoperative).

Also, the debtor or the restructuring expert (if appointed) has the possibility to request the court to consider matters that increase deal certainty prior to the voting on the proposed plan. These matters can relate to the grounds of refusal of the proposed plan (eg, the class composition of creditors, treatment of shareholders, the sufficiency of the information presented in the draft plan or the valuation presented by the debtor, or both).

Additionally, legal acts such as the creation of security to support the restructuring efforts can be protected from avoidance actions based on fraudulent preference, even if the restructuring fails.

This, however, requires court approval. The court will approve if the financing is necessary to facilitate preparations for the plan and to continue the business while the plan is being prepared, and if it is in the interests of the joint creditors and the interests of the individual creditors are not materially affected. The debtor can also request the court for protection of other (non-financing) transactions that are immediately required for the execution of a plan, provided that the transaction is not detrimental to the interests of the joint creditors.

Reorganization within suspension of payments

If the reorganization occurs in the context of a suspension of payments, the managing directors need the prior approval or cooperation of the administrator to enter into obligations that affect the assets of the company. If the debtor continues a contract with a supplier in a suspension of payments, the supplier is entitled to request the debtor and the administrator to provide security for the obligations of the debtor, which the debtor and the administrator must provide.

Bankruptcy

Upon bankruptcy, only the court-appointed bankruptcy trustee is entitled to dispose of the assets of the debtor. The trustee needs the approval of the supervisory judge for certain acts, including continuation of the business of the debtor and a (private) sale of assets. Also, in a decision, the Dutch Supreme Court has confirmed that the bankruptcy trustee needs to consult with the works council of the company (if any).

If a bankruptcy trustee continues a contract with a supplier after bankruptcy, the supplier is entitled to request the bankruptcy trustee to provide security in respect of the obligations of the debtor. The corporate law capacities of the directors remain unaltered (eg, capacity to convene a shareholders’ meeting, appoint directors and deposit accounts with the trade register); however, the directors no longer have the power to bind the company.

Post-filing credit

May a debtor in a liquidation or reorganization obtain secured or unsecured loans or credit? What priority is or can be given to such loans or credit?

Private plan procedures

After the debtor has filed a statement indicating that the debtor has started preparing a restructuring with the court registry or a restructuring expert has been appointed by the court to develop a restructuring plan on behalf of the debtor, the attraction of funding, including the creation of security to support the restructuring efforts, can be protected from avoidance actions based on fraudulent preference, even if the restructuring fails.

Suspension of payments

The managing directors can, with the consent of the administrator, obtain loans or credit. Such credit granted during a suspension of payments does not automatically have a high ranking but is considered to be an estate claim in relation to an immediate subsequent bankruptcy with a high ranking. In practice, this type of credit will often be fully secured.

Bankruptcy

The bankruptcy trustee can obtain loans or credit. The obligations arising as a result of these loans or credit extended to the trustee in bankruptcy are considered to be estate claims and they have a high ranking. Security can be granted over assets to secure repayment.

Sale of assets

In reorganizations and liquidations, what provisions apply to the sale of specific assets out of the ordinary course of business and to the sale of the entire business of the debtor? Does the purchaser acquire the assets ‘free and clear’ of claims or do some liabilities pass with the assets?

Private plan procedures

Under a private restructuring plan, the debtor remains authorized to manage and dispose of its assets. There is no distinction between the sale of assets within or outside the ordinary course of business; therefore, claims may in certain cases pass with the assets.

Suspension of payments

In a suspension of payments, only the directors and the court-appointed administrator acting jointly can bind the company and dispose of assets of the company. There is no distinction between the sale of assets within or outside the ordinary course of business; therefore, claims may in certain cases pass with the assets.

Bankruptcy

Upon bankruptcy, only the court-appointed bankruptcy trustee can dispose of the debtor’s assets. The sale of assets can take place by way of a public sale or a private sale. The bankruptcy trustee needs the approval of the supervisory judge for a private sale of assets.

Additionally, the bankruptcy trustee of an insolvent company that has a works council installed must respect the consultation rights of the works council (in accordance with the Dutch Works Council Act) if it regards a sale of assets with a view to continue or relaunch (part of) the business of the insolvent company.

Often, depending on the method of sale chosen by the bankruptcy trustee, assets can be transferred free and clear of third-party rights, for instance when a bankruptcy trustee sells real estate or assets for the benefit of a mortgagee or pledgee. In other circumstances, however, third-party rights may pass with the assets (eg, rights of a tenant leasing a property that is sold).

Based on case law from lower Dutch courts, the bankruptcy trustee is obliged to carefully investigate the value of the assets to obtain the highest proceeds for such assets, meaning that it should look for alternative bidders should it receive unreasonable bids.

The bankruptcy trustee may be liable when it intentionally prejudices the creditors in any way. Although not specifically referred to in the Dutch Bankruptcy Act, credit bidding in sale procedures is not unknown in the Netherlands.

Negotiating sale of assets

Does your system allow for ‘stalking horse’ bids in sale procedures and does your system permit credit bidding in sales?

Stalking horse bids

In the Netherlands, there is no legal basis for ‘stalking horse’ bids during a pre-bankruptcy scenario. However, in the Dutch pre-pack procedure, which lacks a statutory basis but has been developed in practice, an asset deal is usually ‘prepackaged’ through negations between the debtor and a potential buyer, who then buys the assets from the bankrupt estate after the debtor is declared bankrupt.

Credit bidding

Holders of security rights over assets in a bankruptcy estate can exercise their rights as if no formal insolvency procedure has occurred. They can proceed to an enforcement sale of the assets in accordance with the statutory rules regarding enforcement sales. An enforcement sale can take place by way of a public sale (auction) or private foreclosure sale.

An appropriation of the assets by the security holder is prohibited. However, the holder of the security right is allowed to participate in the auction process as a bidder or directly appropriate the assets with the approval of the court. The entering into a private agreement by the security rights holder in its capacity as purchaser can be subject to court approval if the debtor in default does not give its consent.

If the consent of the court is required for entering into a private purchase agreement, which includes a credit bid of the security holder, the court has discretionary power to assess whether it should give its approval (depending on the circumstances of the case).

In recent case law, courts took a holistic approach in relation to proposed transactions in the context of a request for consent for a private sale of shares as part of an enforcement process. All elements of the consideration for the shares were assessed and weighted against the interest of the pledgor (ie, the shareholder), other secured creditors and other creditors generally.

This implies that not only the purchase price for the shares is relevant, but also the ‘non-cash consideration’ offered as part of the bid (ie, the amount by which the company’s debt will be reduced or new financing will be made available, or both).

In the case of an enforcement sale in respect of real estate, there is a statutory requirement for the payment of the proceeds in cash to the notary that runs the enforcements process, which limits the ability to credit bid. This, however, does not mean that economically a credit bid cannot be achieved through, for instance, a daylight facility.

The requirement that proceeds must be paid in cash to a notary or bailiff does not apply in the case of an enforcement sale of pledged assets. This means that in some instances there may be the possibility to implement a credit bid.

Rejection and disclaimer of contracts

Can a debtor undergoing a liquidation or reorganization reject or disclaim an unfavorable contract? Are there contracts that may not be rejected? What procedure is followed to reject a contract and what is the effect of rejection on the other party? What happens if a debtor breaches the contract after the insolvency case is opened?

Yes. As a general rule, Dutch law provides that contracts continue after the insolvency of a counterparty, unless the contract includes an ipso facto or insolvency clause (pursuant to which the contract automatically terminates or may be terminated on insolvency).

The Dutch Bankruptcy Act, however, allows the administrator or the bankruptcy trustee to confirm or terminate executory contracts under which both the debtor and its counterparty have outstanding obligations (where it believes that continuation of the contract is not in the best interest of the debtor’s creditors as a whole). Any creditor can request the administrator or bankruptcy trustee to confirm within a reasonable time whether a contract will be honored by the estate.

If the administrator or bankruptcy trustee does not provide confirmation, the estate forfeits the rights to request performance of the contract. The contract is considered terminated and the counterparty has an unsecured and non-preferred claim for damages.

If the administrator or bankruptcy trustee decides to confirm continuation of the contract, the estate must provide security for the proper performance of its obligations, for example, a right of pledge, mortgage or personal right (eg, surety or a liability statement). The security should be sufficient to cover the claim and, if applicable, any related interest and costs in such a manner that a creditor can effortlessly take recourse. Security may include bank guarantees or the creation of security over unencumbered assets.

Typically, a negative pledge undertaking in the finance documentation does not create a limitation. Only to the extent that actual security has been created, for the benefit of the financing bank over the assets, does this create a limitation. After the provision of security, the contract will then have to be performed by both parties. If the bankruptcy trustee breaches the contract, the creditor will be able to enforce its security rights.

For contracts where the estate is not under an obligation to actively perform, but is only required to omit or tolerate, a different regime applies. For these contracts, such as lease contracts or intellectual property (IP) licenses, the bankruptcy trustee may not simply reject the contract or terminate it, save as specially provided for in the Dutch Bankruptcy Act.

This has been confirmed in case law of the Dutch Supreme Court. The Dutch Bankruptcy Act contains specific provisions for the termination of certain types of contracts, such as leases and employment contracts. To terminate those types of contracts, the bankruptcy trustee must take into account fixed notice of terms as set out in the Dutch Bankruptcy Act.

Finally, it is also possible that a creditor wishes to terminate a contract because of the debtor’s insolvency. If the contract includes an insolvency clause, then the creditor may exercise the termination rights arising from the clause, as agreed under the contract. However, pursuant to case law of the Dutch Supreme Court (the Megapool/Laser judgment), there are exceptions to this general rule.

In Megapool/Laser, the Dutch Supreme Court identified two possible scenarios in which an insolvency clause may be null and void (subject to the context and other circumstances of the case at hand), namely:

if (solely) because of the occurrence of the debtor’s insolvency the creditor’s obligation to perform under the contract no longer applies, where the debtor has already performed its obligation, the insolvency clause may be considered to infringe on the central principle of Dutch bankruptcy law that the legal position of creditors is fixed as of the commencement of the bankruptcy; or
if exercise of the insolvency clause is contrary to the overriding principle of reasonableness and fairness.

Permitting the exercise of insolvency clauses under those circumstances would disproportionately prejudice the other creditors’ recourse options, because an asset of the debtor (ie, its rights under the contract) is being kept out of the estate of the bankrupt debtor solely because of its bankruptcy.

