NETHERLANDS Law and Practice Contributed by: Folko de Vries, Ilse van Gasteren, Robert Smits and Stern Flik, Clifford Chance
court will in such case appoint a trustee in bank - ruptcy, or an administrator, who will be in control of the process. Although in some cases a sale of a business can be done during insolvency, normally these processes lead to a liquidation of the business. 7.2 Waterfall of Payments During insolvency, a secured creditor can take recourse against the secured assets in full. Any residual claim constitutes an unsecured claim which shall rank pari passu with the other unse - cured creditors in the insolvency. All the costs of the estate, including the salary of the bank - ruptcy trustee, costs for liquidation and potential litigation in relation thereto, investigation of the causes of bankruptcy, rank ahead of unsecured creditors. Also, tax claims and certain employee and rental obligations shall have a prior ranking ahead of the unsecured creditors. In the major - ity of insolvencies in the Netherlands there is no distribution available for unsecured creditors. 7.3 Length of Insolvency Process and Recoveries Dutch insolvency proceedings take several years and all the costs of the bankruptcy will be paid, as a preferred claim, out of the estate val - ue. This means that insolvency proceedings are often value destructive. Also, secured creditors can take recourse outside of the bankruptcy pro - ceeding, but unsecured claims will only receive payment (if value is available to them) at the very end of the insolvency proceeding. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency Under Dutch law a debtor can initiate a Dutch Scheme/WHOA process to implement a restruc - turing, which is a cram-down procedure that can involve write-off of debt, extension of matu - rity dates, debt-for-equity swaps and similar
arrangements. The WHOA has become available in 2021, in the same period as the UK restruc - turing plan, which is a similar restructuring tool. Since implementation, the WHOA was first used very frequently by smaller companies, but since 2023 it is also used by large companies and even in parallel with UK schemes/restructuring plans as well as Chapter 11 proceedings. 7.5 Risk Areas for Lenders Insolvencies are usually value destructive and all costs of the bankruptcy will need to be paid out of the estate. Upon the opening of the insol - vency proceeding, a court-appointed trustee in bankruptcy will take over, which means there is loss of control. Furthermore, a trustee in bank - ruptcy is obliged to investigate the causes of bankruptcy, which include preferential trans - actions and any form of director and or lender liability claims. Lender liability is not often estab - lished in the Netherlands. 7.6 Transactions Voidable Upon Insolvency Transactions that have been prejudicial to the creditors of the borrower can be voided if certain conditions are met. Most importantly, it must be established that there was knowledge of such prejudicial effect, which is a high threshold. However, there are certain suspect transactions for which a reversal of burden of proof applies, including transactions that are undervalued or intragroup transactions. Those transactions cause a higher risk of being voided, if they have been entered into within one year prior to the insolvency. 7.7 Set-Off Rights Set-off can be applied during insolvency.
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