Insolvency 2024 Comparisons

The main source of national insolvency law in the Netherlands is the Bankruptcy Act (Faillissementswet). In addition, many company law (but also some insolvency law) matters are laid down in Book 2 of the Civil Code. Furthermore, an important source of international insolvency law is the Insolvency Regulation (recast).

For banks, insurance companies and investment firms there are specific proceedings contained in the Bankruptcy Act as well as the Financial Supervision Act (Wet op het Financieel Toezicht).

If a company debtor is not wound up out of court (liquidated or turbo liquidated) or restructured by way of a court-approved private restructuring plan, it may be declared bankrupt (failliet) and granted a suspension of payments (surseance van betaling). Natural persons (individuals) can be declared bankrupt or be allowed a statutory debt restructuring (toegelaten tot de WSNP). Suspension of payment is granted to natural persons only if they exercise an independent profession or business.

Liquidation

Outside bankruptcy situations, a legal entity is usually dissolved by a resolution of the general meeting, or the board if it is a foundation. In addition, a legal entity can be dissolved:

• by an event that, according to its articles of association, results in dissolution;
• if the legal entity is an association, by the complete absence of members;
• by the court in the instances provided by law; or
• by an order of the chamber of commerce and industry, for instance, if during at least one year no directors of the legal entity are on record as registered in the register and the legal entity is in default, for at least one year, in performing its obligation to publish its annual accounts.

If the legal entity has any assets, they must be liquidated (monetised) and the proceeds used to pay the creditors; any liquidation surplus may be distributed to the shareholders or members (or, in the event of a foundation, used for a goal similar to that of the liquidated foundation). Usually, the board will act as liquidator, but, for example, in the case of dissolution by the court, the court may appoint a third party as a liquidator.

Turbo Liquidation

In the event that the legal entity has no assets and also no assets are expected at the time of dissolution, the entity immediately ceases to exist; this is called a “turbo liquidation”. In this case, the board must file various documents with the trade register where the company is registered, such as:

• a balance sheet and statement of income and expenditures relating to the financial year of dissolution;
• a description of the cause for the lack of assets at the time of dissolution; and
• the annual accounts for the financial years preceding the financial year in which the legal entity is dissolved.

After the filing, the board notifies the legal entity’s creditors thereof.

When a legal entity has liabilities but (virtually) no assets, and it is not expected that assets will be generated, filing for bankruptcy by the board may, in principle, be considered abuse of power. Instead, the legal entity should be dissolved.

Confirmation of a Private Restructuring Plan

Under this scheme (Wet Homologatie Onderhands Akkoord, or WHOA), a debtor may offer (some of) his/her creditors and/or his/her shareholders a restructuring plan that provides for a modification of their rights. The debtor has this option if he/she is in a situation in which it is reasonably plausible that he/she will not be able to continue to pay his/her debts. If at least one class of creditors has accepted the proposed restructuring plan, the court can confirm this restructuring plan, by which it becomes binding on all creditors and shareholders with voting rights, even if they have voted against it. In other words, this procedure involves the restructuring of debts by means of a (forced) restructuring plan.

The WHOA is included in the Bankruptcy Act, but we shall regularly discuss this procedure separately from the other insolvency procedures because of its different nature.

Statutory Debt Restructuring for Natural Persons

A natural person may, if it is foreseeable that he/she will not be able to continue to pay his/her debts as they fall due, or if he/she has already ceased to pay the due debts, request the court to apply the statutory debt restructuring on him/her. If the debtor successfully completes the debt restructuring process, which lasts, in principle, one and a half years, the debtor obtains a so-called clean slate (schone lei). This means that the creditors’ remaining claims, which could not be satisfied from the debtor’s assets, are no longer enforceable.

Suspension of Payments

A debtor who anticipates that he/she will not be able to proceed with the payment of his/her debts as they fall due may apply for a suspension of payments. In practice, suspension of payments is usually granted provisionally immediately. By granting the application, the debtor is granted a temporary moratorium, meaning that payment of debts of, in principle, unsecured creditors which exist at the time of granting the suspension of payments may not be enforced. The debtor remains authorised to dispose of his assets but only with the permission of a court-appointed administrator (bewindvoerder). The purpose of the moratorium is to ensure that the debtor can satisfy his/her creditors over time. To this end, the debtor may offer his/her creditors a restructuring plan. Even though it is also conceivable that the situation improves so much that the debtor can resume paying his/her debts and the suspension of payments can terminate for that reason, most suspensions of payments are unsuccessful in that they end in bankruptcy.

