The Netherlands: Restructuring & Insolvency

In the Netherlands, security over registered property (land, real estate, registered vessels and aircraft) is created by mortgage. Security over (other) movable assets, receivables, shares and intellectual property rights is created by a right of pledge. Both security rights require that the secured assets are transferable and sufficiently identifiable. Depending on the type of assets to be secured, additional requirements may apply and non-compliance could affect the validity of the security. A transfer of ownership for security purposes is not allowed.

Security over registered property

A mortgage is created by notarial deed, executed by a civil law notary. The deed must include a description of the secured property and of the claim which the mortgage secures or how the secured claim can be determined. The deed must specify the maximum amount for which the mortgage is created and the maximum amount of obligations secured by the mortgage including a mark-up over the principal amount to cover costs and interest. The mortgage must be registered in the relevant register. This is done by the notary vesting the mortgage. The deed can include a right of pledge in respect to assets that are attached to, reside on/in, and serve the registered property, ship or aircraft.

Security over movable assets

Under Dutch law there is a distinction between possessory pledge and non-possessory pledge. Rights of pledge over (present and future) property is established by written agreement entered into between the pledgor and pledgee. In case of a non-possessory pledge the written agreement needs to be registered with the Dutch tax authorities, unless the pledge is vested by means of a notarial deed. Possessory pledge requires the pledgee (or a third party acting on behalf of the pledgee) to take possession of the moveable property.

Pledges over receivables

A right of pledge over receivables is established by written agreement registered with the tax authorities or by notarial deed. A pledge over receivables can only be vested on receivables that already exist or result from a legal relationship existing at the moment the pledge is vested. As a result it may be necessary to regularly enter into supplemental pledge agreements and subsequent registration thereof. Such pledges can also be created by the pledgee on the basis of a power of attorney granted by the pledgor.

Right of pledge over shares

A right of pledge over registered shares is established by notarial deed. The pledge is registered in the shareholders’ register of the company. Usually, it is agreed upon that the voting rights attached to the shares remain with the pledgor until an event of default occurs and this event of default is notified.

Pledge over intellectual property rights

A right of pledge over intellectual property rights is established by written agreement registered with the tax authorities or by notarial deed. Depending on the specific intellectual property rights, an additional registration in the relevant IP register may apply.

Retention of title & possessory lien:

Dutch law provides every creditor with a possessory lien that allows the creditor to retain possession of goods of the debtor until settlement of the claim of the creditor.

Dutch law also allows for a retention of title over goods delivered by a creditor to a debtor. The retention of title (the transfer of ownership under the suspensive condition of payment) is to be agreed upon between the debtor and the creditor. In case of non-payment, the goods delivered can be reclaimed by the creditor.

Financial collateral agreements

Financial collateral agreements create securities in the form of an assignment or a right of pledge. This type of security pertains to money, shares and other equities, bonds and other debt instruments, and monetary claims.

This type of security can only be established when one of the parties is (a) a government authority, a regulated financial institution, a central bank or supra-national financial institution and (b) none of the parties to the financial collateral agreement is a private person acting in the conduct of his profession or business.

The financial collateral agreement differs from a mortgage or right of pledge in the sense that it can provide that the security holder can dispose of / liquidate secured assets and also enforce the security by setting off the value of the secured assets against the secured claim and appropriating the secured assets, even when the debtor is not in default.

Secured creditors can generally enforce their security rights, even when insolvency proceedings are opened. In insolvency proceedings a cooling off period can be ordered by the court, staying the execution of the security rights for a certain term. In bankruptcy and suspension of payment proceedings the maximum of this term is four months. In a WHOA proceeding the maximum term is eight months.

The general rule is that enforcement of security rights is done by means of public sale of the secured assets. However, pledged assets can also be sold by means of private sale if the court grants leave for that or if the private sale is agreed upon between the pledgor and pledgee after the pledgee has become entitled to enforce its security right.

In bankruptcy a holder of security rights can agree with the trustee (trustee) that the trustee sells the secured assets by means of private or public sale, whereby the proceeds minus an agreed upon fee for the trustee, are paid to the security right holder.

Mixture of secured assets with non-secured assets resulting in the secured assets not being identifiable, could lead to enforcement issues.

