Netherlands

The most commonly used corporate insolvency procedures available in the Netherlands are:

• Suspension of payments (Article 214 Fw). See Question 2, below.
• Bankruptcy (Article 1 Fw). See Question 2, below.

Suspension of payments, in principle, aims at maintaining the business, whereas bankruptcy is aimed at the liquidation of the debtor’s estate.

Although not a formal insolvency proceeding, the WHOA has to be mentioned here, because it is regulated in the Faillissementswet (Fw). See Questions 2 and 3, below.

WHOA (Article 370 Fw)

While preparing a restructuring plan (“WHOA plan”), a debtor may file a declaration of commencement (startverklaring) with the court, indicating that preparations have started for a private composition plan, which may subsequently be confirmed (homologated) by the court.

From that moment, the following becomes possible:

• certain measures can be taken and authorisation obtained to perform legal acts aimed at securing new financing (Article 42a Fw);
• a cooling-off period/stay may be requested (Article 376 Fw); and
• the court may be asked to take measures to protect the interests of creditors or shareholders (Article 379 Fw).

Suspension of Payments (Article 214 Fw)

A debtor who foresees that “he will be unable to continue paying his due and payable debts” may apply to the court for a suspension of payments (Article 214 Fw). A draft composition may be submitted simultaneously. If the request is granted, it offers protection against unsecured creditors only. It does not offer protection against creditors with preferential claims (Article 232 Fw).

During the suspension of payments, any attachments (seizures) by creditors lapse (Article 230 Fw), and a cooling-off period/stay may be requested (Article 241a Fw). The court will appoint an administrator, who will manage the debtor’s assets jointly with the debtor.

The court determines the duration of the suspension of payments (Article 223 Fw), but in principle, it does not exceed one and a half years. This term can be extended upon request. The suspension of payments is aimed at the continuity of the business; after some time, the debtor should be able to meet all due obligations again.

Bankruptcy (Article 1 Fw)

A debtor who is unable to pay his or her due and payable debts and has “ceased making payments” may petition the court for his or her own bankruptcy. Bankruptcy proceedings are aimed at the liquidation of the debtor’s estate, although under certain conditions a composition may be offered during bankruptcy (Article 138 Fw).

In the bankruptcy declaration, a trustee (“curator”) is appointed under the supervision of a supervisory judge (rechter-commissaris) (Article 14 Fw). The trustee is responsible for the administration and liquidation of the debtor’s estate (Article 68 Fw).

During bankruptcy, a cooling-off period/stay may be requested (Article 63a Fw), and all attachments made by creditors lapse (Article 33 Fw).

A debtor who is in a financial condition such that it is reasonably foreseeable that they will be unable to continue paying their debts as they fall due, may initiate proceedings for the court confirmation of a private composition plan under the WHOA (see Question 2, above).

Although the primary objective of the WHOA is to facilitate the restructuring of viable businesses, the procedure may also be used to offer a liquidation plan, aimed at achieving an orderly wind-down and maximisation of value.

Within the WHOA framework, the debtor may propose a composition plan to its creditors and shareholders that modifies their rights, subject to court confirmation (homologation) pursuant to Article 370 of the Dutch Bankruptcy Act.

3.1 What are the conditions to entry?

The debtor must first demonstrate:

• imminent insolvency: it is reasonably foreseeable that the debtor will be unable to continue paying its debts as they fall due (Article 370 Fw); and
• ongoing obligations: the debtor will continue to meet its current obligations throughout the WHOA proceedings.

This second criterion is not required by law, and there is ongoing debate in legal practice as to how this requirement should be interpreted and applied in concrete cases.

3.2 Can creditor claims be compromised “within a class”?

Yes, under the WHOA, creditors and shareholders in comparable positions are grouped into separate classes. The proposed composition plan must contain sufficient information to allow stakeholders to properly assess the legal and financial consequences of the plan.

Each class of creditors votes separately on the proposed plan.

A class is deemed to have accepted the plan if the decision to approve has been made by a group of creditors representing at least two-thirds of the total value of the claims held by those creditors within the class who have cast a vote.

3.3 Is there a “cross-class cramdown”?

A cross-class cramdown is permitted under the WHOA. The following three conditions must be met:

• at least one “in-the-money class” must have voted in favour of the proposed plan;
• the dissenting class must not be worse off under the plan than it would be in a bankruptcy scenario (best interest of creditors test); and
• the absolute priority rule must be observed, unless there is a “reasonable justification” for deviating from it.

3.4 Can shareholder claims be compromised?

Yes, the rights of shareholders may also be modified. Shareholders may lose their shares.