Bankruptcy

The moment a creditor is in a state where he/she has stopped paying his/her due debts, he/she can be declared bankrupt at his/her own request or at the request of his/her creditors or the public prosecutor. By declaring bankruptcy, the debtor loses the right to dispose of and manage his/her assets, and the appointed trustee (curator) is charged with managing and liquidating the bankruptcy estate. The aim of bankruptcy is liquidating (monetising) the assets and distributing the proceeds among the creditors in accordance with their respective ranks. However, bankruptcy may also end because the debtor offers a restructuring plan to creditors (and thus be used as a restructuring means).

The management board requires approval from its shareholders to file for bankruptcy of the company they manage.

Statutory Debt Restructuring for Natural Persons

Administrator (debt restructuring)

In the debt restructuring scheme for natural persons, the administrator has a role similar to the one of the trustee in bankruptcy: he/she is in charge of managing and liquidating the estate. However, he/she also has the task of supervising the debtor’s compliance with the obligations arising from the proceedings, such as the obligation to apply for a job with the aim of bringing in more money to be distributed among the creditors. An administrator in the debt restructuring scheme is appointed by the court from a list of administrators who are recognised by the Legal Aid Board (Raad voor Rechtsbijstand).

Supervisory judge

The supervisory judge (rechter-commissaris) in the debt restructuring scheme is tasked with ensuring that the administrator performs his/her duties properly. In other words, supervision of the administrator’s management and liquidation, and supervision of the administrator’s supervision of the debtor. Also, the supervisory judge determines which amount shall be left at the free disposal of the debtor in order to support himself/herself. The supervisory judge is a member of the court.

Court

The court makes several important decisions with regard to the debt restructuring scheme; for example, it is the one that decides on the application and termination of the scheme. Most decisions are made in the interim, but it can do so even afterwards. For example, the clean slate can be revoked by the court if it turns out that it was wrongfully granted.

Suspension of Payments

Administrator (suspension of payments)

The administrator in suspension of payments is appointed with the interests of creditors in mind. The debtor remains authorised to manage his/her assets and even to dispose of them, but he/she will require the administrator’s consent. Conversely, the administrator needs the debtor’s co-operation for any decision he/she wants to make concerning the debtor’s estate.

In practice, administrators are always lawyers. The court will, upon granting the provisional moratorium, appoint an administrator depending on his/her experience and the complexity of the case.

Supervisory judge

The main duties of the supervisory judge in the suspension of payments procedure are to provide the administrator with advice, if required. In addition, at the administrator’s request, the supervisory judge can hear witnesses or order an expert investigation.

Court

The court makes several important decisions regarding suspension of payments. For example, it is the one that grants the suspension of payments provisionally, and then, following a hearing of the creditors, may grant it definitively for a period not exceeding one-and-a-half years (including the term of the provisional suspension of payments) or reject it, whereupon the debtor can be declared bankrupt. In addition, to protect the interests of creditors, the court can take any measures it deems necessary during the proceedings on the recommendation of the supervisory judge or at the request of the administrator or of one or more creditors, or ex officio.

Confirmation of a Private Restructuring Plan

Restructuring expert

A restructuring expert can be appointed at the request of a creditor, shareholder, employee representation, works council, or the debtor. If a restructuring expert has been appointed, he/she has the (exclusive) power to offer a restructuring plan to the creditors, and he/she performs his/her duties effectively, impartially, and independently. In doing so, he/she has broad duties and powers, such as the ability to propose amending or terminating agreements, or a request for a cooling-off period. In the petition for the appointment of a restructuring expert, a minimum of two and a maximum of three names of potential restructuring experts are to be put forward. Who exactly will be appointed as restructuring expert is determined by the court and will depend, in particular, on whether the restructuring expert has the trust of the board and the shareholders and creditors, and whether he/she has specific (sector) knowledge. As yet, there is no national list of restructuring experts to be appointed.

Observer

Under the WHOA, if the debtor prepares a restructuring plan himself/herself, the court may, ex officio or at the debtor’s request, appoint an observer. His/her role is to supervise the preparation of the restructuring plan and he/she must keep an eye on the interests of the collective creditors. For the appointment of an observer, the court uses the list of bankruptcy trustees. For the appointment of an observer in a specific restructuring, the size of the estate/business, and the knowledge and experience of the intended observer are considered, among other things.

Expert

In addition, the court can appoint an independent expert, who will advise the court. The court itself can appoint this expert and it can also formulate the questions to be asked to the expert; the debtor, shareholders and creditors, in principle, do not have a role in this.