A debtor can be declared bankrupt if it is ceased to pay its debts. This is deemed to be so if there is more than one creditor and at least one due and payable obligation remains unpaid.

Dutch law does not provide for a legal obligation to file for bankruptcy. However, not filing and continuance of the operations could under certain circumstances be unlawful towards creditors being prejudiced by the continuance and could make directors liable for damages resulting therefrom.

The Dutch bankruptcy code provides for the following insolvency procedures:

• Bankruptcy
• Suspension of payments
• WHOA (Dutch Scheme)
• Debt reorganisation for natural persons (not further discussed)

Bankruptcy proceedings

A bankruptcy over a debtor is imposed by a court. It entails a general attachment over the debtors assets for the benefit of its creditors. Bankruptcy is aimed at liquidation of the debtors assets and distribution of the proceeds among the creditors. It is possible, and such regularly happens, that all assets and business operations are being sold as a whole by the trustee shortly after bankruptcy, thereby enabling the purchaser to continue the business in reorganised form.

Once the bankruptcy is imposed, with retrospective effect from 00.00 hours, the debtor loses the right to manage the company and its affairs. The court appoints an independent bankruptcy trustee (trustee) who must take charge of the companies affairs and assets. The trustee is supervised by a supervisory judge who needs to grant approval for certain legal acts of the trustee.

Suspension of payments

A debtor who foresees its inability to pay its due debts can apply at the court for a temporary suspension of payments. Once granted, it allows the debtor to suspend payment obligations towards ordinary creditors, whom then cannot take recourse on the debtors assets. This should grant the debtor some time to reorganise the business. In practice, the suspension of payments has never been a very effective instrument to reorganise a business and since the WHOA came into force in 2021, the latter is the main instrument to reorganise companies in financial distress.

Upon granting the suspension of payment, the court will also appoint an independent administrator. Only with the authorization of this administrator, the debtor can perform legal acts. The administrator is also supervised by a supervisory judge.

WHOA/Dutch Scheme

Since 2021, Dutch law provides for a specific reorganization procedure for viable companies in financial distress. It is known as the WHOA or the Dutch scheme. It offers the possibility for companies to offer a restructuring plan to its creditors and shareholders. Once approved by the relevant percentage of creditors and the court, the restructuring plan will be binding on all creditors and shareholders involved in the restructuring plan. The WHOA can not only be initiated by the debtor itself but also by creditors, shareholders and the works council. They may request the court to appoint a restructuring expert who will prepare the restructuring plan on behalf of the debtor. A wide range of options under the WHOA exist to restructure a business, including a general deferral of payment, releasing payment obligations, debt for equity swaps and also terms of onerous contracts can be amended. Except for the right of employees, the restructuring plan can amend creditors rights, including rights of preferential or secured creditors.

Under the WHOA the debtor remains in control (debtor in possession) of its daily operations. The court could appoint an observator to safeguard creditors rights during the WHOA restructuring process if the WHOA procedure is initiated by the debtor itself.

In Dutch insolvency proceedings the following ranking of creditors can be made in order of priority:

1. Estate creditors
2. Secured creditors (mortgage and right of pledge)
3. Preferential creditors
4. Ordinary or unsecured creditors
5. Shareholders

Estate creditors comprise of certain obligations arising following the date of bankruptcy, such as the liquidation costs including the fees of the trustee, employee costs during the notice period (maximum six weeks) and rent during the notice period (maximum three months).

Secured creditors are creditors with security rights. They can enforce their rights during the bankruptcy. However, with respect to the proceeds, the tax authorities rank higher than the holder of a non-possessory pledge over certain movable assets located on the premises of the debtor.

The most important preferential creditors are the tax authorities, the UWV (employee insurance agency) and claims of employees relating to the period prior to bankruptcy.

Shareholder loans, secured or unsecured, are not treated differently under Dutch law with respect to its priority.

Claims of any creditor can be subordinated to the claims of another creditor by means of an agreement.

Dutch civil law and bankruptcy law provide for various claw back options, also being referred to as the ‘actio pauliana’. This provides a trustee or a creditor with the option to challenge transactions and to invoke the invalidity thereof. Conditions for that are:

• there was no obligation (by law or contract) to perform the legal act;
• the legal act prejudiced creditors, and
• unless there was no consideration in return, both the debtor and its counterparty knew that creditors would be prejudiced.

