The Dutch government has published a new draft of the Dutch Continuity of Enterprises Act II (the "WCO II") which seeks to introduce pre-insolvency measures in the Netherlands.
A company in the Netherlands will be able to avoid bankruptcy by applying to the court to suspend payments. If granted, this will provide temporary relief against unsecured creditors to allow for the reorganisation of the business. The aim is to provide time for the debtor to satisfy the creditors' claims, under the supervision of a court appointed administrator. Alternatively, the debtor can offer an informal composition outside of insolvency.
However both have practical issues in that all creditors need to agree to an informal composition and secured creditors generally cannot be bound by a formal composition under the current legislation.
The WCO II is part of an ongoing initiative to reform insolvency law in the Netherlands. The revised draft comes three years after the first draft was published in August 2014.
The current draft incorporates elements of Chapter 11 of the US Bankruptcy Code as well as the Scheme of Arrangement under English law. The WCO II is aimed at companies seeking to avoid bankruptcy via a restructuring. The suggested framework would permit the directors of company to remain in control of the business throughout the process.
The restructuring plan will principally be proposed by the debtor but, in certain circumstances, can be requested by a creditor.
The plan does not need to apply to all creditors and shareholders. If the plan is limited to certain classes of creditors and shareholders, only those affected by the plan may vote. Unlike the English Scheme of Arrangement there will be no convening hearing or creditors meeting and the vote can take place electronically.
The plan will only be adopted when all classes that are affected approve it. In order for an affected class of creditors to approve the plan, at least two thirds of the creditors within the relevant class who vote must vote in favour for the plan to be approved. The same threshold applies to shareholders.
As the restructuring plan can be organised outside of formal insolvency proceedings, it can be finalised without any court involvement. However, the debtor can apply to the court to "cram down" dissenting classes and declare the plan universally binding on all classes regardless of whether they approved the plan.
The court approval mechanism should encourage creditors and shareholders to engage with the proposed restructuring to prevent bankruptcy and possibly circumvents rejection of a restructuring on unreasonable grounds. The WCO II also provides protection to creditors and shareholders by allowing them to apply to the court in the event that the proposed plan would place them in an adverse position compared with bankruptcy.
There will be no automatic stay of insolvency proceedings under the WCO II. However, the debtor can apply for a temporary stay of up to four months against insolvency proceedings, collection and enforcement actions. During the stay, a creditor cannot take any recourse against the assets of the company unless the court approves.
The WCO II also provides for the termination of onerous contracts and the ability to set aside ipso facto clauses.
Currently, the UK's insolvency regime is regarded as one of the most popular and cost-effective restructuring regimes. As such, it is an attractive regime that appeals to a number of international and cross-border entities.
It is unclear how Brexit will affect the popularity of the UK for cross border restructuring but if enacted, the WCO II will significantly enhance the restructuring options in the Netherlands and open the possibility of restructuring of international and cross border entities in the Netherlands.
The WCO II consultation period started on 5 September 2017 and will remain open until 1 December 2017. Providing there are no instrumental objections or amendments proposed during the consultation period, it is possible that the WCO II will be approved by the Dutch Parliament and come into force later this year.