The Dutch Scheme

Introduction

On June 20^th 2019, Directive 2019/1023 of the European Parliament and of the Council was published. This directive deals with frameworks for preventive restructuring and debt relief.

Once published, the period of 2 years for its transposition has begun, until 17 July 2021. This means that the Member States must adapt their legislation to the new Directive. It is foreseen that Member States can ask for an extension of 1 additional year.

The Netherlands does not seem to need to ask for such an extension. Nine days after the publication of the European Directive, it submitted a Proposal for a Bankruptcy Law to its Parliament. It introduces a framework allowing debtors to restructure their debts outside formal insolvency proceedings. This is the so-called “Dutch Scheeme”. It is intended to be the first transposition of the European Directive. Some experts indicate that being the first to legislate may grant some regulatory competence among Member States. For the rest of the countries it may be very useful to know the proposal of a neighbouring country.

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Characteristics of the Dutch Scheme

The Dutch Scheme offers the opportunity to financially restructure the debtor outside the insolvency proceedings. However, this debt restructuring is done within a judicial procedure and authorization. This procedure helps to restructure the debt or liquidate the company’s assets and distribute them to the creditors. The Dutch Plan gives a lot of flexibility and allows a wide range of possibilities.

Unlike the Spanish model, the Dutch proposal calls for a single procedure divided into three parts:

1. Opening of the procedure.
2. Preparation and approval of the restructuring plan.
3. Judicial confirmation.

This single procedure has two forms:

1. The public procedure: It can only be opened against debtors whose main centre is in the Netherlands. This procedure will be recognised in the other Member States.
2. Confidential proceedings: These can be opened against any debtor who has a sufficient connection with the Netherlands. It will not be recognized by the other countries of the Union.

This procedure, whether public or confidential, cannot be used by:

1. Consumers.
2. Credit institutions.
3. Insurance companies.

The directive leaves room for states to define the scope of the subject matter. The Netherlands proposes that it should be when it is reasonable to assume that the debtor will not be able to continue to fulfil his obligations on a regular basis. That is, the urgency of an impending insolvency. The alternative would be a bankruptcy procedure, a forced restructuring, and it basically means:

1. The continuation of financing against the group of its creditors.
2. The fall of all options on the future value of the debtor.
3. In most cases, the activity´s termination.

The Dutch proposal allows the debtor to decide on the scope of the restructuring. However, employees are excluded.

The restructuring must enable the debtor to continue his business by changing the conditions or structure of his assets and liabilities. This should enable debtors to restructure at an early stage. Also it enables to avoid insolvency and limit unnecessary liquidation in viable companies.

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Directive on Preventive Restructuring

Preventive restructuring is essential in Europe. 90 percent of bankruptcies end in liquidation.

Opening of proceedings

The Dutch Scheme does not only allow the debtor to initiate the procedure. It can also be initiated by creditors, shareholders or even employee representatives.

If it is communicated by the debtor, the debtor informs the court about the preparation of a restructuring plan. If the debtor is a legal entity, this communication does not require the agreement of the General Meeting.

The debtor can request that a restructuring expert be appointed. Once appointed, this expert will formally propose the restructuring plan and request judicial confirmation.

The Dutch believe that it may make sense to disassociate the board of directors from this process. This is due to directors can sometimes initiate it without the consent of the General Meeting. And, thus, cause tension in the company.

If authorisation is requested by creditors, shareholders or employee representatives, there must necessarily be an expert appointment.

In addition to drawing up the restructuring plan, this expert can also check the subject matter. The expert will act effectively, impartially and independently.

To this end, he may consult all the information on the debtor that he deems necessary. The expert’s salary will be set by the court and will be paid by the debtor in most cases. His work will be completed in two ways:

1. Either with the restructuring plan.
2. Or with a ruling that it is not feasible to reach a restructuring agreement. In this case, the debtor is doomed to the insolvency proceedings.

Preparation and approval of the restructuring plan

The proposal must have a minimum content, and be subject to advertisement, voting and reporting of results.

The minimum content must be:

1. Name of the debtor.
2. Name of the expert (if any)
3. The classes into which the creditors are divided
4. The expected value of the debtor if the plan is fulfilled.
5. The value of the debtor in the event of liquidation.
6. Expected financing.
7. Process and date for voting.
8. Information on employees´ involvement.
9. Financial and accounting information of the debtor.

That is, all the information necessary for the creditors and partners of the company to make a decision.

The plan will be considered approved when they vote in favour of it at least 2/3 of the total credits that exercised the right to vote.

The debtor or the expert will prepare a report on who exercised the vote and what was the meaning of the vote.

Once the restructuring plan has been submitted, the application for bankruptcy procedure is suspended for a period of 4 months. This period can be extended to 8 months.

Judicial confirmation

As soon as the proposal has been approved by at least one class of creditors, it is submitted for court confirmation.

If there is no opposition, the plan is confirmed by the court. The reasons for opposition may be as follows:

1. Those that affect the process matters and the adoption of the plan. That is to say:
   1. lack of subject matters,
   2. failure to comply with the information and notice requirements,
   3. the plan is not properly insured,
   4. The new financing is detrimental to the new creditors,
   5. The plan is detrimental to shareholders or creditors.
2. Those that affect their reasonableness, the liquidation fee and priority or credit preference rules.

This confirmation is dealt with by a group of expert judges. The decision of confirmation is unappealable.

Decision due to the Dutch Plan

The Ministry of Justice has decided to implement the Directive by amending the current suspension of payments procedure. This is despite the fact that the Dutch Plan is in line with EU Directive 2019/1023.

If you want to know more about bankruptcy procedures we suggest the following articles:

Debt restructuring and refinancing, differences and concepts

Security rights in debt refinancing