3.5 Can secured creditors’ claims be compromised? Are deficiency claims treated differently?

Yes, secured creditors are divided into two classes: one class concerning the part of the claim to which the security interest can be enforced, and one class without priority regarding the part of the claim for which the security interest cannot be enforced (Article 374 Fw). As a result, claims of secured creditors may be (partially) impaired.

3.6 Can creditors propose competing plans?

No. However, one or more creditors may petition the court to appoint a restructuring expert (herstructureringsdeskundige) who will propose a composition plan to the debtor’s creditors and shareholders. If the court grants this request, the debtor itself may no longer propose a plan (Article 371 Fw).

3.7 What level of court or other third-party supervision is there of the process(es)?

The involvement of the court is minimalised, but during the WHOA proceedings, the court may appoint an observer (observator) at the request of the debtor (Article 380 Fw). The observer’s role is to supervise the formation of the composition plan, with due regard to the interests of the joint creditors.

When the court is asked to make a decision on any possibly difficult issues at an early stage related to the proposed plan to avoid uncertainty when the court has to decide about application of the plan (aspectenverzoek) (Article 378 Fw), the court may appoint an observer on the court’s initiative. The observer is then asked to submit his or her views on the request. The same occurs when the court is asked for an application for confirmation (Article 383 Fw).

Yes. For almost all clawback claims, the following is relevant:

• The reference date (peildatum); the moment from when the insolvency was foreseeable. This must be determined specifically in each individual case. According to the Dutch Supreme Court (Hoge Raad), this determination should be made with caution.
• Whether the joint creditors suffered any damages.

4.1 What is the applicable law that provides for clawback and/or antecedent transaction claims?

Claims based on the Dutch Bankruptcy Act (Fw):

• Actio Pauliana (Articles 42 and 47 Fw).
• Debt assumption and abuse of set-off (Article 54 Fw).

Claims based on the Dutch Civil Code (Burgerlijk Wetboek (BW)), Article 6:162 BW:

• Trustees (curatoren) may bring a civil claim against third parties involved in causing detriment to the joint creditors of the bankrupt debtor (the so-called “Peeters q.q./Gatzen” claim).

4.2 What are the relevant “look-back” periods for claims?

The reference date (see above) must be determined specifically on a case-by-case basis.

However, trustees have a significantly stronger evidential position under the Actio Pauliana if the legal act was performed within one year prior to the bankruptcy declaration. In such cases, they benefit from legal presumptions of knowledge of detriment (see Question 4.6, below).

4.3 Who can pursue the claims?

Only trustees are entitled to invoke the bankruptcy Pauliana (Articles 42 and 47 Fw) and the Peeters q.q./Gatzen claim, and to challenge debt assumptions and set-offs that violate Article 54 Fw.

4.4 What remedies are available and how do they operate in practice?

Debt assumptions and set-offs that are contrary to Article 54 Fw are void and have no legal effect; in other words, the set-off does not take place. This means that the obligations remain due in their full amount and are not extinguished, enabling trustees to continue to claim payment of the debts.

A so-called Peeters q.q./Gatzen claim based on the BW is brought to recover damages.

For the Actio Pauliana, see Question 4.8, below.

4.5 What defences are available?

With regard to Article 54 Fw, the strongest defence is that the creditor was acting in good faith at the time of the debt assumption or set-off and did not (and could not reasonably be expected to) foresee the debtor’s bankruptcy. Debt assumption and set-off are permitted up until the reference date.

The two main defences against Peeters q.q./Gatzen claims are, on the one hand, that the trustee is not claiming damages on behalf of joint creditors (all creditors collectively) but only on behalf of a subset; and, on the other hand, that the challenged conduct is not unlawful.

For the Actio Pauliana, see Question 4.9, below.

4.6 Is there a general right of action in respect of transactions defrauding creditors or Actio Pauliana claims?

Yes, the Actio Pauliana (Articles 42 and 47 Fw).

4.7 Who can pursue the claims?

The trustee; see Question 4.3, above.

4.8 What remedies are available and how do they operate in practice?

Pauliana transactions may be avoided by the trustee through a written notification addressed to the counterparty. If the counterparty does not accept the extrajudicial avoidance, court proceedings become necessary to obtain a judicial declaration of avoidance.

4.9 What defences are available?

A strong defence against Pauliana transactions is that the transaction in question was a compulsory act. Compulsory acts can only be contested under two very strict conditions. The burden of proof in this regard rests with the trustee.

Other strong defences include the argument that there is no detriment to the creditors, and that the debtor’s bankruptcy and the resulting shortfall for creditors could not have been foreseen.