Under the Act on Court Confirmation of a Private Restructuring Plan, a debtor has the right to terminate any executory contract, including lease contracts (but not employment contracts), with its contractual counterparty if that counterparty does not agree with any modification or termination the debtor proposes. However, the debtor must request the court for permission for such termination.

If the permission is granted, the counterparty is entitled to damages that can be rolled up into the plan that the proponent seeks to implement. A plan cannot affect rights arising from employment contracts. Upon commencement of the procedure for a restructuring plan, contractual provisions that allow the debtor’s counterparty to terminate, amend or suspend a contract in the event of a plan (ipso facto clauses) remain inoperative.

Intellectual property assets

May an IP licensor or owner terminate the debtor’s right to use the IP when a liquidation or reorganization is opened? To what extent may IP rights granted under an agreement with the debtor continue to be used?

Insolvency of a licensor

The position of an IP license after insolvency has been the subject of fierce debate in both academic circles and within the Dutch courts. In a judgment in 2006 (the Nebula judgment), the Supreme Court ruled that the principle that reciprocal agreements continue during insolvency does not mean that the creditor of such an agreement is free to continue exercising their rights under the agreement as if there is no insolvency.

The Supreme Court decided that the principle of equality of creditors outweighs the continuation of reciprocal agreements after insolvency. Therefore, the creditor was not permitted to invoice the right of use of a license after the insolvency. Notwithstanding that this specific case concerned tenancy rights, the Attorney-General introduced a parallel with IP rights.

The Supreme Court’s decision in the Nebula judgment was generally interpreted (both in legal literature and practice) as a right of the bankruptcy trustee to actively breach a reciprocal agreement. However, it appears that the Supreme Court has overturned the Nebula judgment in 2014 in its Berzona judgment, and that the right of a bankruptcy trustee to actively breach a reciprocal agreement does not extend to certain types of agreements. From the 2014 Berzona judgment, it follows that a distinction can be made between reciprocal agreements in which:

performance of the agreement by the bankrupt debtor requires a certain act from the bankruptcy trustee (at the expense of the estate), such as a payment or the delivery of goods; and
performance of the agreement by the bankrupt debtor (solely) requires the bankruptcy trustee to honour the creditor’s contractual right of use (eg, a lease agreement).

With respect to the second type of reciprocal agreement, the Supreme Court held that the bankruptcy trustee does not have a right to breach these agreements and that the bankruptcy trustee must honour the creditor’s right of use. In 2018, the Supreme Court decided in De Klerk qq and El Ayoubi pro se/X that if the bankruptcy trustee nevertheless actively breaches such agreements, the bankruptcy trustee can in principle be held personally liable.

The Berzona judgment concerned the rights of use of a tenant regarding the right of the bankruptcy trustee to breach the lease. As was the case with the Nebula judgment, the Supreme Court’s decision appears to be also relevant for other types of reciprocal agreements, such as licensing agreements. In practice, this would mean that in the event a licensor is declared bankrupt, the bankruptcy trustee must respect the licensee’s right of use (in principle for as long as the licensing agreement is in place).

In the 2018 Credit Suisse/Jongepier qq case, the Supreme Court confirmed the rule as stated in the Berzona judgment for the debtor that is licensor. This means that the bankruptcy trustee cannot actively breach the license contract (unless there is a contractual right to do so), which includes a prohibition on ‘actively’ undoing a performance before the insolvency of the licensor, and ‘actively’ terminating the license contract.

Additionally, the licensee, as a creditor to the estate, is entitled to specific performance, also after the date of the bankruptcy. This does not constitute a violation of the fixation principle, as the licensor’s obligation to perform already exists on the date of the bankruptcy.

This also applies to general reciprocal agreements. In legal literature, various authors raised the fact that there is still some uncertainty, as the Supreme Court did not cover all situations in relation to license contracts in the Credit Suisse/Jongepier qq judgment, for example, the situation where the bankruptcy trustee sells and transfers the IP right without also transferring the license agreement to the new IP rightsholder, even though an obligation was included in the license agreement.

This manner of sale and transfer could be considered ‘passive’ non-performance (ie, permissible) by the licensor under the license agreement. This could be different if the license agreement is registered with the relevant authorities, as a registered license can automatically be invoked against any third party, including the legal successor of the IP right. The outcome of these scenarios is to be determined if and when such cases come before the courts.

Insolvency of a licensee

The position is different as regards the insolvency of a licensee because any reciprocal agreements should continue during insolvency and the bankruptcy trustee or administrator should be able to continue to exercise the IP rights granted under the license. This means that, unless provided otherwise in the license, the opening of insolvency proceedings in respect of the licensee does not impact the rights of the licensor. If the licensee becomes insolvent and the licensee has fully performed its obligations under the license, the licensee’s insolvency administrator is entitled to claim performance of the licensor. Furthermore, the bankruptcy trustee or administrator may also seek to terminate the license.

To the extent that the licensor has fully performed its obligations under the license and has a claim against the insolvent licensee, the licensor may seek termination of the license based on the general provisions of breach of contract, unless the insolvency administrator performs the license. The licensor’s claim resulting from termination of the license will be unsecured.

Personal data

Where personal information or customer data collected by a company in liquidation or reorganization is valuable, are there any restrictions in your country on the use of that information or its transfer to a purchaser?

Regulation (EU) 2016/679 (General Data Protection Regulation or GDPR) applies to data-processing and data-controlling activities conducted by organizations established in the European Union. Pursuant to the GDPR, non-compliance with its principles for data-processing activities can result in quite severe administrative fines by the relevant national supervisory authority of up to the higher of €20 million or 4 per cent of the annual (worldwide) turnover of the party involved.

The Dutch Data Protection Authority published a letter in which it confirms that upon bankruptcy the bankruptcy trustee becomes a controller in relation to any personal data that is kept, recorded, stored, collected or processed in another fashion by the bankrupt debtor.

Where prior to its bankruptcy the company had to be GDPR-compliant in relation to processing personal data, the bankruptcy trustee (as a controller) must, upon bankruptcy, comply with the data protection principles set out in the GDPR when processing any personal data.

The bankruptcy trustee is only entitled to the sale of personal information or customer data that qualifies as personal data if the bankruptcy trustee obtains the prior consent of the persons to whom the data relates. If a contract is assigned, certain personal data may in principle also be transferred to the new contracting party.

Moreover, the GDPR also affects how the bankruptcy trustee must deal with, for instance, taking control of the company’s (electronic and physical) records and the subsequent usage, storage or destruction of those records, using third parties to store personal data (eg, providers of cloud services), the occurrence of data leaks, continuing the business during the insolvency of the company (and thereby continuing the processing or controlling of data), publishing personal data in the three-monthly public bankruptcy reports, or relaunching or selling off all or a part of the business – as this will most likely involve the provision of personal data (eg, customer data or staff records kept by the bankrupt company) to a potential purchaser.

Arbitration processes

How frequently is arbitration used in liquidation or reorganization proceedings? Are there certain types of disputes that may not be arbitrated? Can disputes that arise after the liquidation or reorganization case is opened be arbitrated with the consent of the parties?

Parties, including the bankruptcy trustee, may choose to submit disputes to arbitration (subject to the approval of the supervisory judge). The courts in the Netherlands, however, do not have the power to direct the bankruptcy trustee or its counterparty to submit disputes in the bankruptcy procedure to arbitration.

There are certain types of insolvency disputes that may not be arbitrated (eg, disputes regarding matters of public concern). A distinction should be made between arbitration procedures pending at the time of the commencement of the bankruptcy case and procedures commenced afterwards to solve a dispute related to the insolvency.

Pending arbitration

Arbitration proceedings regarding monetary claims or for breach of contract that are already pending at the time the insolvency proceedings are commenced are suspended through analogous application of the statutory provisions in the Dutch Bankruptcy Act dealing with litigation in a governmental court. If the claim is contested by the bankruptcy trustee, the arbitration may be continued to determine the amount of the creditor’s claim that will be admitted for proof.

Post-insolvency disputes

Arbitration procedures do not typically play a substantial role in the insolvency process, although the bankruptcy trustee in principle is authorized to agree to arbitration on behalf of the estate (ie, claims by the estate are arbitrable). Claims against the debtor that do not involve the estate (ie, that are not aimed at retrieving payment from the estate) may also be submitted to arbitration.

Neither the Dutch Bankruptcy Act nor case law directly addresses whether a contested claim for payment in the claims allowance stage, in respect of which no arbitral proceedings were pending when the insolvency proceedings were commenced, is arbitrable. There are differing views in legal literature, and the wording of the relevant provision of the Dutch Bankruptcy Act seems to preclude arbitrability.

There is, however, a case of the Dutch Supreme Court in which the court found that a choice of forum for a foreign court was binding upon a bankruptcy trustee where it seems to reject or challenge a claim. It is not unlikely that the courts will come to the same conclusion concerning an arbitration clause and require the bankruptcy trustee to arbitrate the claim.

CREDITOR REMEDIES

Creditors’ enforcement

Are there processes by which some or all of the assets of a business may be seized outside of court proceedings? How are these processes carried out?

A mortgagee and a pledgee or a security holder under a financial collateral arrangement can foreclose on the secured assets if there is a default in the performance of the secured obligations. Unsecured creditors can levy an attachment.

Unsecured credit

What remedies are available to unsecured creditors? Are the processes difficult or time-consuming? Are pre-judgment attachments available?

An unsecured creditor must commence legal proceedings against the debtor for recovery of its debt if the debtor is unwilling to pay. Anticipating or pending these proceedings, the creditor may levy an attachment on assets of the debtor, including claims the debtor may have on third parties, to ensure that the creditor can take recourse on assets of the debtor if a successful order is awarded.

To levy the attachment, the creditor needs prior court approval, which can in general be obtained quite easily, and the attachment is levied by a bailiff, being a government-appointed person. If the outcome of the legal proceedings is successful, the creditor can foreclose on the attached assets and seize more assets if necessary.

The position of an unsecured creditor changes when insolvency proceedings are opened.

Upon bankruptcy, unsecured ordinary and preferential creditors are no longer allowed to start or continue actions against the debtor to obtain payment of their claims, and any attachments that are levied are released by operation of law, with the bankruptcy trustee taking over the attaching party’s position concerning secured creditors (save during a preliminary suspension of payments when attachments will only be released when the preliminary suspension of payments becomes definitive).

Unsecured creditors must submit their claims to the bankruptcy trustee. Payment can only take place on a pro rata basis.

