The Act on confirmation of private restructuring plans (Wet homologatie onderhands akkoord) – which introduces a framework allowing debtors to restructure their debts outside formal insolvency proceedings (the “Dutch Scheme“) – was adopted by the Dutch Senate on 6 October 2020 and will enter into force on 1 January 2021. In previous blogs we have summarised when the Dutch Scheme can be used, who can make use of the initiative, and what action is required.
In this blog we further discuss the high degree of flexibility offered by the Dutch Scheme, and the possibility to affect group guarantees.
The Dutch Scheme gives a lot of freedom to all parties involved. The intention of the legislator was to minimise the involvement of the court.
- Types of proceedings
- The Dutch Scheme provides for two types of proceedings: disclosed proceedings and undisclosed proceedings.
- The disclosed proceedings will be published in the European insolvency register and in the Trade Register of the Chamber of Commerce. In addition, any hearing in the proceedings will be held in open court. The primary benefit of the disclosed proceedings is that it will be automatically recognised in other Member States (excluding Denmark), because this type of proceedings will be listed in Annex A to the European Insolvency Regulation (Recast).
- The undisclosed proceedings will not be disclosed in any register, and requests to the court will be dealt with behind closed doors. The primary benefit of the disclosed proceedings is that other parties (e.g. unaffected creditors, customers, or competitors) do not have to be made aware of the proceedings.
- Parties involved
- The debtor has the option of not including all creditors and shareholders in the restructuring plan. The debtor can, for example, decide to restructure only its financial debt, and to exclude the trade creditors provided that the restructuring plan complies with the confirmation grounds.
- The rights of the creditors that are not involved remain unaffected and should be complied with in full.
- Different possibilities
- The Dutch Scheme allows for a wide range of possibilities to restructure the debt. These possibilities include:
- An extension of payment, granting the debtor more time to meet payment obligations.
- A full or partial waiver of a claim, releasing the debtor from its payment obligations, in whole or in part.
- A debt for equity swap, providing that claims of certain creditors are converted wholly or partly into equity, thereby diluting or replacing the equity interest and the controlling interest of the existing shareholders.
- Amending the contractual terms of current agreements. The debtor or the restructuring expert may terminate an agreement, taking into account a certain notice period, if the counterparty does not agree to a proposed voluntary amendment of the contractual terms or termination if the court (i) authorises the early termination and (ii) confirms the restructuring plan. The counterparty will subsequently have a claim for compensation against the debtor, which claim can be amended in the restructuring plan.
- It is not possible to affect the rights of employees under employment contracts. The legal position of employees cannot be changed by a restructuring plan.
- Restructuring guarantees
- If a third party, including a guarantor or co-debtor, is liable for debt of the debtor against a creditor, or has provided security for the payment of that debt, the creditor shall in principle retain its right against the guarantor or co-debtor and any right which it may have in respect of property of this third party remains in place.
- However, a restructuring plan may also provide for an amendment of the rights of creditors against legal entities which are part of the debtor’s group, provided that:
- the rights of the creditors against these legal entities are intended to satisfy or secure the performance of the obligations of the debtor, or of obligations for which those legal entities are liable with or in addition to the debtor;
- these legal entities are in the position that it is reasonably likely that they will not be able to continue paying their debt;
- these legal entities have agreed to the proposed amendment, or the restructuring plan has been proposed by a restructuring expert; and
- the Dutch court would have jurisdiction if these legal entities were to initiate a Dutch Scheme.
The above shows that the options for restructuring are virtually endless.