Liability of directors in insolvent companies may arise from:

• Company law:
  • in cases of improper performance of duties (Article 2:9 BW); and
  • in cases where distributions to shareholders were made unlawfully (Article 2:216 BW).
• Civil law (Article 6:162 BW): in cases of wrongful trading.
• Insolvency law (Articles 2:138 and 2:248 BW): if, in the period of three years prior to the bankruptcy, there was:
  • clearly improper performance of duties/mismanagement;
  • breach of the obligation to keep proper accounts (Article 2:10 BW); and
  • breach of the obligation to publish the annual accounts (Article 2:394 BW).
• Tax law (Article 36 Tax Collection Act (invorderingswet) 1990).

5.1 What are the duties of directors and managers?

Directors have a statutory duty to act in the best interests of the company and its affiliated business when fulfilling their responsibilities. In the case of a de facto insolvent company, directors must also take into account the interests of the (joint) creditors.

5.2 What claims can be brought against directors and managers arising from breaches of those duties?

In the event that the board fails to properly perform its duties, there may be grounds for the company itself to hold the board or individual directors liable (Article 2:9 BW). The tort action (Article 6:162 BW) can also be brought by third parties.

In the case of bankruptcy, the trustee also has the option to hold directors liable for gross mismanagement in the three years preceding the bankruptcy (Article 2:138 or 2:248 BW). If the action is successful, the directors will be liable for the shortfall in the bankruptcy estate.

There must be a causal connection (condicio sine qua non) between the gross mismanagement and the bankruptcy. If the board has failed to file the company’s annual accounts in a timely manner or if the company’s accounting records do not comply with legal requirements, the law provides that gross mismanagement is presumed, and it is assumed that this was a significant cause of the bankruptcy.

In general, a sufficiently serious personal fault must exist before liability can be established.

5.3 Who can pursue the claims?

A claim under Article 2:9 BW must be brought by the company, and therefore by the (successive) board or the trustee.

A claim under Articles 2:138 or 2:248 BW may only be brought by the trustee.

5.4 Do directors have, at any time, a strict obligation to file for insolvency and, if so, when does that arise?

No: in the Netherlands, there is no duty to file.

5.5 Can directors and managers be found liable for the increase in sums owed to creditors after a company becomes insolvent?

There is no rule that generally holds directors liable for the increase in sums owed to creditors after a company becomes insolvent. However, individual creditors may, under certain circumstances, hold directors liable for damages resulting from the actions of the directors after the company has become de facto insolvent.

5.6 In what other circumstances can directors and managers be found liable directly to creditors of the company?

Individual creditors may hold directors liable for the resulting damages based on tort law under Article 6:162 BW (wrongful trading). Two types of cases can be distinguished, in both of which there must be a serious personal fault:

• The first type is referred to as Beklamel-liability: a director is liable for incurring obligations while knowing or reasonably being expected to know that the company will be unable to fulfil these obligations and has no assets to cover them. In this context, the reference date is significant (see Question 4, above). The incurring of obligations after this date may be considered potentially unlawful against individual creditors.
• The second type is known as asset stripping or disguised insolvency: where a director allows the company to fail to meet its legal or contractual obligations towards third parties, with no recourse for recovering any damages, he or she might be held liable. Asset stripping, for example, occurs in cases of unwillingness to pay or where debts are paid selectively (unlawfully). Again, the reference date (see Question 4, above) is crucial in this scenario.

6.1 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

In the event of bankruptcy, the debtor is legally obliged to provide full disclosure to the bankruptcy trustee (Articles 105 and 241 Fw). This obligation covers all information regarding, among other things, the debtor’s assets, liabilities and transactions. The trustee is also authorised to inspect the debtor’s entire administration, even if this administration is held by third parties (Article 105b Fw). Third parties, including accountants, are required to cooperate. The trustee may also contact third parties to request information. This may include, for example, the bookkeeper, banks, the tax authorities, the employer, the land registry (kadaster), the vehicle registration authority (RDW) and the Chamber of Commerce.

With regard to suspension of payments (surseance van betaling) and the WHOA, a similar obligation exists for the debtor to provide information to the administrator (this does not follow directly from the law) or to the restructuring expert or observer (Article 371 Fw).

6.2 How is that information obtained in practice?

As a rule, an intake interview is held with the debtor (or its management), key personnel are interviewed and a questionnaire is used. The office holder will generally also contact the third parties mentioned in Question 6.1 in writing, requesting that they provide the requested information.