There are no special rules for foreign creditors except that, when legal proceedings are pending, the court may in rare cases require a foreign creditor who initiated the legal proceedings to provide security for the debtor’s legal costs, which are set by the court and rarely amount to more than several thousand euros.

CREDITOR INVOLVEMENT AND PROVING CLAIMS

Creditor participation

During the liquidation or reorganization, what notices are given to creditors? What meetings are held and how are they called? What information regarding the administration of the estate, its assets and the claims against it is available to creditors or creditors’ committees? What are the liquidator’s reporting obligations?

Bankruptcy

The opening and termination of insolvency proceedings are published in the government gazette and the online Dutch central insolvency register. In this register, all bankruptcies, suspensions of payments and procedures regarding debt reorganizations of natural persons opened after 1 January 2005 have been registered. Typically, it takes from one to several days between a company being declared bankrupt or suspension of payments being ordered and publication in the register.

To determine whether a company was declared bankrupt before 1 January 2005, it is still necessary to contact the relevant courts to confirm that the register is up to date. There is also an EU-registrations list with the Dutch central insolvency register in which EU insolvency proceedings that have been opened under former Council Regulation (EC) No. 1346/2000 (the Insolvency Regulation), whereby the debtor has an establishment in the Netherlands, can be registered at the request of a foreign insolvency practitioner.

If a creditors’ meeting is held, this will also be made public in one or more newspapers. The bankruptcy trustee will also separately notify all creditors in writing of a creditors’ meeting. A creditors’ meeting is held if there are sufficient assets to make distributions to the unsecured creditors. During a creditors’ meeting, all claims of creditors are verified and listed. Claims can either be admitted or challenged.

If it is likely that there will be insufficient assets to distribute to the unsecured creditors, the supervisory judge may decide – at the request of the bankruptcy trustee – that it will not be necessary to deal with the unsecured claims and that there will not be a meeting at which claims are admitted or rejected. The bankruptcy trustee will then notify all creditors of this decision in writing, and they will also announce the decision in one or more newspapers.

Once the bankruptcy trustee has prepared a distribution plan for the estate and preferential creditors, this will be filed with the court for inspection by the creditors. The filing will be announced in one or more newspapers and to the known creditors by separate letter.

Suspension of payments

Unlike a bankruptcy, a suspension of payments has no verification procedure (and therefore no verification meeting). However, creditor meetings are held for creditors to vote on, for example, the acceptance of a reorganization plan or regarding whether the provisional suspension of payments should be converted into a definite suspension of payments.

In addition, it is necessary for the administrator to determine the amount for which creditors can vote. Therefore, the administrator invites all known creditors to submit their claims immediately after the provisional suspension of payments is granted.

The bankruptcy trustee in bankruptcy or the administrator in suspension of payments, as the case may be, must report on the state of affairs of the estate at the end of each three-month period. The report must be filed with the clerk’s office at the district court, where it will be available for public inspection free of charge. The three-month period may be extended by the supervisory judge.

Furthermore, each of the creditors can file a petition with the supervisory judge to object against any act of the bankruptcy trustee or to instigate that the supervisory judge orders the curator to perform or refrain from performing any contemplated act, but a creditor cannot otherwise ask for the provision of information. If a creditors’ committee is installed, the committee can ask for information and must be provided with this information by the bankruptcy trustee upon request.

Reorganization

Under the Act on Court Confirmation of a Private Restructuring Plan, the debtor is required to submit a declaration to the court as soon as the preparations start. If the debtor proposes a public plan procedure, it needs to request the court to report this in the insolvency registers and the Dutch Government Gazette. Publication in the online WHOA-register takes place after the court has rendered an initial decision in the public plan procedure. The opening of a private restructuring plan is currently not registered in a (electronic) register.

Furthermore, the debtor (or restructuring expert, if appointed) is required, among other things, to make the plan available to creditors and shareholders with voting rights, or to inform them how they can access the plan in order for them to be sufficiently informed.

Once the vote on the plan has taken place, the debtor is required to prepare a report on the vote indicating not only the voting result but also information about which creditors and shareholders voted and whether they voted for or against the plan, to enable creditors and shareholders to determine whether there is value in opposing the confirmation. There are no formal creditors’ meetings.

Creditor representation

What committees can be formed (or representative counsel appointed) and what powers or responsibilities do they have? How are they selected and appointed? May they retain advisers and how are their expenses funded?

The Dutch Bankruptcy Act allows for the appointment of a creditors’ committee by the supervisory judge. The creditors’ committee may demand inspection of the books, records and other data carriers relating to the bankruptcy at any time. The bankruptcy trustee must provide the creditors’ committee with such information as the committee requires.

The bankruptcy trustee must obtain the advice of the committee on several instances, such as whether to continue the business of the debtor and in respect of the manner of the liquidation and realization of the estate and the time and amount of the distributions to be made. The bankruptcy trustee is, however, not bound to adhere to the advice of the committee.

There is no limitation on the number of members of the creditors’ committee. It is possible to appoint experts or specific representatives as a member.

There are no specific provisions that deal with retaining advisers or the funding of expenses.

Enforcement of estate’s rights

If the liquidator has no assets to pursue a claim, may the creditors pursue the estate’s remedies? If so, to whom do the fruits of the remedies belong? Can they be assigned to a third party?

Under certain circumstances, a bankruptcy trustee may apply to the Ministry of Justice and Security to obtain financing to pursue claims against the directors and supervisory board directors. Any proceeds will be available for distribution to the creditors.

Alternatively, a bankruptcy trustee may seek to assign a claim to obtain financing to pursue other claims. However, the bankruptcy trustee cannot assign their own claim, based on the statutory anti-abuse provisions.

Claims

How is a creditor’s claim submitted and what are the time limits? How are claims disallowed and how does a creditor appeal? Can claims for contingent or unliquidated amounts be recognized? Are there provisions on the transfer of claims and must transfers be disclosed? How are the amounts of such claims determined?

The entry into force of the Act on Modernization of Bankruptcy Proceedings on 1 January 2019 introduced a final deadline (bar date) with respect to the submission of claims to the bankruptcy trustee for verification. This follows from the wish to accelerate insolvency proceedings.

In contrast to what applied prior to 1 January 2019, the supervisory judge does not need to set a separate date for the submission of claims; instead, the deadline is linked to the date of the first meeting at which creditors’ claims are accepted or rejected (the claims allowance meeting) (for foreign creditors, a limited exception is possible). In principle, claims should be submitted no later than 14 days prior the day of the first claims allowance meeting. The supervisory judge can deviate from this date (eg, in complex bankruptcies).

During a suspension of payments, a similar procedure applies, albeit a claim is only admitted with the aim to vote on the reorganization plan submitted by the debtor. As a result, there is, unlike in a bankruptcy proceeding, no formal procedure available to litigate a claim if it is disputed. The bankruptcy trustee will decide whether it will admit or challenge a claim. Other creditors may also challenge the admittance of a claim. If it admits a claim, the claim is placed on a list with provisionally admitted claims.

If the bankruptcy trustee challenges a claim, that claim will be placed on a separate list. During the claims allowance meeting, all claims are reviewed and, when claims are challenged and no solution can be reached, the supervisory judge will refer the matter to legal proceedings on the merits, in which case the validity of the claim will be litigated.

There are no specific provisions that deal with the purchase, sale or transfer of claims against the debtor.

It is possible that claims that represent an unliquidated amount are recognized in a bankruptcy proceeding. The Dutch Bankruptcy Act determines that claims that do not reflect the amount in euros or claims that are indefinite, uncertain or not expressed in money must be verified for their estimated value (in euros). The estimation should be based on the value on the day that the company was declared bankrupt.

If the estimation of the value of a claim is not possible, but there is a likelihood that the value can be determined at a later stage, the allowance of the claim takes place on a preliminary basis. Such claim can be added as pro memoriato the list of known or disputed creditors.

The Dutch Bankruptcy Act provides also for the allowance of claims with an uncertain due date or claims that entitle the claimant to periodic payments. In this case, the claim will be admitted for its value at the date of the bankruptcy order. Claims that become payable within a year of the commencement of the bankruptcy will be considered due as of the date of bankruptcy.

Claims that become payable after one year will be admitted for their value one year from the date of the commencement of the bankruptcy. For calculation only, the intervals of instalment payments, any profit opportunity and, if the claim bears interest, the agreed rate of the interest will be taken into account. In principle, to the extent secured by in rem security rights, a claim acquired at a discount secured by security can be enforced for its full value.

However, there are limitations on the acquisition of claims with a view to setting off claims at a point in time bankruptcy becomes unavoidable or with a view to bringing the claim under the scope of foreign security rights. Interest accrued after the opening of an insolvency case cannot be claimed by a creditor.

In its 2018 Credit Suisse/Jongepier qq judgment, the Supreme Court further ruled that it is possible to successfully file post-bankruptcy claims to the extent that these claims were already embedded and inherent in the legal position of the creditor as it existed at the time of the opening of the bankruptcy proceedings. Filing these claims does not result in an increase in rights the creditor had at the time of the opening of the bankruptcy proceedings and therefore does not constitute a breach of the fixation principle under Dutch insolvency law.

The Supreme Court further ruled that this rule also applies to damages claims insofar as these claims derive from a legal relationship that already existed at the time of the opening of the bankruptcy proceeding, and that such claims were already embedded in the legal position of the creditor.

Set-off and netting

To what extent may creditors exercise rights of set-off or netting in a liquidation or in a reorganization? Can creditors be deprived of the right of set-off either temporarily or permanently?

Prior to bankruptcy, a creditor can set off a claim if the following requirements have been met:

mutual indebtedness;
the performance of the obligation corresponds to the claim;
the creditor is entitled to perform its obligations (pay its debts); and
the creditor’s claim is due and payable.

The creditor should give notice of the fact that it sets off the claims against the debtor and debts to the debtor. Parties may make different arrangements.

In a reorganization pursuant to the Act on Court Confirmation of a Private Restructuring Plan, a specific regime applies to set-off. If the party applying set-off rights does so after the debtor has filed a statement with the court noting that it is in the process of preparing a restructuring plan, or after the court has appointed a restructuring expert, the set-off right is deemed to have been applied in good faith if the set-off was effected in connection with the financing of the continuation of the company and does not restrict such financing.

During a suspension of payments or bankruptcy, the right of set-off is broader. The creditor may set off claims and debts if both the claim and the debt existed prior to the opening of the insolvency proceedings or the opening of a suspension of payments or resulted from acts that were performed prior to the opening of the insolvency proceedings or suspension of payments respectively.

