In our previous blog, we summarised the Dutch Scheme and explained that either (i) the debtor or (ii) any of its creditors, shareholders or employee representatives (the "creditors et al") may take the initiative for the Dutch Scheme.
In this blog, we further discuss when the scheme can be used, and go into greater detail concerning by whom.
When can the scheme be used?
- A debtor is entitled to propose a restructuring plan to his creditors or shareholders when the debtor is in a situation whereby it can be reasonably expected that he will not be able to continue paying his debts.
- In summary, this means that the debtor has sufficient liquidity to meet his short-term obligations, but reasonably expects that without a restructuring of the debt, the debtor will not be able to prevent a future insolvency.
- An example is the situation in which the debtor foresees that he will not be able to repay or refinance a loan that will become due and payable within six months or a year, and foresees that such a failure would result in bankruptcy.
- Similarly, when the creditors et al take the initiative for a restructuring plan, the debtor has to be in a situation that it can be reasonably expected that he will not be able to continue paying his debts. It may or may not be difficult for the creditors et al to substantiate this. The court can appoint an expert to investigate whether the debtor is in such a situation.
- The debtor is not entitled to propose a restructuring if a previous attempt to arrange a Dutch Scheme has failed in the past three years. Such previous failure does not limit the ability of creditors et al to request the appointment of a restructuring expert.
Who can take the initiative and what actions are required?
- First, the debtor can take the initiative. If the debtor takes the initiative, the Dutch scheme will formally start when (i) the debtor files a declaration with the competent court, declaring that he has started preparing a restructuring plan or (ii) the debtor requests the court to appoint a restructuring expert.
- The filing of the declaration does not immediately result in court involvement. The purpose of the declaration is that once the declaration is filed, the debtor can request certain measures from the court. For example, (i) authorisation to obtain financing (ii) allowing a cooling-off period, or (iii) other measures protecting the interests of the creditors and shareholders.
- The debtor does not require shareholder consent for a restructuring plan under the Dutch Scheme. This measure aims to prevent that the management board is unable to initiate the restructuring process in the event that the shareholders oppose such a plan.
- Second, the creditors et al may take the initiative for the Dutch Scheme. They cannot propose a plan themselves; they must file a request with the competent court to appoint a restructuring expert. The court will subsequently hear the requesting party, as well as the debtor.
- The court will in principle grant the request if the creditors et al, or the court-appointed expert, demonstrate that the debtor is in a situation whereby it can be reasonably expected that he will not be able to continue paying his debts.
- An exemption applies in case it appears that appointing a restructuring expert would not serve the interests of the joint creditors.
- An example of this exemption is the situation when the application is submitted by a creditor, who apparently does so in order to frustrate or delay an ongoing restructuring process, aiming to create a better bargaining position for himself, while the joint creditors are disadvantaged by such ‘strategic’ behavior and the associated delay.
- In case the creditors et al request for the appointment of a restructuring expert while the debtor has already taken the initiative for a Dutch Scheme, the court will balance the costs and delay involved with the appointment of a restructuring expert against the direct or indirect benefit for the joint creditors stemming from the appointment. The court must grant a request for the appointment of a restructuring expert if the request is submitted by the debtor himself, or is supported by the majority of creditors.
In our next blog, we will discuss the high degree of flexibility offered by the Dutch Scheme.