On 1 January 2021, the Act on confirmation of private restructuring plans (Wet homologatie onderhands akkoord, the "Dutch Scheme") came into effect. At time of writing (25 February 2021), the Dutch courts have rendered 10 judgments in connection with the Dutch Scheme. This blog provides you with the highlights of this case law.
- Based on the information included in the judgments, all cases seem to relate to SMEs.
- One debtor decided to enter into public proceedings, while the others chose the confidential version of the Dutch Scheme.
- 5 out of 10 judgments were rendered by the (relatively small) Noord-Nederland District Court.
- Until today, there have been 4 judgments concerning the appointment of a restructuring expert.
- Each creditor, each shareholder, the debtor's works council, or the debtor itself may ask the court to appoint a restructuring expert. In the abovementioned 4 cases the debtor took the initiative for the appointment of a restructuring expert.
- In each judgment relating to the appointment of a restructuring expert, the District Court addresses the fact that the restructuring expert must perform its duties effectively, impartially and independently. From those judgments, it may be concluded that the restructuring expert should not be too intensively involved before being appointed: he/she should receive information and discuss the company's situation only to the extent that is required for the proposed restructuring expert to provide a fee estimate.
- The District Court also noted that the most important feature of the restructuring expert is his/her ability to connect the stakeholders involved.
Cooling-off period and lifting attachments
- 4 of the 10 judgments rendered since 1 January 2021 relate to a cooling-off period and/or lifting attachments.
- By way of background: if (i) the debtor has submitted a declaration to the court notifying the court that it is preparing a composition plan, and has committed to offering a composition plan within two months or has already offered a composition plan, or (ii) a restructuring expert has been appointed, the debtor or the restructuring expert may request the District Court to order a cooling-off period with a maximum duration of 4 months (which may be extended for another 4 months).
- The District Court will in principle grant the cooling-off period if:
- the cooling-off period is necessary to continue the debtor's business during the preparation and negotiations on the composition plan;
- the cooling-off period is considered to be in the interest of the creditors; and
- the interests of the creditors and any third parties, including any parties that levied attachments, are not significantly prejudiced by the cooling-off period.
- During the cooling-off period, parties cannot take recourse on the debtor's assets without prior authorisation of the court, any hearing on insolvency proceedings is suspended and the court may determine that attachments are lifted.
- In 3 judgments, the District Court has ruled that the cooling-off period was necessary to continue the debtor's business, including in a case where the offered composition plan was offered to arrange a controlled liquidation. The Amsterdam District Court ruled that a reasonable interpretation of the law provides that a cooling-off period can also be necessary for the continuation of business in view of a controlled liquidation.
- In the 3 cases, the District Courts also tested whether the cooling-off period was in the best interest of the creditors and deemed it relevant that under the envisaged composition plans, the creditors were better off than in case of bankruptcy.
- In the cases where it was also requested to lift attachments, the District Courts has taken the following circumstances into account: (i) that the value of the attached assets would not decrease as a result of the cooling-off period, (ii) that the debtor needed access to the attached assets to continue its business (otherwise a bankruptcy would be inevitable) and (iii) that the creditor that had levied attachments had been provided with security and was authorised to exercise its rights during the cooling-off period.
- In order to protect the interests of creditors during the cooling-off period, the District Courts have determined that the debtor must inform the District Court of its progress with regard to the composition plan or appointed an observer.
- In one of the judgments, the application was inadmissible, because no restructuring expert was appointed, no composition plan was offered, and the debtor had not committed himself to offer a composition plan within two months.
Confirmation of composition plan and termination of agreement
- To date, one composition plan has been confirmed.
- The debtors involved are Jurlights B.V. and Jurlights Holding B.V. ("Jurlights"), both SME companies operating in the event industry, which has stalled as a result of COVID-19.
- The procedure was finalised within 6 weeks:
- On 11 January 2021 the start declaration was submitted.
- Jurlights submitted the request for confirmation on 22 January 2021.
- The confirmation hearing took place on 2 February 2021.
- The District Court approved the composition plan on 19 February 2021.
- Jurlights opened a secured website to which only its creditors had access, where it uploaded relevant information on the composition plan such as valuations, the composition plan itself and financial information. The website was also used to vote on the composition plan. Voting took place prior to opening of the formal proceedings.
- The District Court ruled that each legal entity has to offer its own composition plan; offering a joint composition plan is not possible, but two separate plans can be submitted for confirmation at the same time with the same court. Although in this case there seems to have been some lack of clarity in this respect, the District Court decided not to attach any consequences thereto, considering inter alia that all classes of creditors voted in favour of the composition plan.
- The Dutch tax authorities consented to a deviation from the statutory order or priority: the Dutch tax authorities (which have priority over ordinary creditors) voted in favour of the composition plan and therefore agreed to grant full and final discharge in return for payment of 21% of its outstanding claim, whilst ordinary creditors also received 16% of their claims.
- All classes voted in favour of the plan. One opposing creditor requested the District Court to reject the confirmation of the composition plan. The District Court however confirmed the composition plan, because (i) none of the general grounds for rejection were met and (ii) the (opposing) creditors were better off under the composition plan than in case of bankruptcy. Considering that all classes voted in favour of the composition plan, the District Court did not have apply the other specific rejection grounds such as the absolute priority rule.
As part of the confirmation of the composition plan, the District Court granted its consent to the termination of a long term agreement between Jurlights and one of its creditors, and ruled that Jurlights had to observe a notice period of 3 months.