The requirements that the creditor must be entitled to perform its obligations (to pay its debts) and that the claim against the debtor must be due and payable do not apply. A creditor, however, is not allowed to set off claims if it obtained the debt or the claim against the debtor at a time that it knew or should have known that the debtor would go bankrupt or would file for a suspension of payments (the good faith criterion).

In 2023, the Dutch Supreme Court clarified that the good faith criterion is not met if the creditor should have known about the expected bankruptcy or suspension of payments of the debtor. To assess this, all circumstances need to be taken into account.

This may include the circumstance that a bank is willing to continue or provide (new emergency) funding by way of attempt to rescue a business, because it sees a chance of survival. It can be assumed that if a bank has good reason to believe that such rescue attempt has a realistic chance of succeeding, it does not qualify as ‘to know or should have known’; the mere willingness to continue financing or to facilitate a rescue attempt is not sufficient for that purpose.

To assess whether the good faith criterion has been met and to determine if set-off is or is not allowed in an insolvency scenario, the cut-off moment must be determined; in other words, the moment where one knows or should have known the debtor would go bankrupt. A creditor cannot validly apply set-off if it obtained the claim (or debt) that it wishes to use for set-off after the cut-off moment.

There are no hard and fast rules in this context, and determining the cut-off moment is done on a case-by-case basis. For example, in a situation where the creditor is in a position where it has substantial visibility on the financial status of the debtor, the cut-off moment can occur sometimes even weeks before the actual insolvency of the debtor.

In its 2018 Eurocommerce judgment, the Dutch Supreme Court confirmed that the good faith criterion does not apply in a situation where an account holder goes bankrupt and the account bank not only has a right of pledge over the bank account it operates for the account holder but also a right of pledge over the account holder’s receivables that are paid into said bank account.

In this scenario, the bank is free to apply set-off on the (pledged) receivables of the account holder when those are paid into the account holder’s bank account – even after the cut-off moment. The Eurocommerce case contains important considerations relevant to banks applying set-off.

In another important judgment (dated 15 November 2019), the Dutch Supreme Court confirmed that if parties have contractually expanded their set-off rights (eg, by allowing multi-party set-off, which is often applied to cash-pooling agreements between a bank and different counterparties or accountholders), such contractual set-off arrangements remain valid if one of the parties to that arrangement is declared bankrupt (provided that both the claim and debt existed prior to the bankruptcy or were the result of acts that were performed prior to the bankruptcy).

Modifying creditors’ rights

May the court change the rank (priority) of a creditor’s claim? If so, what are the grounds for doing so and how frequently does this occur?

No. Dutch law does not recognize a concept similar to ‘priming’.

Priority claims

Apart from employee-related claims, what are the major privileged and priority claims in liquidations and reorganizations? Which have priority over secured creditors?

A bankruptcy trustee will first pay estate claims and thereafter the pre-insolvency claims. Estate claims are generally incurred by the bankruptcy trustee in performing their duties and fall in the estate without requiring verification, which like insolvency costs have priority above the ordinary and preferred debt claims against the debtor. Estate claims are deemed to include debts that give an immediate claim on the estate because they are claims arising out of contracts continued or made by the bankruptcy trustee.

With respect to the pre-insolvency claims, a distinction should be made between preferential claims (the majority of which tend to be held by the tax authorities and social security board) and unsecured claims. Preferential claims can again be subdivided between claims that have a general preference and claims that are preferential only in relation to a specific asset. Furthermore, the rank of preference may vary.

Claims that have a general preference include claims for the costs of the filing of bankruptcy; and taxes and social security premiums.

Claims that are preferential in relation to a specific asset include:

claims in connection with the preservation of an asset;
claims secured by a right of mortgage or right of pledge; and
claims in connection with a right of possession.

Employment-related liabilities

What employee claims arise where employees’ contracts are terminated during a restructuring or liquidation? What are the procedures for termination? (Are employee claims as a whole increased where large numbers of employees’ contracts are terminated or where the business ceases operations?)

The strict requirements that apply to the dismissal of employees outside bankruptcy do not apply in the case of bankruptcy. This means that, in practice, bankruptcies are regularly used for restructuring purposes.

An employee may have two claims with different priority. A distinction should be made between the period before the bankruptcy and after the opening of the bankruptcy. The unpaid salary, pensions and other related benefits deriving from the employment contract that fell due before the bankruptcy are preferential claims with a general preference. From the day the company is declared bankrupt, salary, pensions and other related benefits deriving from the employment contract are an estate claim.

In addition to the above-mentioned claims of employees, a wage guarantee by the Dutch Employee Insurance Agency (UWV) exists in the Netherlands. When the employer is unable to pay the salary of the employee, the UWV will guarantee the salary for up to 13 weeks before the termination of the employee’s employment contract by the bankruptcy trustee.

The salary due over the notice period is an estate claim. Payment of salary during the notice period (a maximum of six weeks) is also guaranteed by the UWV. Holiday allowance and pension contributions that have remained unpaid are guaranteed by the UWV for a period of up to one year.

The procedure concerning termination of employment contracts is as follows:

the bankruptcy trustee has the right to terminate the employment contracts of the debtor’s employees without obtaining a permit from the UWV, albeit with a notice period of a maximum of six weeks regardless of whether a longer notice period is applicable pursuant to Dutch labor law or has been agreed upon between parties; and
to terminate any contracts with employees, the bankruptcy trustee requires authorization from the supervisory bankruptcy judge.

This procedure is different for collective redundancies. A bankrupt trustee who intends to terminate the employment contract of 20 or more of the employees within one UWV district within a period of three months must:

inform the labor unions, and if requested, the UWV; and
the bankruptcy trustee must consult the works council.

The same procedure applies when the bankruptcy trustee intends to transfer the ownership of the business.

During the suspension of payment, the regular dismissal rules will apply, requiring the trustee to obtain a permit from the UWV or court involvement to effect unilateral dismissals. This, in practice, makes the suspension of payments procedure a less efficient restructuring tool if a large number of employees are involved.

As of 1 July 2015, legislation has entered into force as a result of which the dual Dutch dismissal system (ie, a permit from the UWV or court involvement) was replaced by a one-route system, whereby the route to be followed will depend on the reason for dismissal.

With effect from 1 January 2016, a maximum on the wage guarantee by the UWV also applies. In the case of a sale and transfer of (part of) the business out of bankruptcy that qualifies as a transfer of undertaking, there may, under certain circumstances, be an automatic transfer of employees (with the same employment conditions).

In a reorganization pursuant to the Act on Court Confirmation of a Private Restructuring Plan, a restructuring plan cannot affect rights arising from employment contracts. As a result of a ruling of the Dutch Supreme court in 2022, this includes claims regarding the payment of premiums to pension funds.

Pension claims

What remedies exist for pension-related claims against employers in insolvency or reorganization proceedings and what priorities attach to such claims?

A distinction should be made between the employer’s and employee’s part of the pension contribution and whether the premium has fallen due before or after the date of the bankruptcy.

Pension contributions falling due before the bankruptcy that have been withheld by the employer from the employee’s salary, but that have not yet been paid to the pension provider, are considered to be directly based on the employment agreement and are therefore preferred claims. The employer’s part of the pension premiums will be considered an unsecured claim by the pension trustee against the employer.

In practice, the UWV will be confronted with this difference in treatment of the two parts of the pension contribution, as pension premiums (both the employer’s and the employee’s part of the pension contribution) are covered by the wage guarantee for a period of one year.

Post-bankruptcy pension-related claims, such as unpaid pension contributions that have fallen due after the bankruptcy order, are estate debts based on article 40(2) of the Dutch Bankruptcy Act.

Back-service obligations will be considered estate debts if they became payable as a result of an act by the bankruptcy trustee (in practice, as a result of a termination of the employment agreement after the date of the bankruptcy order) and an unsecured debt in all other cases.

Environmental problems and liabilities

Where there are environmental problems, who is responsible for controlling the environmental problem and for remediating the damage caused? Are any of these liabilities imposed on the insolvency administrator personally, secured or unsecured creditors, the debtor’s officers and directors, or on third parties?

In principle, liability for environmental damage rests on the person who has caused that damage. Under Dutch law; however, remedial obligations for environmental pollution may also arise for a landowner, a land lessee or the holder of a permit as well as the entity that caused the contamination. Generally, liability for (soil) pollution or remedial obligations, or both, may arise out of:

contracts with the landowner regarding the use of its premises, including land-lease contracts;
conditions attached to a permit; and
administrative remedial action, soil investigation and orders under the Soil Protection Act.

Dutch case law in respect of remedial costs for a lessor to remove contaminated goods from a property the moment a Dutch bankruptcy trustee terminates the lease agreement (after bankruptcy of the lessee) has shown that such costs used to be classified as estate claims. On the basis of recent case law, it is probable that these claims are no longer to be classified as estate claims that have priority ranking, but instead as unsecured claims.

There are fines for corporations that are not in the possession of the right permits (eg, under the Soil Protection Act) or that breach environmental laws. Liabilities in relation to pollution and administrative clean-up costs depend on the severity of the pollution and the remedial costs.

Case law has shown that, in certain circumstances, other entities within the group could also be held liable for remedial costs.

Directive 2004/35/EC (the Environmental Liability Directive), as amended by Directive 2006/21/EC (the Mining Waste Directive), Directive 2009/31/EC on the geological storage of carbon dioxide (the CCS Directive) and Directive 2013/30/EU (the Offshore Safety Directive), contains an option for national governments to implement measures on the obligation to provide financial security to cover liability risk for environmental damages.

No such general measures have been implemented in the Netherlands; however, some legislation does include the obligation to provide financial security under certain circumstances. Examples (among others) can be found in:

the Soil Protection Act (in the event of remedial actions at the moment of transfer of land or lease or on the basis of a remedial action plan; however, this then needs to be further specified in a general measure);
the Activity Decree Environment Management (underground tank storage); and
the Nuclear Energy Act (when dismantling a facility).

Liabilities that survive insolvency or reorganization proceedings

Do any liabilities of a debtor survive an insolvency or a reorganization?

Suspension of payments

If a suspension of payments is successfully terminated, this means that a reorganization plan has become binding upon the creditors bound by the plan – in broad terms, the unsecured creditors. Pursuant to the plan, the creditors may receive payment in respect of (part of) their claim.

To the extent that the creditors only receive partial payment of their original claim under the plan, the remainder of their claim, as a result of the plan becoming binding, cannot be enforced against the debtor. However, the remaining part of the unpaid claim will continue to exist as an unenforceable claim.

