The House of Representatives recently voted in favour of the Court Approval of a Private Composition (Prevention of Insolvency) Act (WHOA). Inspired by the UK scheme of arrangement and US Chapter 11 proceedings, the WHOA will introduce to the Netherlands a legal framework that enables debtors to restructure their debts outside formal insolvency proceedings by means of a court-approved restructuring plan.
The Amsterdam Court of Appeals recently ruled that the 2006 Russian liquidation order regarding OAO Yukos Oil Company is contrary to Dutch public order and therefore null and void. The court's reasoning was largely based on a 2014 European Court of Human Rights judgment following a complaint lodged against Russia by the former Yukos shareholders with regard to Yukos's liquidation.
Dutch law does not yet have a pre-insolvency composition procedure. However, draft legislation is on the table to implement a Dutch out-of-court composition – a process similar to the UK scheme, with some US Chapter 11 elements. Draft legislation has also been prepared to implement a formal procedure similar to the English pre-pack administration.
The Supreme Court recently ruled that in the case of commingled goods, any right of pledge over the formerly separate goods is automatically replaced by a right of pledge over the acquired share in the joint ownership of the resulting mixture. This disregards the common understanding that security rights over the formerly separate goods will be extinguished and provides greater protection for the pledgee's security right.
Until recently, a receiver in bankruptcy could claw back transferred funds unless the bank had performed all acts in connection with the payment instructions by 0:00 on the day on which the court gave the bankruptcy order. This rule was heavily criticised in Dutch literature. The Supreme Court recently rendered an important judgment simplifying the rule.
The validity and enforceability of security surplus arrangements in bankruptcy is a hot topic. Several trustees in bankruptcy have tried to contest the validity of such arrangements, but have been unsuccessful thus far. The Supreme Court has been asked to issue a preliminary ruling in respect of the enforceability and validity of a security surplus arrangement in case of the bankruptcy of the security provider; its ruling is expected later this year.
The effect of a bankruptcy on ongoing agreements (duurovereenkomsten), and in particular the influence of an insolvency representative, is a concern for contracting parties. The Supreme Court recently ruled on the scope of the insolvency representative's control with respect to ongoing agreements. This update examines the bankruptcy law framework, the prevailing views in this regard and the impact of the ruling.
In a ground-breaking decision the Supreme Court recently found that a foreign bankruptcy trustee may, in principle, exercise the powers conferred on him or her under the lex concursus (ie, the law governing the bankruptcy) in the Netherlands. Such powers can include the management and disposal of assets located in the Netherlands at the time of the foreign bankruptcy order.
A number of successful pre-pack restructurings - the restructuring of a company through a transaction prepared as much as possible outside formal insolvency proceedings, and whereby the enterprise survives, but some or all of the company's debt is restructured - has shown the Netherlands to be an interesting venue for restructurings of companies in financial distress, while respecting the traditionally strong position of (secured) creditors.
In a recent decision the Supreme Court suggested two possible grounds for challenging a bankruptcy clause by which the bankrupt party forfeits certain rights: violation of law, and violation of the principles of reasonableness and fairness. The first ground is new and makes it easier to challenge forfeiture-on-bankruptcy clauses.
According to the Dutch Supreme Court, an English trustee in bankruptcy can rely on Article 25(1) of the EU Insolvency Regulation to obtain recognition and enforcement of a disclosure order obtained in the United Kingdom pursuant to the UK Insolvency Act 1986 in other EU member states, such as the Netherlands. The decision sets a precedent that will be helpful to trustees in bankruptcy and other office holders.
A bill submitted to Parliament in late 2011 proposed the extension of the Collective Settlement of Mass Claims Act to bankruptcy situations - a move influenced by the bankruptcy of DSB Bank and the possibility of tens of thousands of client claims arising from it. However, it is unclear whether the proposed change in legislation will actually expedite the handling of bankruptcy class actions.
Until recently it was unclear whether a director of a legal entity could incur director's liability under Dutch law when the director was a legal entity incorporated under the law of another country or a natural person acting as the director of such a foreign legal entity. A recent Supreme Court ruling in a bankruptcy case has provided clarity in this area.
A striking feature of Dutch insolvency law is the strong position of secured creditors. Proposed revisions to the Bankruptcy Act would have introduced less favourable treatment for secured creditors and made it easier to avoid fraudulent preferences; but as these revisions have since stalled, the position of secured creditors will remain unaffected – at least for the time being.
The restructuring practice often calls for creative solutions, especially when the stakes are high and the debtor is in serious financial distress. One possibility is for the debtor to transfer its assets to a creditor subject to the condition precedent of the debtor being declared bankrupt. However, under Dutch bankruptcy law, while each case must be reviewed on its own merits, any such action faces a high risk of being challenged.
The Amsterdam District Court has dismissed an application by the administrators of the Dutch branch of Landsbanki to extend the term of the emergency regulations that had been declared applicable to the branch by the court 18 months previously. The court concluded that it was not entitled to extend or redeclare the application of emergency regulations to the Dutch branch because Landsbanki was licensed in Iceland.
Until recently, it was unclear whether the holder of a pledge of a receivable was entitled to demand information about the debtor from the pledgor's trustee in bankruptcy where that information is necessary to enable the pledgee to disclose the pledge to the debtor. However, the Supreme Court has now held that a trustee is obliged to supply the pledgee with such information.
The credit crisis has led to many opportunities for financial and strategic buyers to purchase all or part of a business or assets from financially troubled companies at significantly discounted prices. In such deals, buyers run the risk that the transaction may be set aside on the basis of voidable preference rules.
The Amsterdam District Court recently granted the holder of a pledge over the shares in the capital of Schoeller Arca Systems Services BV authorization for foreclosure on the pledge by way of a private sale. The decision introduces the possibility for a secured lender either to wipe out subordinated mezzanine debt or to implement a loan-to-own strategy.
Dutch courts have proved flexible when interpreting insolvency law, which was particularly helpful in the reorganization of cable companies GTS, Song and Versatel in 2002, after the dot.com bubble burst. This update looks at the features of insolvency law and the general characteristics of Dutch insolvency proceedings, as well as the ways in which different classes of creditor are treated.