The knowledge that the legal act would prejudice creditors is presumed by law if it is performed within one year of the date of bankruptcy or invoking the pauliana and it concerns a related party transaction or if it is not on an arm’s length basis.

Also legal acts performed pursuant to a legal obligation (by law or agreement) can be voided by a trustee when the counterparty to the legal act knew that the bankruptcy petition for the debtor was filed, or when the legal act is the result of the counterparty and debtor conspiring and attempting to prejudice creditors.

The opening of bankruptcy proceedings stays legal proceedings and the enforcement of ordinary creditors’ claims on assets of the debtor. Any claims on the debtor must be submitted to the trustee for verification purposes. Acceptance of the claims by the trustee nullifies pending proceedings pertaining to those claims. The proceedings resume if the trustee rejects or disputes the claim.

In the EU the stay of legal proceedings shall have extraterritorial effect on the basis of the EU Insolvency Regulation. For other countries this should be determined on the basis of common international law.

Reference is made to question 4. Since 2021, the main restructuring procedure is the WHOA, which is especially designed for this purpose. This does not mean that the bankruptcy proceeding can no longer be used for restructurings. As indicated under question 4, in a bankruptcy proceeding a trustee can sell all assets and business operations of the debtor shortly after the bankruptcy date, enabling the purchaser to continue the business operations without taking over the liabilities. Both the bankruptcy proceeding and the suspension of payment proceeding also provide for a composition to be offered to the creditors, which in certain circumstances could still be of use. We will however focus on the WHOA.

A WHOA restructuring is possible if the debtor is in a position where it is reasonable likely that it will not be able to continue paying its liabilities. The restructuring plan can apply to all creditors and shareholders but it can also be limited to a certain category of creditors. Classes of creditors with comparable rights should be formed, such on the basis of their rights in a bankruptcy situation. The restructuring plan will provide for an offer to each class of creditors formed. The economic principle is that the going concern value (the reorganisation value) is divided among the creditors and shareholders. At all times creditors should receive more than in a bankruptcy situation. Furthermore, the priority rank of the creditors should be taken into consideration. Each creditor of whom the rights are being affected is entitled to vote on the restructuring plan. A two-third majority in value of the outstanding claims is needed for a class to approve the restructuring plan. At least one ‘in the money class’ approving the restructuring plan is needed to submit the restructuring plan for approval to the court. If approved by the court, it binds all creditors to the restructuring plan. So a horizontal cram down and a cross class cram down is possible under the WHOA.

During the WHOA procedure the debtor remains in control (debtor in possession) of its daily operations. The WHOA also provides for certain safeguards enabling the debtor to actually continue its daily business. Examples are that the court can order a cooling off period and lift or prevent seizure of assets. Ipso facto clauses are also not enforceable during the WHOA process. However that does not mean that creditors rights may be further prejudiced during the WHOA process. During the WHOA restructuring process, if initiated by the debtor itself, the court could appoint a observator to safeguard creditors rights.

The court can also be requested to give preliminary judgements on certain items of the restructuring plan, valuations made, class formation etc. This in order to increase the deal certainty.

Under the WHOA new funding (secured or unsecured) can be protected by court order against claw back and annulment on the basis of the ‘actio pauliana’.

During bankruptcy or suspension of payments proceedings new financing is also possible. A loan to the bankrupt estate to continue operations or to take certain actions can be provided. As it concerns a legal act of the trustee, it automatically qualifies as an estate creditor and it can be agreed upon that this loan has preference over other estate creditors.

The WHOA contains provisions making it possible to release claims against non-debtor parties. Guarantees, rights of recourse, claims on co-debtors can be part of the restructuring plan. Besides the general WHOA requirements being met, it is needed for the release of non-debtor/third-party claims that the claims are ancillary to the obligations of the primary debtor. In addition, all third parties subject to a release must be in financial distress themselves. The relevant group entities must also consent to the release of claim(s) and the court must have jurisdiction over the relevant third-parties.

The WHOA does not provide for a creditor committee to be formed. However, as indicated, a observator can be appointed by the court to safeguard all creditors interests.

