NETHERLANDS Law and Practice Contributed by: Eduard Scheenstra, Etiënne Courbois and Jenny Noordermeer, CMS
often taking a few months from initiation to court approval, provided there is sufficient agreement among the creditors. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency In the Netherlands, there are several mechanisms available for companies facing financial distress that allow for rescue or reorganisation outside of for- mal insolvency proceedings. These procedures are designed to help companies restructure their debts, operations, or corporate structure without the stigma and consequences of formal bankruptcy ( faillissement ) or suspension of payments ( surseance van betaling ). WHOA (Wet Homologatie Onderhands Akkoord) – The Dutch Scheme The most significant development in recent years is the introduction of the WHOA, which came into effect on 1 January 2021. The WHOA provides a legal frame- work for companies to restructure their debts through a court-sanctioned private composition (agreement) with creditors and shareholders, without entering into formal insolvency proceedings. • Key Features: (a) The debtor remains in control of the business (debtor-in-possession). (b) The procedure can be initiated by the company or, in some cases, by creditors. (c) The company can propose a restructuring plan to (some or all) creditors and shareholders. (d) The plan can be made binding on dissenting creditors and shareholders if approved by the court (cram-down). (e) The process is flexible and can be conducted publicly or privately. (f) The company can request a temporary stay of enforcement actions (moratorium) during negotiations. Out-of-Court Workouts Before the introduction of the WHOA, and still com- monly used, are informal out-of-court workouts. These are private negotiations between the company and its creditors to restructure debts or agree on new payment terms.
• Key Features: (a) No formal legal framework; based on voluntary agreement. (b) Typically used for smaller companies or where there are only a few creditors. (c) No court involvement, so no ability to bind dis- senting creditors. (d) Often facilitated by financial advisers or media- tors. 7.5 Risk Areas for Lenders When a Dutch borrower, security provider, or guar- antor becomes insolvent, several risk areas arise for lenders. These risks stem from Dutch insolvency law, the practicalities of enforcement, and the potential for challenges to security interests or guarantees. Below is a detailed overview of the key risk areas: Risk of Claw-Back (Actio Pauliana) Dutch insolvency law allows an insolvency administra- tor (curator) to challenge and potentially unwind trans- actions that were prejudicial to creditors. This includes the granting of security or guarantees shortly before insolvency, especially if the lender was aware of the debtor’s financial difficulties. Transactions can be set aside if they were not at arm’s length or if they unfairly favoured one creditor over others. Moratorium on Enforcement Upon the opening of insolvency proceedings ( fail- lissement ), a general stay is imposed on enforcement actions. Lenders may be prevented from enforcing their security or guarantees, except in limited circum- stances (eg, certain financial collateral arrangements). This can delay or reduce recoveries. Ranking and Priority Issues Secured creditors generally have priority over unse- cured creditors, but certain claims (such as preferen- tial claims for employee wages or tax authorities) may rank ahead of or pari passu with secured claims. The value of the secured assets may also be insufficient to cover the outstanding debt, especially after costs
of the insolvency estate are deducted. Limitations on Guarantees and Security
Guarantees and security provided by Dutch entities may be subject to limitations, such as corporate bene-
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