Bankruptcy

In bankruptcy, three scenarios are possible.

Termination of the bankruptcy following acceptance of a reorganization plan between the creditors and approval of the plan by the court: in that event, the creditors will be entitled to receive payment under and in accordance with the plan, and the remainder of their claim will continue to exist as an unenforceable claim.
Termination of the bankruptcy following a meeting of creditors and the distribution list becoming binding: in this scenario, the assets of the debtor will have been liquidated and distributed to the creditors and the bankruptcy will have terminated. However, the records of the creditors’ meeting and the final distribution list as approved by the court form an enforceable title for creditors recognizedat the occasion of the meeting of creditors, which can be enforced by each of the creditors against the debtor for the remainder of their claim following receipt of their distribution pursuant to the distribution list if ever any new assets of the debtor were to surface. Also, any party of interest may petition the court to order the former bankruptcy trustee to distribute the new, previously unknown, assets in accordance with the original distribution list or to again apply for bankruptcy of the creditor; however, in that event, new creditors of the debtor will compete for the assets.
Termination of the bankruptcy in the absence of assets without a final distribution list having been established: in this scenario, each creditor may again individually seek recourse against any assets that it is able to trace. Also, new applications for bankruptcy may be filed, but if a new application is filed within the three years following termination of the original case, the applicant must provide evidence that there are sufficient assets available to pay for the costs of the bankruptcy. Following termination of the bankruptcy of a legal entity for lack of assets, the legal entity will cease to exist. As an alternative to reapplying for bankruptcy, a creditor may also seek the liquidation of the company if a new asset has surfaced. If dissolution is sought by a creditor, the liquidator will be appointed by the court.

Court-confirmed private restructuring plan

Termination of a plan under the Act on Court Confirmation of a Private Restructuring Plan due to the refusal of the court to confirm the private plan or due to an insufficient number of creditors voting in favour of the plan entails that all claims continue to exist.

It should be noted that a restructuring plan cannot affect rights arising from employment contracts. As a result of a ruling of the Dutch Supreme court in 2022, this includes claims regarding the payment of premiums to pension funds. Vested or future pension benefits cannot be affected either.

In addition, security rights arising from financial collateral arrangements and set-off clauses pursuant to section 7(51) of the Dutch Civil Code and collateral security rights of participants in payment and settlement systems cannot be amended by a plan. Finally, netting arrangements, including close-out netting arrangements as referred to in Regulation (EU) No. 648/2012 and Directives (EU) 2015/2366 and 2009/110/EC cannot be amended.

Distributions

How and when are distributions made to creditors in liquidations and reorganizations?

The bankruptcy trustee is in principle authorized to make payments to estate creditors, the tax authorities and the social security board and certain other preferential creditors or force-creditors. Force-creditors are creditors that have a strong position because of the dependency of the debtor on their services (eg, a supplier whose products are essential to the business).

Unsecured creditors can only be paid after the supervisory judge has ordered interim distributions. The bankruptcy trustee will prepare a plan for distributions, which needs to be approved by the supervisory judge.

A suspension of payments does not affect the rights of secured or preferential creditors. Payments to unsecured creditors can be made at any time, provided those payments are made pro rata.

SECURITY

Secured lending and credit (immovables)

What principal types of security are taken on immovable (real) property?

Security over immovable property (including leasehold) and certain registered movables (registered ships and aircraft) is created by means of a right of mortgage. A right of mortgage is created by way of a notarial deed followed by registration in the relevant register (eg, the land register for real property).

The rights of the mortgagee are not affected by insolvency proceedings and the mortgagee is, therefore, able to act as if there were no insolvency proceedings, unless the court has granted a cooling-off period. A cooling-off period may be granted by the relevant court for up to two months, and can only be extended once, by a maximum of another two months. During the cooling-off period, the mortgagee cannot foreclose its security interests without court permission.

Secured lending and credit (movables)

What principal types of security are taken on movable (personal) property?

Security over movable property is created by means of a right of pledge. There are two types of pledges over movable property:

a possessory pledge, where possession of the collateral is transferred from the pledgor to the pledgee or a particular third party agreed upon by the pledgor and the pledgee. A possessory pledge does not require notarizationor registration; and
a non-possessory pledge, where possession of the collateral remains with the pledgor. The deed of non-possessory pledge must either be drawn up in notarial form or registered with the tax authorities for the pledge to be valid.

Security over claims is also created by means of a right of pledge. There are two types of pledges over claims:

a disclosed right of pledge; and
an undisclosed right of pledge, depending on whether the debtor of the claim has been given notice of the pledge.

The disclosed pledge does not require notarization or registration. The deed of the undisclosed right of pledge must either be drawn up in notarial form or registered with the tax authorities for the pledge to be valid.

Pursuant to a recent judgment of the Dutch supreme court, Dutch law now provides for the possibility of a change in priority if multiple rights of pledge are granted and the order in which they have been established does not lead to the preferred priority. Pledgees can contractually agree upon a change in priority in a deed of pledge or deed of ranking. All pledgees whose priority will change due to the new right of pledge must consent to such change in priority. This deviates from the current default rule, the prior tempore rule (order of execution rule).

The rights of a pledgee are not affected by insolvency proceedings and the pledgee is able to act as if there were no insolvency proceedings, unless the court has ordered a cooling-off period. This may be ordered by the relevant court for up to two months, and can only be extended once, by a maximum of two months. During the cooling-off period, a pledgee cannot foreclose its security interests without court permission.

In January 2006, Directive 2002/47/EC on financial collateral arrangements was implemented in the Dutch Civil Code, resulting in the introduction of the financial collateral arrangement, which is a security instrument for cash and financial instruments only between certain categories of parties (in broad terms, financial institutions).

A financial collateral arrangement is created following an agreement between the parties and the execution of a pledge over the cash or financial instruments, or the transfer of the cash or financial instruments to the holder of the security that the financial collateral arrangement purports to create.

The rights of the holder of financial collateral are not affected by insolvency proceedings and it can act as if there were no insolvency proceedings, allowing the security holder to liquidate the assets over which it has security or, if agreed as part of the conditions of the security arrangement, retain ownership of the assets provided as security. Any cooling-off period ordered does not apply to assets subject to a financial collateral arrangement.

A supplier of goods may protect itself by inserting a retention of title clause in the supply contract. The clause will state that the title to the goods supplied will not be transferred to the buyer until payment has been received. The seller cannot, however, reclaim the goods when these have been used in a manufacturing process such that accession occurred, nor does it have a right in the newly created goods.

Also, Dutch law provides for a statutory reclaim right for the seller of a movable asset. The right to invoke this statutory right expires when six weeks have passed after payment was due and 60 days after delivery has taken place. The seller cannot exercise its statutory right to reclaim the goods when the goods have been used in a manufacturing process. During a cooling-off period, the supplier cannot effectively retake possession of the goods without court permission.

Furthermore, certain creditors holding the debtor’s movables or immovables can invoke a right of retention, allowing them to withhold re-delivery of the debtor’s goods until receipt of payment of their claim. The creditor will obtain a preference over the proceeds of sale of the goods if a right of foreclosure is enforced against the goods, pursuant to a judgment granting authorization to that effect.

CLAWBACK AND RELATED-PARTY TRANSACTIONS

Transactions that may be annulled

What transactions can be annulled or set aside in liquidations and reorganizationsand what are the grounds? Who can attack such transactions?

Outside insolvency

Outside bankruptcy, creditors can act against voluntary legal acts performed by the debtor if both the debtor and the counterparty knew or ought to have known that the creditors of the debtor would be disadvantaged as a result of the act. A creditor – secured or unsecured – that is prejudiced in its recourse against the debtor can void such legal act, which it can do by sending a simple letter.

However, if the challenge is disputed, litigation will follow. The creditor then must prove that the requirements for the challenge have been met. The creditor can only do so for its own benefit and only to the extent necessary to ensure that it is no longer prejudiced.

Concerning voluntary legal acts involving the debtor, which were performed during the year preceding the date on which the creditor initiated a challenge action, rebuttable statutory presumptions are applicable. These presumptions shift the burden of proof from the creditor that initiated the challenge action to the debtor.

The presumptions provide that with respect to actions performed (for a consideration) during the one-year period prior to the date that the legal act is challenged, it is deemed that such actions are prejudicial to the creditors of the debtor, and that both the debtor and the counterparty were aware of this. These actions include transactions where the value of the obligation of the debtor considerably exceeds the value of the obligation of the counterparty, or where the debtor and the counterparty are connected.

After the debtor has filed a statement indicating that the debtor has started preparing a restructuring with the court registry or a restructuring expert has been appointed by the court to develop a restructuring plan on behalf of the debtor, legal acts such as the creation of security to support the restructuring can be protected from avoidance actions based on fraudulent preference, even if the restructuring fails.

Suspension of payments

In a suspension of payments, the administrator does not have a specific statutory right under the Dutch Bankruptcy Act to void transactions.

Bankruptcy

In bankruptcy, the bankruptcy trustee has the right to challenge certain legal acts.

The bankruptcy trustee has the right to challenge voluntary legal acts (ie, acts where there was no prior legal obligation to perform them) for consideration, and legal acts without consideration that were performed by the debtor. To successfully invoke the challenge, the following requirements must be satisfied:

the legal act of the debtor adversely affected the possibility of recourse of one or more of its creditors (such disadvantage must be apparent at the time the challenge is invoked or contested in court);
the debtor knew or ought to have known that the legal act would adversely affect the possible recourse of one or more of the creditors (generally believed to be the case when the insolvency of the debtor was probable at the time of the legal act); and
if the legal act was for consideration, it is also required that the counterparty to the transaction knew, or ought to have known, that the legal act would prejudice the interests of one or more of the creditors.

The bankruptcy trustee can void such legal acts, with the effect that the act is deemed never to have occurred. The counterparty will be liable for any damage to the estate if the act cannot (wholly or partially) be unwound.

The bankruptcy trustee must prove that the requirements mentioned in the previous paragraph are satisfied to annul voluntary legal acts for consideration and legal acts not for consideration. Under certain circumstances, however, there is a shift in the burden of proof to the advantage of the bankruptcy trustee. If certain voluntary legal acts were performed in the year preceding the bankruptcy, two rebuttable statutory presumptions apply that relieve the burden of proof on the bankruptcy trustee.

The presumptions provide that, for such acts performed during that one-year period, it is deemed that such actions are prejudicial to the creditors of the debtor, and that both the debtor and the counterparty were aware of this. These acts include transactions where the value of the obligation of the debtor considerably exceeds the value of the obligation of the counterparty, or where the debtor and the counterparty are connected.

