As mentioned in our earlier blog, the Dutch legislator has prepared a bill – the Act on confirmation of private restructuring plans (Wet homologatie onderhands akkoord) – introducing a framework that allows debtors to restructure their debts outside formal insolvency proceedings (the “Dutch Scheme“). We expect this highly-anticipated bill to enter into force by this summer. The Dutch Scheme combines features from the UK Scheme of Arrangement and the US Chapter 11 proceedings. Below, we summarize certain key aspects of the Dutch Scheme.
In the following weeks in our blogs, we will discuss the topics listed below in more detail.
1. Introductory remarks
- The Dutch Scheme allows the opportunity to arrange for a financial restructuring outside formal insolvency proceedings by means of a court-approved restructuring plan.
- The purpose of the restructuring can be (i) to restructure the debt and equity structure in order to prevent insolvency or (ii) to liquidate the assets of the company and distribute the proceeds amongst the creditors.
- The debtor remains in possession and no insolvency practitioner is appointed.
- The debtor has to be in the position that it is reasonably expected that it will not be able to continue paying its debts. For example, when the debtor foresees not being able to repay a loan in six months’ or twelve months’ time and this would result in a bankruptcy of the debtor.
2. Initiative with debtor or creditors/shareholders/employee representatives
- Either (i) the debtor or (ii) any of its creditors, shareholders or employee representatives may take the initiative for the Dutch Scheme. If any of the entities in (ii) takes the initiative, that entity must ask the court to appoint a restructuring expert, who will prepare a restructuring plan on behalf of the debtor. The debtor may also choose to request the appointment of a restructuring expert to assist with preparing a restructuring plan.
- The debtor does not require shareholder consent for a restructuring plan in the Dutch Scheme.
- Once a restructuring expert is appointed, the debtor is no longer entitled to propose a plan to the creditors/shareholders but the debtor can hand over a plan to the restructuring expert requesting her or him to propose it to the creditors/shareholders.
- A restructuring plan prepared by a restructuring expert has to be approved by the debtor in the case of (i) a restructuring of a SME (small or medium-sized enterprise) or (ii) a restructuring expert appointed at the request of employee representatives. If the debtor does not approve the plan, the restructuring expert may request the court to grant its consent instead.
3. The Dutch Scheme offers a lot of flexibility
- The Dutch Scheme provides for two types of proceedings, public and confidential.
- Not all creditors and shareholders have to be involved in the plan. The restructuring plan can, for example, be limited to only the secured creditors, or can explicitly exclude a certain group of creditors, such as the trade creditors.
- The Dutch Scheme allows for a wide range of possibilities to restructure the debt; for example by means of a debt for equity swap, a haircut of payment obligations, or through amendments to contractual terms. It is also possible to restructure guarantees provided by group companies.
- It is not possible to affect the rights of employees under employment contracts.
- Creditors and shareholders with dissimilar rights are placed in different classes.
- Creditors and shareholders are considered to have dissimilar rights if (i) they have different rights in case of bankruptcy proceedings, and/or (ii) are offered different rights under the restructuring plan.
5. Fast procedure and voting
- Only creditors/shareholders whose rights are affected in the restructuring plan are entitled to vote. The final restructuring plan has to be presented to these creditors and shareholders at least 8 days prior to a vote.
- The voting will be done per class and can take place either in a meeting or electronically. A two-thirds majority in value is required for a particular class to consent to the restructuring plan.
- At least one class of creditors has to vote in favor of the plan in order for the debtor or the restructuring expert to be able to request the court for a confirmation of the restructuring plan.
- The court will schedule a hearing date within 8 to 14 days after the request for confirmation. The court will provide its decision as soon as possible.
- The procedure can be finalized in only 4 to 6 weeks.
6. Confirmation, cross class cram down, and the absolute priority rule
- Upon confirmation by the court, the restructuring plan becomes binding on the debtor and all creditors and shareholders who were entitled to vote.
- The court has to test the restructuring plan at its own motion against the general grounds for refusal and reject the plan if any of those grounds applies, e.g. procedural requirements have not been met, the performance of the plan is not sufficiently guaranteed, the plan is a result of fraud etc.
- The court may also reject the restructuring plan at the request of opposing creditors or shareholders if they would be significantly worse off under the plan compared to a liquidation scenario (best interest of creditors test).
- If one or more classes have rejected the restructuring plan, the court can still confirm the plan if at least one “in the money class” has accepted the plan (cross class cram down). However, the court must reject the plan at the request of opposing creditors or shareholders, when:
- the statutory or contractual order of priority is disregarded in relation to the opposing class, unless a ground for reasonable justification exists and the deviation is not detrimental to the relevant creditors (absolute priority rule), or
- the relevant creditors are not offered a cash amount equivalent to the amount that would have been received in the event of a liquidation.
7. Facilitation of the process and deal certainty
- The debtor (or the restructuring expert) can request the court to issue preliminary judgments on several points such as the class formation, eligibility, valuation etc.
- All issues and the confirmation of the restructuring plan are dealt with by an expert pool of judges. Their decisions cannot be appealed. Once the debtor has announced the restructuring plan, all bankruptcy applications are stayed for 4 months; this period can be extended to 8 months. The court can also grant a freezing order of 2 months which can be extended to a maximum of 4 months.
- Ipso facto clauses are temporarily not enforceable.
- With authorization from the court, (i) the debtor can terminate onerous contracts and (ii) restructuring efforts, such as DIP financing, are protected from avoidance actions.
8. Jurisdiction of the Dutch court and recognition of the plan in other jurisdictions
- Different rules apply to the public and confidential Dutch Scheme for both jurisdiction and recognition.
- In a public Dutch Scheme, the European Insolvency Regulation (EIR) applies:
- The Dutch courts have jurisdiction if the COMI or a branch is located in the Netherlands.
- The Dutch Scheme will automatically be recognized in other EU Member States (with the exception of Denmark)
- In a confidential Dutch Scheme, the EIR is not applicable:
- The Dutch courts have jurisdiction if any of the affected parties is located in the Netherlands, or other aspects provide sufficient connection with the Netherlands.
- Recognition will depend on the international private law regime of the relevant jurisdiction. It is expected that the Dutch Scheme will be recognized in jurisdictions under the UNICTRAL Model Law, unless the relevant jurisdiction requires reciprocity.
9. Attuned to EU Directive on Restructuring and Insolvency (2019/1023)
Although the Dutch Scheme is largely in line with the requirements of the EU Directive 2019/1023 on Restructuring and Insolvency (which came into force on 16 July 2019), the Minister of Justice has decided to implement the Directive by amending the existing suspension of payments proceedings. Our earlier blog about the Directive can be found here.