6.3 Can the court assist in obtaining that information and how does that work in practice?

If the debtor fails to comply or does not sufficiently comply with the trustee’s requests, various coercive measures are available. These may include a bankruptcy hearing before the supervisory judge (Article 66 Fw), ordering an expert investigation and detention in bankruptcy (Article 87 Fw).

In the case of a suspension of payments (surseance van betaling), the suspension may be revoked by the supervisory judge if, among other things, the necessary information is not provided (Article 242 Fw). A court hearing before the supervisory judge may also be ordered (Article 223b Fw).

In a WHOA proceeding, the court may refuse to confirm a restructuring plan if the information provided proves to be incomplete (Article 384 Fw).

7.1 Is the UNCITRAL Model Law on Cross-Border Insolvency adopted?

No, the Netherlands has not implemented this law, but there is international cooperation between EU Member States through the EU Insolvency Regulation. This regulation serves many of the same purposes within the EU as the UNCITRAL Model Law.

7.2 Is it possible to recognise office holders from other jurisdictions?

Yes, if an EU insolvency proceeding has been started an EU country, the EU Insolvency Regulation applies. This regulation provides that an insolvency proceeding and the appointment of an insolvency practitioner are automatically recognised in all other EU Member States.

Dutch law does not contain specific provisions for cross-border insolvencies outside the EU.

7.3 What is the process and what are the conditions for recognition?

An EU insolvency proceeding is automatically recognised in the Netherlands under the EU Insolvency Regulation.

A non-EU insolvency practitioner must submit a formal request to the Dutch court. The court will assess the request. The court may recognise the non-EU insolvency practitioner, provided that the insolvency proceeding has been lawfully initiated and there is no conflict with Dutch public policy.

7.4 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

EU insolvency practitioners do not automatically have the same powers as Dutch insolvency practitioners. This also applies to obtaining necessary information about the debtor. A foreign insolvency practitioner can, of course, request information directly from the debtor or from third parties. In some cases, a Dutch insolvency practitioner is appointed who can use their powers to obtain information on behalf of the foreign practitioner.

Under the EU Insolvency Regulation, a secondary insolvency proceeding (Secundaire procedure) may also be opened. This is a supplementary insolvency proceeding initiated in an EU Member State other than the one where the primary insolvency proceeding is taking place. In the secondary proceeding, an insolvency practitioner is appointed in accordance with the law of that Member State and is granted the powers provided under that state’s national law. The effects of the secondary insolvency proceeding are limited to the debtor’s assets located within the territory of the Member State where the secondary proceeding is opened. The trustee in the secondary proceeding is expected to cooperate with the trustee in the primary proceeding. This also applies to the supervisory judges.

7.5 What steps can a foreign office holder take to recover assets belonging to the debtor?

The foreign insolvency practitioner is, in principle, entitled to all civil law actions, just like any individual creditor, and may, among other things, claim (or reclaim) assets from third parties or impose pre-judgment attachments on the debtor’s assets.

7.6 Is a foreign office holder able to bring clawback claims or fraudulent transaction claims?

Yes, they may bring clawback claims (Actio Pauliana) and claims based on fraudulent transactions.

8.1 Can a foreign office holder take appointments?

Yes, that is possible. This generally requires formal recognition by the Dutch court. This is particularly relevant in cross-border insolvency cases where the foreign insolvency practitioner wishes to operate in the Netherlands.

8.2 What are the conditions for becoming an office holder?

The Bankruptcy Act (Article 14 Fw) stipulates that a trustee must be “adequately trained and possesses the expertise required for their duties”. There are no legal requirements for the administrator (bewindvoerder) in case of a suspension of payments. However, there is a guideline issued by the courts that further elaborates on the appointment of trustees and administrators. As a rule, but not a legal requirement, an insolvency practitioner is a lawyer. In the Netherlands, courts maintain lists of insolvency practitioners. As a rule, insolvency practitioners are appointed from this list. Simultaneously a supervisory judge will be appointed who oversees the insolvency practitioner.

In a WHOA proceeding, the court takes into account, among other things, the experience and expertise of the restructuring expert when appointing them (Article 371 Fw). The restructuring expert must also be impartial and independent.

8.3 What are the main rules of professional conduct?

The main professional rules for insolvency practitioners (such as trustees and administrators) in the Netherlands focus on independence, integrity, expertise and transparency. These professional rules are partly established in laws and regulations (Article 14 Fw) and partly through guidelines issued by the supervising judges-commissioners (Recofa-richtlijnen) and codes of conduct of the professional association (INSOLAD practice rules/INSOLAD praktijkregels).