This results in the presumption that both parties to the transaction knew or ought to have known that prejudice to creditors would be the result of this legal act, thereby satisfying the second and third requirements above. This presumption is rebuttable. First, specific circumstances need to be satisfied for the presumption to be triggered.

Among these are when legal acts are performed in relation to insiders such as group companies and legal acts that result in a transaction in which the consideration due to the bankrupt’s counterparty substantially outweighs the consideration for the transaction received by the bankrupt. Second, the following circumstances need to be satisfied:

the legal act that adversely affected one or more creditors was performed in the year prior to the invocation of the annulment; and
in the case when the legal act was for a consideration, the debtor must not have committed itself to that legal act before the beginning of such period (ie, the act was voluntary).

Also, the bankruptcy trustee can void legal acts that were performed on the basis of a prior legal obligation, if the bankruptcy trustee can show evidence that:

the other party knew that a petition for bankruptcy was already filed at the time that the act was performed, and the debtor was subsequently declared bankrupt; or
the performance of the act was a result of consultations between the debtor and the other party with the aim of preferring the counterparty over the other creditors.

The Dutch Financial Supervision Act specifically provides that it is not possible to set aside or annul the transfer of assets, rights or liabilities that have taken place between a failed entity (a bank or investment firm) and a third party, if this transfer is a result of the application of a resolution measure under the new EU legislative framework regarding the recovery and resolution of credit institutions and investment firms. This restriction on the annulment applies to the possibility to challenge transactions in both a pre-bankruptcy situation and a bankruptcy situation.

Equitable subordination

Are there any restrictions on claims by related parties or non-arm’s length creditors (including shareholders) against corporations in insolvency or reorganization proceedings?

Insiders should abstain from setting off their claims when the insolvency of an affiliated company is expected. Claims or debts following the transfer of these claims or debts prior to the declaration of bankruptcy or suspension of payments may under certain circumstances not be set off against the estate.

A person who has assumed a debt towards the bankrupt or acquired a claim against the bankrupt from a third party is not allowed to set off such debt or claim if, at that time, the person knew that, in view of the financial situation of the insolvent entity, the bankruptcy or suspension of payments of the entity was to be expected.

Also, the Dutch Bankruptcy Act limits the possibility of setting off claims that are acquired before the date of bankruptcy, but where the acquirer was not acting in good faith, which is the case if the acquirer knew that the financial position of the insolvent entity was such that bankruptcy or a suspension of payments was to be expected. There is a specific set-off regime that applies in a reorganization pursuant to the Act on Court Confirmation of Private Restructuring Plans.

Lender liability

Are there any circumstances where lenders could be held liable for the insolvency of a debtor?

There is no statutory basis providing for lender liability generally. However, there are several grounds based on which lenders can be held liable in situations where a debtor is in financial distress.

Termination of credit agreements

Lenders must observe the general Dutch law principle of reasonableness and fairness, which requires contractual parties to act in good faith when performing their contractual obligations (ie, they have a duty of care towards each other). In line with this principle, Dutch case law provides that lenders have a duty of care concerning borrowers in the context of termination of credit agreements. Under certain circumstances, invalid termination of a credit agreement (potentially followed by insolvency of the debtor) could lead to liability of a lender.

As a general rule, in 2014 the Dutch Supreme Court in the ING/de Keijzer judgment provided that a lender can invoke a contractually agreed termination clause, unless this would be unacceptable according to the standards of reasonableness and fairness, based on the facts and circumstances of the matter at hand. Prior to this ruling, a lender was allowed to terminate a credit agreement only under compelling circumstances.

In addition, the Dutch Supreme Court ruled that a bank’s duty of care as set out in the general banking conditions, which states that the bank must take the borrower’s interests into account to the best of its ability, may be relevant when assessing the validity of a termination. Based on (lower) case law, factors that the court might consider when assessing whether a termination of a credit agreement is valid include:

a significant decrease in the creditworthiness of the borrower and a significant increase of the bank’s credit risk;
if and to what extent the borrower has failed to perform under the credit agreement;
the chances that the business of the borrower – possibly after a reorganization or going concern – will be able to recover;
the bank’s decision-making process prior to the termination; and
the time the borrower must find alternative financing.

In 2022, a Dutch court applied the same standard in a case where the borrower claimed that a Dutch bank was not allowed to terminate the credit agreement despite the agreed termination clause (OAD/Rabobank). According to the borrower, by terminating the credit agreement, the bank had unnecessarily caused the borrower’s insolvency because the bank did not provide sufficient time for the borrower to negotiate the sale of a part of its business that would provide additional funding, which was considered a last resort for recovery.

The court, however, ruled that it was acceptable for the bank to terminate the credit agreement because it had previously indicated multiple times that the borrower should attract additional funding from other sources. In addition, the court stated that it is not likely that the damages the borrower suffered are the result of the bank’s actions because the insolvency was inevitable, even if the bank had granted more time for the borrower to obtain additional funding from other sources. Therefore, the bank was allowed to terminate the credit agreement.

Reduction in means of recourse

If a lender continues to provide financing and provides emergency funding to the borrower in financial distress, a lender could be held liable by other creditors (eg, shareholders) for direct or indirect damages if it can be considered that the lender acted unlawfully towards the creditors by doing so. In addition, it could lead to clawback risks for lenders if – under certain circumstances – creditors receive a lower distribution on their claims in bankruptcy as a result of the (emergency) funding and related security provided by the borrower.

If the borrower was not obliged to create security rights while the lender knew or ought to have known at the time of creating the security interests that the recourse position of the other creditors would be prejudiced, the lender committed an unlawful act towards such other creditors.

Knowledge of a mere chance that prejudice may occur is insufficient to invoke the fraudulent conveyance claim; knowledge must relate to a reasonable degree of likeliness that insolvency proceedings will be opened and that the insolvent estate contains a deficit, according to the Dutch Supreme Court in the ABN AMRO/Van Dooren qq III judgment.

Set-off by the lender

In addition, in the case of bankruptcy of the borrower, the Dutch Bankruptcy Act prevents a lender who, prior to the bankruptcy, took over a debt by the borrower from setting off this debt against an obligation of the borrower to the lender if:

the lender was not acting in good faith (ie, it knew that bankruptcy of the borrower was to be expected); and
the other creditors of the borrower are prejudiced in their means of recourse as a result of the set-off.

When the lender sets off claims in breach of this prohibition, it is argued that it can be held liable by the bankruptcy trustee for the deficit of the other creditors that is the result of the set-off.

Lender as a shadow director

Finally, on the basis of statutory provisions in the Dutch Civil Code, the managing directors of a company may be held jointly and severally liable for the entire bankruptcy deficit. For these statutory provisions, managing directors include any person or entity who (as a shadow director) has determined, alone or jointly with others, the policy of the company as if it were a managing director. This may be the case, for example:

if the borrower is in financial distress, causing the lender to invoke its protective covenants, or the enterprise of the borrower is restructured at the instruction of the lender; or
while the (formal) managing directors act entirely upon instructions of the lender, effectively sidelining the management board.

The bankruptcy trustee must prove, among other things, that the (shadow) managing directors in the period leading up to the bankruptcy have managed the company in a manifest improper manner and this was an important cause of the bankruptcy.

In March 2023, the Dutch Supreme Court ruled that to qualify as a de facto director (and therefore, to be equated with a formal director regarding the possibility to be held liable under the above-mentioned circumstances), it is not required that the de facto director must have managed in the place and to the exclusion of the formal director; the de facto director must have at least appropriated part of the management authority.

GROUPS OF COMPANIES

Groups of companies

In which circumstances can a parent or affiliated corporation be responsible for the liabilities of subsidiaries or affiliates?

The basic premise is that shareholders are not liable for debts of group companies or subsidiaries. Shareholders can, however, be held liable in connection with the debts of subsidiaries or group companies when the shareholder has committed a tort against the creditors by infringing a duty of care. A duty of care is established if the shareholder has control over the subsidiary.

Factors that can indicate control over the subsidiary include:

a majority shareholding;
the articles of association of the subsidiary;
the existence of personnel unions;
the employment contract of the director of the subsidiary, which may, for instance, include a power of the parent company to instruct the director of the subsidiary;
the shareholder is involved in the business of the subsidiary, for instance through the presence of a cash management system; and
the controlling shareholder has insight into the lack of recourse available to the subsidiary for the satisfaction of the creditors of the subsidiary, but nonetheless permits the subsidiary to continue to trade.

Whether a shareholder has a duty of care to the creditors of a subsidiary or group company depends on the circumstances of the individual case. If there is central cash management through the controlling parent, the parent will generally have a sufficient level of knowledge as to the financial position of the subsidiary for liability to arise.

On the basis of case law, the supervisory judge in insolvency proceedings is able to allow consolidated liquidation for two or more entities that are declared bankrupt. This type of liquidation entails that the various bankruptcies are treated as one insolvency procedure. This will only happen in extraordinary cases.

When there is a matter of group liability (eg, when more than one company has taken an action that caused damage and it is not traceable which action specifically caused the damage), this liability may be joint and several. This means the creditor of such damage can recover its damage in its entirety from any entity that is part of the group.

Combining parent and subsidiary proceedings

In proceedings involving a corporate group, are the proceedings by the parent and its subsidiaries combined for administrative purposes? May the assets and liabilities of the companies be pooled for distribution purposes?

The Dutch Bankruptcy Act does not recognize the concept of consolidated reorganization. In practice, a bankruptcy trustee or administrator appointed at the parent level may seek appointment at the subsidiary level also and realize a de facto combined administration for administrative purposes. However, from a legal point of view, each proceeding remains distinct and separate from the other, as are the creditors of the various entities.

In the event of possible conflicts of interest between the (creditors of the) various entities belonging to a group of companies, the court may appoint different individuals as bankruptcy trustees or administrators of the entities involved, who then among them – with the approval of the court – may attempt to come to an arrangement that takes into consideration that the various companies prior to opening of the insolvency proceedings used to operate as a group; that is, as one economic entity.

In a scenario involving a multinational group, distinction should be made between insolvencies in countries to which Regulation (EU) 2015/848 (the Recast Insolvency Regulation) applies and other non-EU jurisdictions (including Denmark).

In cases where the Recast Insolvency Regulation applies, it includes a separate section dealing with the insolvency of members of a corporate group.