Court

The role of the court is, in principle, limited under the WHOA with an eye to the expedited character of the proceedings and deal certainty.  Nevertheless, the court can be involved early in the proceedings, for instance if a request is made to declare a cooling-off period, or when an interim judgment is required in respect of a certain aspect of the case. The court may, however, be involved for the first time only when the restructuring plan is submitted to it for confirmation.

Bankruptcy

Supervisory judge

The bankruptcy judge is charged with the supervision of the administration and liquidation of the bankrupt estate by the trustee. Moreover, he/she is an adviser to the court, of which he/she is a member. The supervisory judge may hear witnesses or order an expert’s investigation in order to clarify all circumstances relating to the bankruptcy. He/she may also appoint an expert to the extent necessary for the proper and effective supervision of the management and liquidation of the bankruptcy estate. Each creditor, the creditors committee and also the bankrupt, may lodge an application with the supervisory judge to object to any act of the curator or to petition that the supervisory judge order the curator to perform or refrain from performing any contemplated act.

Trustee

The court appoints a trustee upon declaration of bankruptcy, taking into consideration his/her experience and the complexity of the bankruptcy. The debtor loses the right to dispose of, and to manage, the assets belonging to the bankrupt estate, and the trustee is in charge of managing and liquidating the bankrupt estate. As a result, third parties cannot derive any rights against the estate from the debtor’s actions, and only the trustee can bind the bankrupt estate. In practice, trustees are, almost without exception, lawyers.

Creditors’ committee

A creditors’ committee can be set up in bankruptcy, but in practice this quite rarely happens and then only in large bankruptcies. If it is set up, the trustee is obliged to seek its advice on important issues. In addition, the creditors’ committee has the task of advising the creditors’ meeting. Only a representative of an important group of creditors can be a member of the creditors’ committee.

Court

In bankruptcy, the role of the court differs substantially from that of the supervisory judge. Rather than supervising, the court has a role as decision-maker in bankruptcy. The court, for example, decides about the opening of the bankruptcy proceedings. Also, many orders of the supervisory judge may be appealed before the district court.

In the Netherlands, a distinction is made between creditors with secured claims, preferential claims, unsecured claims, and subordinated claims. Moreover, there are creditors with claims directly against the bankrupt estate instead of against the debtor (“estate claims”; boedelvorderingen).

Creditors with preferential claims have priority over unsecured and subordinated creditors. This priority arises from pledge, mortgage and statutory privilege and from the other grounds specified in the law. Within the category of preferential claims, pledge and mortgage take precedence, in principle. Also, special privileges regarding a particular asset take precedence over (general) privileges on all assets belonging to the estate.

Creditors with unsecured claims are creditors with no preferential claim and no subordinated claim.

Creditors with subordinated claims are creditors who have agreed with the debtor that their claim ranks lower than (some) other creditors. Shareholders are sometimes seen as subordinated creditors, although in fact they rank even lower than them.

WHOA

Under the WHOA, there are no true priority claims (apart from those discussed in 2.1 Types of Creditors). However, certain claims are protected under the WHOA because the law stipulates that they cannot be restructured under the plan – for example, the rights of employees employed by the debtor, or financial collateral arrangements and set-off clauses. Furthermore, a secured money loan to continue the business during the WHOA procedure is protected from an actio pauliana that a trustee could invoke in case the company goes bankrupt.

Bankruptcy

After the opening of the bankruptcy proceeding, estate claims may occur. An estate claim gives a claim on the estate instead of against the debtor, which in principle must be paid directly by the trustee. An estate claim has priority over so-called bankruptcy claims: preferential claims, unsecured claims, and subordinated claims. A bankruptcy claim arises (i) by virtue of the law; (ii) because the trustee in bankruptcy entered into it in his/her capacity; or (iii) because it results from actions by the trustee in breach of an obligation. Examples of estate claims are the rent from the day of the bankruptcy declaration, and wages and social security premium related to the employment contract against a bankrupt employer from the day of the bankruptcy declaration.

As soon as the trustee is faced with a negative estate (being a bankruptcy in which not all estate claims can be fully paid), an order of priority also comes into play between the estate claims themselves. This may involve super estate claims, costs of execution, preferential estate claims, and unsecured estate claims.

Secured claims of pledge and mortgage holders (separatists) can be settled outside the bankruptcy (to the extent covered by security), and they can exercise their rights as if there were no bankruptcy. Because they remain outside the bankruptcy, they do not have to contribute to the bankruptcy costs.

