A bright future for the Dutch restructuring practice

This article was first published on Global Restructuring Review in December 2023; for further in-depth analysis, please visit the GRR Europe, Middle East and Africa Restructuring Review 2023.

Introduction

The last couple of years have been important for the restructuring and insolvency practice in the Netherlands. The amount of distressed activity clearly picked up throughout 2022, with an overly active fourth quarter. While the initial period after the outbreak of the covid-19 pandemic was relatively calm given generous government support, most of the government support measures were scaled down in 2022. At the same time, supply chain disruptions still affected the markets in the aftermath of the outbreak. Further, interest rates were raised making funding less accessible. Consequently, more companies struggled to meet their financial obligations and resorted to different forms of restructuring options.

We begin this article by providing a short description of the types of insolvency proceedings available under Dutch law. We then discuss the three main developments in the Dutch restructuring practice – those being (1) the use of suspension of payments to restructure large amounts of unsecured debt, (2) the revival of the pre-pack as a restructuring tool and (3) the development of the Act on Court Confirmation of Extrajudicial Restructuring Plans (WHOA) into a mature restructuring tool, suitable for large international restructurings.

Insolvency proceedings available under Dutch law

Dutch law provides for three types of insolvency proceedings, each with their own objectives: bankruptcy proceedings, suspension of payments and restructuring plan proceedings under the WHOA¹.

Bankruptcy proceedings

Bankruptcy proceedings are often described as a judicial attachment over all of the debtor’s assets for the benefit of the joint creditors of the debtor. They may be initiated by a creditor or the debtor. As a result of the opening of bankruptcy proceedings, the debtor loses its power to dispose of its assets.

The court appoints a bankruptcy trustee, who is tasked with the administration and liquidation of the debtor’s assets and the distribution of the proceeds to the creditors according to the ranking of their claims. While not required by law, in practice the courts appoint a lawyer as a bankruptcy trustee in nearly all bankruptcies. The bankruptcy trustee is supervised by a supervisory judge and aims to dispose of the assets in a manner that maximises proceeds. This could be a piecemeal sale of the assets or a sale of the business as a going concern.

A bankruptcy may be preceded by a ‘pre-pack’ during which a sale of the debtor’s assets is prepared under the supervision of a prospective bankruptcy trustee and a prospective supervisory judge. The transaction is signed and closed after the opening of formal bankruptcy proceedings.

Suspension of payments

Suspension of payments aims to prevent the need to open bankruptcy proceedings in respect of the debtor by granting the debtor time to restructure. The debtor is temporarily given breathing space to resolve its financial problems. In most cases, the debtor attempts to do so by offering a composition plan to its creditors. The creditors vote on the plan and the plan is adopted if the required majorities vote in favour of the plan. If certain requirements are met, it is subsequently approved by the court.

The debtor can only dispose of its assets by acting jointly with an administrator, who is appointed by the court. If, during the proceedings, it is foreseeable that the proceedings will not result in the debtor being able to satisfy its debts again as they fall due, the proceedings will be withdrawn, and bankruptcy proceedings will be opened in respect of the debtor. This is the outcome in the vast majority of cases in which the debtor fails to have a composition plan sanctioned by the court².

Restructuring plan proceedings under the WHOA

On 1 January 2021, the restructuring and insolvency landscape changed dramatically in the Netherlands with the introduction of a new form of insolvency proceedings: restructuring plan proceedings under the WHOA³. Under the WHOA, a debtor may offer a composition plan to its creditors and shareholders. If certain requirements are met, the debtor may request the court to approve the plan. If approved, the plan is binding on all affected creditors and shareholders, including absent, dissenting and abstaining creditors and shareholders.

While the WHOA is aimed at debtors with a viable operational business but an excessively heavy debt burden, it may also be used to implement a controlled wind-down, provided that this leads to a higher recovery for the creditors than a liquidation in bankruptcy. WHOA proceedings are debtor-in-possession (DIP) proceedings: the debtor may continue trading as a going concern, and it is not limited in its power to dispose of its assets.

As a starting point, the debtor leads the drafting and offering of the restructuring plan under the WHOA; however, creditors, shareholders or a works council may request the appointment of a restructuring expert if they are not satisfied with the debtor’s action in relation to the restructuring plan. If a restructuring expert is appointed, the expert will lead the drafting and offering of the restructuring plan, while the debtor will remain in control of the business⁴.

The debtor may choose between public or private proceedings. The hearings of public proceedings are open to the public, and the court orders are published. In contrast, the hearings of private proceedings are behind closed chambers, and the court orders are published after a significant delay and in an anonymised form.

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