With respect to insolvency proceedings opened in countries that do not belong to the European Union and where the Recast Insolvency Regulation does not apply, Dutch bankruptcy law, although it recognizes the authorities of a foreign insolvency officer under the lex concursus, does not recognize the effects of the foreign insolvency to such an extent that creditors are prevented from taking recourse on assets located in the Netherlands belonging to the debtor to which the foreign insolvency procedure applies.

In Dutch case law, however, it is determined that a foreign insolvency office holder is allowed to invoke its rights in the same way as is available to the foreign insolvency office holder under domestic insolvency law, including over assets that are located in the Netherlands. The office holder is also allowed to sell these assets and consider the proceeds part of the assets of the foreign bankruptcy estate.

Notwithstanding that the foreign insolvency procedure’s seizure is regarded as having only territorial effects of the foreign insolvency, the effects are de facto recognized in the Netherlands.

INTERNATIONAL CASES

Recognition of foreign judgments

Are foreign judgments or orders recognized, and in what circumstances? Is your country a signatory to a treaty on international insolvency or on the recognition of foreign judgments?

As a result of Regulation (EU) 2015/848 (the Recast Insolvency Regulation), the opening of insolvency proceedings in one of the EU member states (except for Denmark) and the effects thereof are also directly recognized in the Netherlands without further formalities. The concept of main and secondary insolvency proceedings still exists, but the Recast Insolvency Regulation now also introduces the concept of synthetic secondary proceedings, whereby local creditors can be protected without the need for actual secondary proceedings to be commenced.

Pursuant to the Recast Insolvency Regulation, secondary proceedings no longer need to be liquidation proceedings and therefore a Dutch suspension of payments now also qualifies as a secondary proceeding under the Recast Insolvency Regulation.

The effects of the opening of insolvency proceedings in other non-EU jurisdictions (including Denmark, which has opted out of the Recast Insolvency Regulation) are only to a certain limited extent recognized in the Netherlands. This recognition may be challenged if the principles of due process and fair trial have not been observed in the foreign procedure.

In cases where there was an absence of a treaty and where the predecessor or the Recast Insolvency Regulation did not apply, the Dutch Supreme Court has consistently decided that foreign insolvency proceedings only have a ‘territorial effect’, meaning that they do not affect the debtor’s assets located in the Netherlands, and the legal consequences attributed to the bankruptcy pursuant to the bankruptcy law of such foreign country cannot be invoked in the Netherlands to the extent that it would result in any unpaid creditors no longer being able to take recourse on the assets of the debtor located in the Netherlands (either during or after the relevant foreign insolvency proceedings).

However, this does not imply that the powers of a foreign insolvency office holder are not being recognized in the Netherlands. In Dutch case law, it is determined that a foreign insolvency office holder is allowed to invoke its rights as available pursuant to the foreign domestic insolvency law, including over assets that are located in the Netherlands. The office holder is also allowed to sell these assets and consider the proceeds part of the assets of the foreign bankruptcy estate.

Notwithstanding that the foreign insolvency procedure’s seizure is regarded as having only territorial effects of the foreign insolvency, the effects are de facto recognized in the Netherlands because the foreign insolvency office holder is able to exercise its power under the lex concursus. However, the effect of foreign insolvency proceedings (and any actions by a foreign insolvency office holder related thereto) on assets located in the Netherlands can be set aside by a Dutch court if the court determines such proceedings to have been in violation of public policy.

UNCITRAL Model Laws

Have any of the UNCITRAL Model Laws on Cross-Border Insolvency been adopted or is adoption under consideration in your country?

The Netherlands has not adopted the UNCITRAL Model Law on Cross-Border Insolvency. In 2019, however, the Ministry of Justice and Security stated that it considers incorporating parts of UNCITRAL Model Law into the Dutch Bankruptcy Act. The possibilities for this are still being further investigated.

Foreign creditors

How are foreign creditors dealt with in liquidations and reorganizations?

Creditors are allowed to individually take recourse against the debtor’s assets situated in the Netherlands, notwithstanding the opening of insolvency proceedings against the debtor abroad. Foreign creditors are, in general, not treated differently from creditors that are incorporated or residing in the Netherlands.

Cross-border transfers of assets under administration

May assets be transferred from an administration in your country to an administration of the same company or another group company in another country?

If there is a transfer of assets from an administration in the Netherlands, article 49 of the Recast Insolvency Regulation allows transfer to the administration of the same company in another member state country if a secondary insolvency procedure has commenced in that member state and the secondary procedure results in a surplus.

In principle, the Recast Insolvency Regulation does not provide for consolidated insolvency procedures (instead using an entity-by-entity approach). According to article 56 of the Recast Insolvency Regulation, however, where insolvency proceedings relate to two or more members of a corporate group, insolvency practitioners appointed in respect of those members must cooperate with each other in any way appropriate, such as by agreement or the use of protocols.

Cooperation is required to the extent necessary to assist the progress of the insolvency proceedings, however only if there are no conflicts of interest or with Dutch insolvency law. If fundamental Dutch insolvency law principles conflict with such coordination, the insolvency practitioner may refuse to cooperate (notwithstanding pre-existing legal obligations towards the other group company). If, for example, creditors are being harmed in their position in insolvency, this may hinder the execution of this provision.

COMI

What test is used in your jurisdiction to determine the COMI (center of main interests) of a debtor company or group of companies? Is there a test for, or any experience with, determining the COMI of a corporate group of companies in your jurisdiction?

Former Council Regulation (EC) No. 1346/2000 (the Insolvency Regulation) did not contain a provision on the center of main interests (COMI) – although its concept was discussed in the preamble of the regulation. The Recast Insolvency Regulation introduces a formal definition in article 3(1). COMI is defined as the place where the debtor conducts the administration of its interests on a regular basis, and that is ascertainable by third parties.

Also, the Recast Insolvency Regulation introduces a rebuttable presumption that a company’s COMI will be the place of its registered office, in the absence of proof to the contrary. To address concerns regarding ‘forum-shopping’, the Recast Insolvency Regulation also contains provisions whereby, if a debtor’s registered office has shifted in the three months preceding the filing for insolvency proceedings, the existing rebuttable presumption will no longer apply.

The Recast Insolvency Regulation applies the concept of COMI to each individual debtor and not to a group of companies, which can all have individual COMIs. In accordance with EU law, Dutch courts also determine the COMI for each individual company within a group of companies.

This became apparent, for example, in a judgment in which the Dutch court decided that the COMI of three subsidiaries of a Dutch company in another EU member state was not relevant, as it looked at the debtor (the Dutch company) for the determination of the COMI as a separate legal entity – even if the debtor has an interest in these activities of its subsidiaries.

However, in Dutch practice, occasionally one bankruptcy trustee may be appointed for various subsidiaries within a group that all have their COMI in the Netherlands to facilitate the group being restructured as a single unit.

In the past, the Dutch courts have, among others, considered the following factors to determine the COMI:

the fact that the business activities of a Dutch general partnership had transferred to a foreign company that had been set up by the (general) partners did not result in the COMI of the Dutch general partnership no longer being located in the Netherlands;
in respect of a company that for a considerable time no longer engaged in economic activities in the Netherlands, there was no longer any actual functioning COMI in the sense of the (previous) Insolvency Regulation and therefore only the statutory seat of the company was relevant in determining the COMI;
the fact that liquidation activities were taking place in another EU member state was in this case not relevant as these were not (economic) activities of the company;
the fact that the company’s largest creditors were located in the Netherlands;
that it was part of a Dutch fiscal unity;
the court did not find relevant that the company had plans to move its statutory seat to another EU member state for tax reasons, as the test date is the date of the request for the opening of the insolvency proceedings;
the fact that a company is also registered in another EU member state did not mean that the registration and statutory seat in the Netherlands had ended (and that therefore the COMI was no longer in the Netherlands);
the fact that the most important activity of a company was the holding of shares in another company (in another EU member state), which was conducted from the Netherlands (the company paid tax in the Netherlands, with returns administered by a Dutch trust company and Dutch accountant, accounts were drawn up and deposited in the Netherlands and general shareholder meetings were held in the Netherlands on the basis of the articles of association) did not result in the COMI no longer being in the Netherlands;
the fact that the tax returns were addressed by the Dutch tax authorities to an address in another EU member state and that the accounts were (also) prepared by an administration office in another EU member state did not result in COMI in another EU member state; and
the fact that the company did not have a visiting address in the Netherlands and that monies were lent through the company (using foreign bank accounts) to avoid lending in another EU member state also did not lead to the COMI no longer being in the Netherlands.

While the introduction of a formal COMI definition in the Recast Insolvency Regulation means that the past decisions of the Dutch courts on this topic will become less relevant for the initial determination of the debtor’s COMI, it is not unlikely that past decisions will still play a role in cases where the presumption cannot be relied upon and more evidence about the debtor’s COMI must be presented or where the chosen COMI is challenged.

Cross-border cooperation

Does your country’s system provide for recognition of foreign insolvency proceedings and for cooperation between domestic and foreign courts and domestic and foreign insolvency administrators in cross-border insolvencies and restructurings? Have courts in your country refused to recognize foreign proceedings or to cooperate with foreign courts and, if so, on what grounds?

The Recast Insolvency Regulation provides that where insolvency proceedings relate to two or more members of a corporate group, office holders appointed in respect of those members must cooperate with each other in any way appropriate, such as by agreement or the use of protocols.

Cooperation is required to the extent necessary to assist the progress of the insolvency proceedings as long as there are no conflicts of interest or with national rules. The Dutch Bankruptcy Act does not prohibit coordination between procedures. In practice, coordination or cooperation between domestic and foreign courts or administrators occurs on the basis of cross-border insolvency agreements (protocols).

An example of cooperation between different countries (including the Netherlands) in a cross-border insolvency is the insolvency of the Lehman Group. A cross-border insolvency protocol was agreed with the aim of cooperation between the trustees and liquidators of the different entities of the Lehman Group, in view of the common interest of the creditors.

Furthermore, the aim of the protocol was to reduce the costs of settlement to a minimum and to share information. The bankruptcy trustee for Lehman Brothers Treasury Co BV signed up to the protocol as he considered this to be in the best interest of the Dutch entity’s creditors (no court consent was required).

Cross-border insolvency protocols and joint court hearings

In cross-border cases, have the courts in your country entered into cross-border insolvency protocols or other arrangements to coordinate proceedings with courts in other countries? Have courts in your country communicated or held joint hearings with courts in other countries in cross-border cases? If so, with which other countries?