In bankruptcy proceedings it is possible for creditor committees to be formed, although this is not very common. The court can decide to form such a committee upon the declaration of bankruptcy or by later request. Creditor committees must consist of an uneven number of members and represent the important groups of creditors.

The role of the committee is to consult and advise the trustee. In its advisory role, the committee may at all times demand that the books, documents and other data relating to the bankruptcy be consulted. The trustee is obliged to obtain the advice of the committee, before taking legal actions or pursuing or defending any pending legal actions. In his decision, the trustee is not bound by the advice of the creditor committee. When he does not follow the advice, he must immediately notify the committee, who can request the supervisory judge to rule on the matter.

The creditor committee or the individual creditors in the committee may retain advisors at their own expense.

Under the WHOA onerous contracts can be amended and if the counterparty does not agree to the amendment, be terminated with a maximum notice period of three months. The counterparty can claim damages due to early termination if the agreement so provides, but this claim for damages can be included in the restructuring plan and thus restructured.

Under the WHOA, so called ipso facto provisions can no longer be enforced. If a cooling off period is ordered, counterparties are also not allowed to suspend its obligations or to terminate the agreement on the basis of a default prior to the start of the WHOA proceeding. Set-off remains allowed.

In principle, a bankruptcy or suspension of payments does not affect existing agreements. However, that does not mean that parties must perform their obligations unchanged. A trustee can actively or passively cease to comply with the obligations of existing contracts. The counterparty can demand the trustee, within a reasonable period of time, to inform them whether the trustee intends to and will perform the contractual obligations. In case the trustee confirms, the trustee must assure the performance by the estate and the counterparty may request security.

It is common practice that parties include contractual suspension rights and termination rights in their agreements. This includes provisions in the contract on which the contract ends automatically or where the party is given the option to terminate the contract if the debtor is declared bankrupt, or when it is granted a suspension of payment or moratorium. In principle, such provisions have to be respected by a trustee, provided that it is not considered to be an abuse of power.

In insolvency proceedings, agreed upon retention of title rights are enforceable against the insolvency trustee, provided that there is no cooling off period. Set-off rights agreed upon can at all times be enforced.

In general, the trustee can sell the assets owned by the bankrupt company in a public or private sale for which the trustee needs prior approval of the residing supervisory judge. If the assets are secured by pledge or mortgage the trustee will also need the approval of the security holder to be able to sell the assets free of the security rights. Normally it is agreed that the security holder lifts it security rights, enabling the trustee to sell the assets free of encumbrances under the condition that the security holder receives the purchase price minus a fee for the trustee.

As goods under a retention of title are not owned by the bankrupt company, these will not be part of any sale by the trustee. It is common that a trustee agrees with the purchaser that it either makes sure that the goods under a retention of title are returned to or purchased from the respective seller.

Credit bidding is possible. Secured creditors may enforce their rights and ask the courts approval to sell the secured assets to the secured creditor while setting off the purchase price against the outstanding debt. The court should be convinced that the purchase price is at an arm’s length price. In bankruptcy, a security right holder may also agree directly with a trustee on a private sale.

Prepack

Implementing a Dutch prepack basically means that the court is requested to hear a debtors request for bankruptcy and meanwhile already inform the debtor on who will be appointed as trustee (referred to as a silent administrator), prior to the actual opening of the insolvency proceedings. This allows the debtor and the silent administrator to prepare a sale of the debtors assets and business to a third party. Once declared bankrupt, and the trustee being formally appointed, such asset sale can quickly be executed enabling the purchaser to restart the business as much as possible in a going concern fashion.

Since the ‘Estro’ judgement’ in 2017, pre-packaged sales are hardly implemented as there was uncertainty about the rights of the employees under the EU transfer of undertaking rules. Dutch law excludes the applicability of the transfer of undertaking rules in case of bankruptcy. However, the EU directive prescribes that the protection of employees in case of bankruptcy may only be excluded if the bankruptcy is opened with the view to liquidate the company’s assets under supervision of a governmental agency. In the ‘Estro’ case it was ruled that the prepack prepared in that case was not aimed at liquidation of assets, but to ensure the continuance of its operations, as a consequence whereof the transfer of undertaking rules were applicable.