Suspension of Payments and Debt Restructuring Scheme for Natural Persons

In the suspension of payments and debt restructuring scheme for natural persons, the estate claim fulfils a similar role as in bankruptcy. However, in accordance with the system and goal of the debt restructuring scheme, the number of estate claims is much less than in other insolvency situations. Current terms of long-term contracts, such as rent and utilities, existing at the time of the court order applying the debt restructuring scheme, fall under the scope of the debt restructuring scheme. Debts arising during the term of the debt restructuring plan are, in principle, excluded from it. The debtor must pay these debts using their own resources not included in the debt restructuring plan. An exception to this rule is made for claims arising from business continuation, which may qualify as estate claims.

In order to obtain more security with regard to the payment of a claim, in the Netherlands a creditor can rely on various (in rem) security rights. These may include the vesting of a right of mortgage or a right of pledge in respect of goods that are transferable. Another possibility is a right of retention, according to which a creditor may suspend the return of a good to the debtor or a third party until the claim is satisfied, or a retention of title.

A right of mortgage can be established on a registered property, such as real estate, and a registered vessel or aircraft. It requires a notarial deed and registration in the relevant register. The right of pledge can be established on any property belonging to another person that is not a registered property. A pledge can take the form of a possessory pledge, where the pledged property is in the power of pledgee, and a non-possessory pledge, where the pledged property remains in the power of the pledgor. If it does not concern movable property, but receivables, it is a public pledge or an undisclosed pledge.

A right of pledge on a share in a company is established by notarial deed. The rights attached to the share cannot be exercised until the pledge has been acknowledged by the company or served on the company. In order to have effect against third parties, the pledge on shares must be entered into the shareholders register.

A pledge can be established on movable property by bringing the property into the power of the pledgee (possessory pledge), or by authentic or registered deed (non-possessory pledge). Personal claims (vordering op naam) can be publicly pledged by a deed, and notice thereof to the debtor. A non-public pledge can be established on personal claims by authentic deed or registered private deed. Furthermore, there is the option to pledge future receivables in advance.

Intangible property/rights, such as intellectual property rights, can also act as collateral. For example, copyrights, patent rights and trade mark rights can be pledged. For each intellectual property right, however, it should be considered whether it is transferable (and therefore pledgeable) and, if so, which formalities need to be met. For example, a pledge on a patent is established by bilateral deed, whereas on a trade mark right or copyright it is established by deed.

Rights of Secured Creditors

A security creditor has the power, in the event the debtor is in default of payment of that for which the security interest has been established, to sell the security object and recover his/her claim from the proceeds. In other words, execution takes place without the need for a prior attachment and an enforceable title. The security comes with the fact that the secured creditor can easily proceed with the enforcement (ie, the sale of the security object), and then has priority over the proceeds.

How the enforcement is exercised depends on the security object. Usually, the pledgee will proceed to a public sale of the pledged object (an auction); in principle, the pledgee is not allowed to appropriate the pledged object. If the pledged object is a monetary claim against a third party, the simplest way for the pledgee to recover their debt is to collect the claim and offset it against his/her own claim against the pledgor. He/she can proceed to do so after notifying the debtor of the pledged claim of the pledge. When selling mortgaged property, as a rule, the sale takes place in public before a notary.

In addition, the pledged or mortgaged property can be executed in an alternative manner with the permission of the interim relief judge. For example, when executing a pledge on shares, there may be a need to execute in a different way than a public sale. A private sale with the permission of the interim relief judge might lead to a more desirable result, as it might generate higher proceeds or because a transfer restriction blocks the public sale of shares.

An unsecured creditor has several powers he/she can also invoke against a debtor. One of them is a retention of title in the event of a sale of goods. Such a reservation will occur in the form of a transfer under the suspensive condition of satisfaction of a certain performance, mostly payment of the purchase price. As long as this condition is not met, the selling party will retain full ownership of the delivered goods.

Besides the possibility of rescinding a contract, there is also the possibility for a creditor to invoke the right to claim back unpaid goods (recht van reclame). This statutory right entails that a seller of non-registered property, if the buyer fails to pay (in full), can reclaim the object, and regain ownership. The right of reclamation lapses after a very short period, namely on the expiry of both six weeks since payment of the purchase price became due and sixty days from the day on which the goods were delivered to the buyer or to someone on his/her behalf.

In addition, a creditor may have a power of suspension. This means that a person, who has a claim against his/her creditor that is due and payable, may defer the performance of his/her obligation until the payment of his/her claim has taken place. If the suspension concerns an obligation to deliver goods, such person may also have a right of retention. This means that he/she may suspend the obligation to deliver the goods until the claim is satisfied.

Unless this is contractually prohibited, there may also be the power of setting off a claim with a counterclaim.

