NETHERLANDS Law and Practice Contributed by: Gianluca Kreuze, Ruben den Hollander, Anne van Geen and Sanne van Esterik, Loyens & Loeff
composition being a result of fraud. In addition, the court can refuse ratification upon request of a dissenting creditor or shareholder if: • the creditor or shareholder would be worse off than in a bankruptcy scenario ( “no creditor worse-off rule” ) • the statutory or contractually agreed ranking is deviated from to the detriment of this class, unless there is a reasonable ground for doing so and the interests of the creditors or share- holders involved are not prejudiced ( “absolute priority rule” ). The court will only rule on any motion invoking the absolute priority rule to the extent that the relevant creditor is part of a dissenting class; or • the relevant creditors are not offered a cash amount under the composition. Corporate (cross–)guarantees and declarations of joint and several liability by the target and its (material) subsidiaries are commonly used in group financings to enhance the creditwor- thiness of the borrower and provide additional security to lenders. In addition, the parent com- pany may be required to issue a parent guaran- tee to assure the obligations of its subsidiary, typically the borrower in the acquisition finance transaction. 6.2 Restrictions Guarantee Limitations Under Dutch law, there are no general legal restrictions on providing guarantees for obli- gations of third parties, except for the financial assistance prohibition applicable to a public lim- ited liability company ( naamloze vennootschap ). A public limited liability company is restricted 6. Guarantees 6.1 Types of Guarantees
from granting security or provide guarantees for debt used to acquire shares in its capital; its direct or indirect subsidiaries are prohibited from doing the same. In addition, corporate benefit rules which might play a role. A company (or the bankruptcy trus- tee on its behalf) can challenge the validity of a transaction if the company has acted beyond the scope of its corporate objects (ie, its busi- ness purpose) and the counterparty was aware or should have been aware thereof (generally this concept is referred to as “corporate benefit” or “ultra vires” ). In determining whether there is cor- porate benefit, all circumstances must be con- sidered. While the wording of the objects clause in the articles of association of the company is relevant, it is not decisive. In particular, it must be considered whether the interests of the com- pany are served by the transaction and, on the downside, whether the existence of the com- pany is jeopardised by the transaction. This is a factual test to be made by the management. The fact that the legal entity is part of a group can be taken into account (indirect benefit), particularly if the members of the group are economically and operationally intertwined. This test generally does not pose a problem on group financings for upstream guarantees and also not something that renders certain guarantee limitation wording applicable. 6.3 Requirement for Guarantee Fees Under Dutch law, there is no requirement for guarantee fees to be charged (but it might be necessary to deal with transfer pricing issues or to mitigate corporate benefit issues, if any).
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