Recently, in April 2022, the European Court of Justice ruled in the so-called ‘Heiploeg’ case that its prepack was aimed to realise the highest possible price for its assets while liquidating these as part of a prepack. Also the condition of supervision of a governmental agency is deemed met. Given this ruling, if a prepack is implemented the right way, a prepack would not result in the transfer of undertaking rules being applicable, which was the greatest hurdle for implementing a Dutch prepack. However, the European Court of Justice also ruled that a prepack should have a sufficient legal basis. As there currently is no specific legislation on the prepack and only 8 of the 11 courts in the Netherlands cooperated with a prepack in the past, there is a legal debate going on if this condition is met. Since 2016 a proposal for a bill on the prepack is pending with the legislator, but this bill has been put on hold to await the outcome of the ruling of the European Court of Justice.

Lastly, it should also be taken into consideration that the courts at this moment will only cooperate with any (pre)appointment of a silent administrator if such is deemed to be beneficial from a social impact perspective. For example, for a hospital this will be easier to establish than for a regular commercial enterprise.

According to Dutch law directors have to act in the interest of the company and its business, thereby taking into account the interests of all stakeholders (shareholders, employees, creditors etc.). The Dutch Civil Code (‘’DCC’’) does not specifically set out the duties of directors. Also, no specific statutory obligation exists for directors of a financial distressed company to file for insolvency proceedings. Nevertheless, managing a distressed company could increase the risk of directors’ liability. Under Dutch law the following categories of directors’ liabilities can be distinguished:

Internal liability (section 2:9 DCC)

A director may be held liable by the company itself or by the trustee (in case of a bankruptcy) for damages suffered by the company if these damages are a result of mismanagement (onbehoorlijk bestuur). This could be the case if the director does not perform his tasks in the interest of the company to the best of his abilities and in a way that could be reasonably expected from a competent and qualified director under the same circumstances. A successful liability claim on this legal basis requires a serious personal reproach/fault (ernstig verwijt) by the director when performing its duties. To assess whether this is the case all relevant facts and circumstances must be taken into account. Examples of circumstances in which directors could be held liable include the violation of the law or articles of association, carry out reckless and irresponsible financial behaviour on behalf of the company and utilizing assets of the company for personal benefit.

The liability for mismanagement is a collective liability, which means that the directors are severally and jointly liable for the mismanagement regardless of who actually took part in the improper act or omission. Individual directors, however, do have the opportunity to exculpate themselves when held liable by the company or the trustee. In order to exculpate themselves, a director must demonstrate that he/she is not to blame for the mismanagement and that he/she has not been negligent in taking measures to avert the negative consequences of the mismanagement.

Supervisory directors can also be held liable by the company or the trustee if they fail to initiate steps against the directors who are mismanaging or when they fail to take any measures to avert the negative consequences of the mismanagement by the directors.

External liability

Liability towards third parties (Section 6:162 DCC)

A third party (including the trustee of the bankrupt company) can hold a director liable if the director has committed a wrongful act towards this party. A successful liability claim on this legal basis requires a serious personal reproach/fault (ernstig verwijt) by the director when performing its directors’ tasks. The Dutch Supreme Court has distinguished two categories of wrongful acts that may give rise to a serious personal reproach/fault:

• If the director(s) enter(s) into new obligations on behalf of the company while he/she knows, or should have known, that the company will not be able to meet that obligation in a timely manner and is unable to provide sufficient recourse;
• If the director(s) frustrate(s) the payment of an outstanding amount and the possibility of recovery to the detriment of a creditor (for example by making selective payments).

Liability towards the bankruptcy estate (Section 2:138 and 2:248 DCC)

In case of a bankruptcy, the directors are jointly and severally liable for all debts remaining unpaid after the liquidation of the company’s assets, if the directors have apparently performed their duties in an improper way (kennelijk onbehoorlijk bestuur) and this improper management is an important cause (but not necessarily the only cause) of the bankruptcy. Individual directors do have the opportunity to exculpate themselves by proving that the improper management was not attributable to him/her and that he/she did not neglect to take measures to avert the consequences of such improper management.