Dutch trustees in bankruptcy do enter into cross-border insolvency protocols. However, to date, there have been no cross-border insolvency protocols entered into between Dutch courts and foreign courts. Also, no joint hearings have been held to date, although the Dutch (lower) courts have recognized the voting outcome of Chapter 11 hearings in the United States for the purposes of voting on a reorganization plan in a Dutch suspension of payments.

Winding-up of foreign companies

What is the extent of your courts’ powers to order the winding-up of foreign companies doing business in your jurisdiction?

From a case before the court of appeal in The Hague in 2018 (ECLI:NL:GHDHA:2018:1477), it follows that it is possible for a Dutch court to declare insolvent a foreign (UK) company that had been dominantly active in the Netherlands and had been dissolved in accordance with English law and had ceased to exist as such (the winding-up of the company had not been established).

The court of appeal considered that in this case the COMI was located in the Netherlands and therefore the Dutch court has jurisdiction to open an insolvency procedure against the UK entity. In accordance with the Insolvency Regulation, Dutch law is applicable on the insolvency procedure and its consequences.

Subsequently, according to existing Dutch case law, if a company has been dissolved and if the liquidator is satisfied that all assets are accounted for and therefore the company has ceased to exist, a creditor who claims there are still assets can request the court to declare the company insolvent. According to the court of appeal, this not only applies to Dutch companies, but foreign companies as well (a UK private limited company in this case).

UPDATE AND TRENDS IN RESTRUCTURING AND INSOLVENCY IN NETHERLANDS

Trends and reforms

Are there any emerging trends or hot topics in the law of insolvency and restructuring? Is there any new or pending legislation affecting domestic bankruptcy procedures, international bankruptcy cooperation or recognition of foreign judgments and orders?

The Heiploeg case regarding the Dutch pre-pack practice

Officially, there is no special provision for expedited reorganizations. However, in practice, bankruptcies have been prepackaged in the sense that sale of the business to a newly incorporated entity is organized. The decision of the Court of Justice of the European Union (CJEU) in FNV v Smallsteps BV (Case C-126 16) in 2017 caused uncertainty about the efficiency of a prepackaged sale because of the possible applicability of protection rules for employees (making the use of a pre-pack procedure less attractive).

In response to preliminary questions from the Dutch Supreme Court, in April 2022, the CJEU in FNV v Heiploeg (Case C-237/20) decided that the employee protection in the event of a transfer of an undertaking did not apply to the pre-pack in that case. The pre-pack procedure, together with the subsequent bankruptcy procedure, can be deemed instituted with a view to the liquidation of the assets of the transferor (contrary to the pre-pack procedure in the Smallsteps case, which was not aimed at the liquidation of the business), according to the CJEU.

Therefore, the pre-pack procedure can be considered a procedure instituted with the aim to liquidate the assets of the transferor, meaning that the exception to the employee protection rules applies and that employees do not automatically need to be transferred under the same employment conditions. The CJEU stressed that the pre-pack procedure, to be lawful under European law, must be governed by statutory or regulatory provisions.

The final ruling of the Dutch Supreme Court in the Heiploeg case is expected at the end of 2023. In March 2023, the advocate-general at the Dutch Supreme Court stated in his opinion that the primary purpose of the pre-pack and bankruptcy proceedings is the liquidation of the debtor’s assets for the benefit of the joint creditors. Moreover, the bankruptcy trustee designate is under the supervision of the intended supervisory judge and therefore under government supervision.

The material conditions of the bankruptcy exception are therefore met. However, the formal condition that the pre-pack is enshrined in a statutory regulation, as stated by the CJEU, is not met, because the pre-pack has been developed in case law. In the absence of the legal basis for the pre-pack as required by the CJEU, the advocate-general concludes that the bankruptcy exception does not apply (and therefore, employees would be protected during a pre-pack procedure).

A legislative proposal regarding the pre-pack has been pending since 2016. In May 2021, it was amended to apply to companies engaging in activities that serve a public interest purpose (ie, hospitals). It will be treated in the parliament together with the legislative proposal for the Act on Transfer of Undertaking in Insolvency. Both are currently on hold, possibly until a final ruling of the Dutch Supreme Court in the Heiploeg case.

The Act on Transfer of Undertaking in Insolvency (draft proposal)

To address employees’ rights in insolvency, in particular, in the event of transfers of undertakings, a separate legislative proposal (the Act on Transfer of Undertaking in Insolvency) was introduced in 2019. The proposal is based on the Transfer of Undertakings Directive.

The proposal will amend the Dutch Civil Code, as well as the Bankruptcy Act and the Works Councils Act. The proposal provides that, in the event of a transfer of undertaking, employees who are employed by the insolvent company at the time the company is declared insolvent will in principle automatically be transferred to the acquirer of the business under the same employment conditions.

Currently, under the Dutch Bankruptcy Act, it is possible to terminate employment contracts shortly after a company is declared bankrupt, which means that in the event of a transfer of undertaking in bankruptcy, employment contracts will often have already been terminated validly at the time of the transfer of the business. Under the proposal, Book 7 of the Dutch Civil Code will be amended to require the acquirer of the business to offer all employees employment contracts under the same conditions as the contracts with the bankrupt employer on the basis of an objective selection.

The proposal provides for one exception: if job losses are the result of operational, technical or economic circumstances, the acquirer can take over fewer employees. In that case, the acquirer must demonstrate that objective circumstances require measures that will lead to the structural loss of jobs.

The legislative proposal for the Act on Transfer of Undertaking in Insolvency will be treated in the parliament together with the legislative proposal for a pre-pack. Both are currently on hold, possibly awaiting a final ruling of the Dutch Supreme Court in the Heiploeg case regarding the position of employees during a transfer of undertaking in a pre-pack procedure that is expected at the end of 2023.

The Act on Court Confirmation of a Private Restructuring Plan

The Act on Court Confirmation of a Private Restructuring Plan in 2021 introduced a fast and efficient procedure to restructure a company’s business through a scheme between the company and its creditors or shareholders, or both. It is considered a last-resort pre-insolvency restructuring tool, designed as a framework procedure with limited involvement of the court.

The Act features elements of the US Chapter 11 procedure and the UK Scheme of Arrangement. In January 2023, it was (slightly) amended as a result of the Act on the Implementation of the European Restructuring Directive to implement the principles as laid down in the directive regarding preventive restructuring frameworks, which oblige member states to introduce such procedures.

In practice, the Act proves itself to be an effective tool for the restructuring of a business, not only with a view to continuation, but also to a controlled winding-up of a business. The new tool has already been used widely; rapidly after the introduction, a respectable amount of case law on key issues started developing.

Mostly small to medium-sized enterprises have used it, but also large companies seek application of the new tool, sometimes leading to larger and more complex (cross-border) cases. In practice, a process based on the Act on Court Confirmation of a Private Restructuring Plan does not always lead to a court-confirmed restructuring plan; it is also still possible to reach consensus while ending the formal process.

International insolvencies

The Ministry of Justice and Security is considering amending the Dutch Bankruptcy Act to incorporate parts of the UNCITRAL Model Law on Cross-Border Insolvency and exploring the possibilities.

The Act to Prohibit Contractual Limitation on Pledging Receivables (proposal)

In response to pressure from the business sector in the Netherlands, in July 2018, the Dutch Ministry of Justice and Security published a draft legislative proposal that will make ineffective any contractual provisions that limit parties’ ability to transfer or pledge receivables.

The proposal has been prepared in consultation with several organizations from the business sector in the Netherlands, including the Confederation of Netherlands Industry and Employers, the Factoring & Asset Based Financing Association Netherlands and the Dutch Banking Association.

The aim of the proposal is to stimulate credit lending to small and medium-sized companies. Currently, a limitation on pledging receivables is often included in standard contract terms preventing companies from transferring and pledging their claims on third parties to banks or other lenders.

By removing this obstruction, the Dutch government aims to stimulate investment, innovation and growth, as it should result in an increase of receivables that can serve as collateral for financing. Also, the intended ban should enhance the competitive position of the Dutch business sector in comparison to several other European countries. At the time of writing, the proposal is still pending before the Lower House.

Proposal for an EU directive on the harmonization of certain aspects of insolvency law

On 7 December 2022, the European Commission published its proposal for a directive of the European Parliament and of the Council harmonizing certain aspects of insolvency law (COM (2022) 702; 2022/0408/COD). The proposal aims at reducing forum shopping in the European Union and facilitating cross-border investments. Its objective is to strengthen and harmonize the three key areas of insolvency law in the European Union:

recovery of assets;
efficiency of proceedings; and
fair distribution of the recovered assets among creditors.

The proposal introduces, among others, a minimum set of harmonized conditions for avoidance actions and asset tracing by improving access rights of insolvency officeholders to certain information. It includes provisions on pre-pack proceedings and early-stage insolvency filing obligations for directors to avoid value losses for creditors. Furthermore, the better representation of creditors’ interests and greater transparency about ranking of claims aims to deliver a fair and predictable distribution of assets. Lastly, the proposal targets more procedural efficiency to reduce costs, in particular for micro-enterprises.

The proposal only introduces minimum standards, so member states may maintain or adopt standards with higher creditor protection. The current proposal could have a significant impact on, for example, the regime regarding the obligation for directors to file for insolvency and avoidance actions based on fraudulent preference in the Netherlands. However, the proposal is currently going through the legislative process and the end result could be quite different from the initial draft.

Temporary Act Transparency Turbo Liquidation

The Dutch Civil Code provides for a voluntary dissolution of a Dutch legal entity that no longer has any assets at the time of the resolution for the dissolution by the shareholders. After such a liquidation, the legal entity ceases to exist immediately, without the formal settlement phase. Therefore, a liquidator does not need to be appointed.

The Temporary Act Transparency Turbo Liquidation introduces additional requirements in respect of the turbo liquidation process regarding accountability and disclosure requirements for the directors, aimed at decreasing the risk of abuse of turbo liquidation. Directors are required to, among others, file (financial) information, such as balance sheets and certain annual accounts, with the Dutch Trade Register within 14 days after the dissolution. In addition, creditors must be notified in writing of the filing of the required documents without delay.

Failure to submit the required documents qualifies as an economic offence. It also introduces new grounds for disqualification to act as managing director if, for example, the directors fail to file the required documents or if they intentionally and significantly prejudice one or more creditors in the run-up to the dissolution.

The Temporary Act Transparency Turbo Liquidation enters into force on 15 November 2023 and will expire two years after its effective date, with the possibility of a permanent introduction of the above-mentioned provisions into the Dutch Civil Code.

* The information in this chapter was accurate as at October 2023.

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