The liability claim can only be filed by the trustee for improper management performed during the period of three years preceding the bankruptcy. It is up to the trustee to prove the improper management of the directors and to prove that this improper management was an important cause of the bankruptcy. The trustee is thereby able to apply two legal presumptions, being that liability is presumed if a director violates the statutory obligation (a) to maintain a correct bookkeeping, or (b) to publish the annual accounts in a timely manner with the Dutch Chamber of Commerce. Subject to proof the contrary, it is assumed that these inadequacies constitute important factors that contributed to the bankruptcy.

The trustee is also able to file a claim on the abovementioned legal ground against a supervisory director and to a person who is not a formal director but who is the decision maker within the company: a so-called “de-facto director” or ‘’pseudo director’’. For example a dominant shareholder who is performing day-to day management tasks.

Liability towards tax and social security authorities

If tax debts, social security premiums and/or obligatory pension premiums can no longer be paid by the company, the directors are obliged to immediately report this to the Dutch Tax Authorities and/or the applicable industry-wide pension fund. If the directors have failed to notify the tax authorities and/or the applicable industry-wide pension fund timely that the company is unable to pay its debts, immediately after such inability arises, the directors can be held personally liable for these debts based on mismanagement.

Guidelines to avoid director’s liability

Considering the above, when managing a company in distress, directors should amongst others be mindful of the following to avoid possible director’s liability:

• Administration: The administration of the company has to be up to date and accurately stating the company’s rights and obligations. Directors should pay attention when publishing (interim) financial accounts. If these financial accounts are misleading or outdated, director’s may be held liable by third parties because a deceptive (financial) representation of the company was created. Furthermore, the annual accounts should be timely published with the Dutch Chamber of Commerce.
• Decision-making: It is essential to record all the decisions of the board of managing directors. The directors should clearly record their considerations and decisions in the minutes of board meetings and board resolutions. Foreseen market developments, any external advice and up-to-date liquidity forecasts should be included in the decision making.
• Payments:
  • Directors should not enter into new obligations on behalf of the company while he/she knows, or should have known, that the company will not be able to meet that obligation in a timely manner and is unable to provide sufficient recourse.
  • Director’s should be cautious with making (selective) (re)payments. For instance, with (re)payments to related parties.
  • Directors should be very cautious with paying dividends to shareholders, as directors may be held liable for dividend distributions that were carried out at a time when the directors knew (or ought to have known) that the company would not be able to continue to meet its due and payable liabilities upon payment of the dividend.
  • Director’s should take a critical look at the payment of management fees. Any management fee should be proportional taking into account the financial difficulties of the company.
• Notification Dutch Tax Authorities/pension funds: If tax debts, social security premiums and/or obligatory pension premiums can no longer be paid by the company, the directors should immediately report this to the Dutch Tax Authorities and/or the pension fund.
• Discharge: If the board of directors are discharged by the general meeting of shareholders for a specific period, the internal liability of the directors could be lifted by this discharge. The discharge however only relates to facts that are disclosed in the annual accounts or have been reported separately to the general meeting of shareholders.

Under Dutch law, restructuring and insolvency proceedings do not release directors and other stakeholders from their liability for previous actions and decisions.

Restructuring and insolvency proceedings commenced in any EU Member state, except Denmark, are recognised by Dutch courts, pursuant to the EU Regulation on Insolvency Proceedings, provided that the insolvency proceeding falls under the scope of the EU Regulation.

Recognition of foreign insolvency proceedings (other than those taking place in EU member states or governed by treaties will generally be possible on the basis of Dutch private international rules for recognition of foreign judgments. Basic conditions for that are:

• The jurisdiction of the foreign court is based on a ground which is generally acceptable under international standards;
• The foreign proceedings meet the requirements of a fair trial;
• Recognition of the foreign judgment does not violate public policy; and
• There is no conflicting judgment recognisable in the Netherlands.

However, the principle of territoriality may limit the scope on the basis that the foreign judgement cannot impair the right of creditors to take recourse on assets located in the Netherlands, or that assets of a debtor located in the Netherlands cannot be excluded from the scope of an attachment or stay.

Following the Brexit implementation and the absence of a treaty that governs mutual recognition of insolvency proceedings, the recognition of English proceedings now occurs pursuant to Dutch private international law for non-EU member states.

Debtors residing in the Netherlands or having their centre of main interest (COMI) in the Netherlands can enter into Dutch insolvency proceedings.

Within the legal framework of the WHOA, two types of restructuring proceedings are available. Public WHOA proceedings, which are listed on Annex A of the EU Regulation on Insolvency Proceedings and thus enjoy automatic recognition throughout the EU. Or private WHOA proceedings. This WHOA proceeding is not listed on Annex A and therefore does not fall within the scope of the EU Regulation on Insolvency Proceedings. This type of proceeding is accessible to any (foreign) debtor who can demonstrate a ‘sufficient connection’ to the Netherlands. A sufficient connection can be established or assumed when, for example, the assets of the debtor or its group companies are located in the Netherlands, or the relevant finance documents are governed by Dutch law or include a forum choice for Dutch courts. No automatic recognition pursuant to the EU Regulation on Insolvency Proceedings takes place for the private WHOA proceeding. Recognition under treaties, domestic laws, UNCITRAL Model law implementations or EU Regulation may be available, but can differ for each jurisdiction.

In principle, a bankruptcy of a Dutch legal entity should be handled on a stand-alone basis. However, in practise, if multiple entities of a group within the Dutch legal jurisdiction are declared bankrupt, the court will appoint the same trustee for these entities. This ensures a combined handling. Directors of the bankrupt companies are obligated to provide assistance to the bankruptcy and to provide the trustee will all information needed.

Under the WHOA it is possible to restructure a group of companies. For each group company a composition plan can be offered to creditors and simultaneously be submitted to the court for joint handling and approval. The composition plan for each entity can be made conditional to approval of the other composition plans.

Implementation of the UNCITRAL Model Laws in the Dutch Bankruptcy Act is under consideration. An expert committee is investigating the possibility of implementing it.

The Covid-19 pandemic speeded up the adoption of the WHOA restructuring legislation which came into force on the first of January 2021.

A Time Out Arrangement (TOA) was introduced which provides a financing arrangement for businesses that want to use the WHOA to avoid bankruptcy. The TOA provides a credit facility for users of the WHOA to finance the restructuring plan. Interested companies may apply for the TOA from 1 June 2021 to 31 May 2024.

Furthermore, companies were financially supported to avoid bankruptcies and employee dismissals in various ways.

There are several noteworthy developments:

The Transfer of Undertaking in Bankruptcy Act aims to improve the position of employees in the event of bankruptcy. This act stipulates that, in the event of a relaunch of a company, the re-starter is obliged to take on all of the bankrupt’s staff under the existing employment conditions. This could make a relaunch less attractive. However, it is unclear if, and when the proposal will be submitted to Parliament, also considering the ruling of the European Court of Justice in the Heiploeg case.

Continuity of Enterprise Act. This proposal will introduce a legal arrangement which allows the court to appoint a prospective trustee (silent administrator) and prospective supervisory judge prior to any bankruptcy. This is often called a pre-packaged bankruptcy, or ‘pre-pack’ (see also question 13). By means of an addition to the act, it is intended to temporarily limit the scope of the act to the bankruptcies of companies with activities of social importance.

The Dutch jurisdiction was predominantly creditor friendly. However, with the introduction of the WHOA, where debtors can restructure their business outside formal insolvency proceedings, the jurisdiction had become more balanced.

The protection of the rights of employees remains important. An example thereof is that employee rights cannot be amended by a WHOA restructuring.

In exceptional circumstances the Dutch government may provide assistance to a distressed company. Such will only be done if the company is of significant influence for the stability of Dutch economy and if the assistance is in accordance with EU State aid regulations. A good example thereof is the support of Air France-KLM in 2020 by the Dutch Government.

With the introduction of the WHOA an effective instrument was added for a successful restructuring. Possible barrier in the private WHOA procedure is the uncertainty on international recognition of the private procedure, such depending on the specific country. In the public WHOA procedure, the protection of local rights in rem in respect of assets in other member states pursuant to the European Insolvency Regulation, could be a barrier. Lastly, the ‘Gibbs rule’ could make it difficult to restructuring English governed debts in a Dutch WHOA proceeding.