Finally, a creditor may request the interim relief judge for (ex parte) permission to make a prejudgment attachment (conservatoir beslag) on specific assets of the debtor. The prejudgment attachment is just a conservatory measure; the creditor must obtain an enforceable title in order to be able to sell any attached asset and recover his/her claim from the proceeds. However, an enforceable title is not only a court judgment, but also, for instance, a notarial deed of pledge, so a creditor who possesses such a notarial deed does not need to ask permission from the interim relief judge to make the attachment but may enforce his/her claim directly.

A debtor in financial distress has the option to restructure his/her debts by means of an out-of-court/consensual restructuring. An out-of-court restructuring takes place in the form of an agreement, concluded on the basis of consensus without the involvement of a court. The debtor retains control of the company. Under Dutch law, there is no obligation to enter into consensual restructuring negotiations before, for example, formal insolvency proceedings are initiated.

Since an out-of-court restructuring is based on consensus and is in fact an agreement, it usually requires the unanimous consent of all creditors or stakeholders. A debtor may choose not to propose the restructuring plan to all creditors, but this will usually not generate support from the creditors. In general, creditors are more likely to co-operate in such restructurings if their position in a potential bankruptcy or suspension of payments procedure is less optimistic, such as unsecured creditors. On the other hand, creditors with security rights, guarantees or sureties, and consequently a good or even better prospect of recovery in insolvency proceedings, may have less incentive to co-operate in an out-of-court restructuring.

A creditor, in principle, is allowed to act in his/her own interest and claim payment of the full value of his/her claim. A dissenting party can only be forced to agree to an out-of-court restructuring plan under exceptional circumstances. An exception may be made if a creditor’s conduct entails abuse of power (Article 3:13 DCC) and the creditor could not reasonably have refused acceptance of the offer (see 4. Statutory Restructuring, Rehabilitation and Reorganisation Proceedings for a procedure with wider opportunities to bind a dissenting party).

An out-of-court restructuring plan is a consensual agreement that binds those who have voluntarily agreed to it or (in exceptional cases) have been ordered by the court to agree. It does not affect those to whom the restructuring plan is not offered or do not agree. In addition, an out-of-court restructuring plan does not prevent individual dissenting creditors from initiating collection and/or enforcement measures.

The WHOA is a statutory procedure in the Netherlands, which aims to strengthen the reorganisational capacity of businesses. The WHOA focuses primarily on businesses that are in danger of insolvency due to excessive debts, but which still have profitable business activities. This procedure allows debtors to restructure their debts in a pre-insolvency phase, even when there is an absence of consensus among creditors and/or stakeholders.

In principle, the WHOA applies to any debtor running a business, regardless of the legal form in which it is operated. A debtor has access to the WHOA if it is in a state where it is reasonably likely that it will not be able to proceed with the payment of its debts. This means that the debtor is still able to meet its current obligations but foresees that it will not be able to avoid future insolvency if its debts are not restructured. If the debtor is part of a group of companies, (guarantee) obligations of group companies might be included in the restructuring plan.

If the aforementioned state exists, the debtor itself can offer a restructuring plan to its creditors and shareholders, but there is also the possibility that creditors, shareholders or a works council or employee representative body within the company may take the initiative. The initiator has two options under the WHOA: a non-public or a public procedure. Which procedure is preferable will depend on the specific circumstances of the restructuring. Most debtors will prefer a non-public procedure to avoid (negative) publicity potentially disrupting the restructuring. On the other hand, the EIR (recast) applies to the public procedure, which may (or may not) be in the interest of the debtor in cross-border situations. For example, the applicability of the EIR may have different consequences for the competence of the Dutch court, creditors with security rights in rem on assets abroad, or international recognition of the restructuring plan.

The debtor has the discretion to include all creditors and shareholders in the restructuring plan, or just certain categories (“classes”) of them. However, any party whose rights will be altered must be included in the restructuring plan. Nevertheless, the WHOA does not apply to, among other things, employee rights and financial collateral arrangements and set-off clauses.

If the restructuring plan affects different groups of creditors and shareholders, who do not have similar positions as their interests or rights are so dissimilar, the restructuring plan should provide for a class division. Usually, unsecured creditors, preferential creditors, secured creditors, creditors with a right of retention and shareholders are in different classes.

The proposed restructuring plan is then voted on by the classes, whereby a class has assented if the decision to assent has been taken by a group of creditors/shareholders who together represent at least two-thirds of the total amount of claims/issued capital belonging to the creditors/shareholders who voted within that class. If the class has assented, the court can also make the restructuring plan binding on the dissenting group within the class (intra-class cram-down). In addition, the restructuring plan can also be made binding on a dissenting class of creditors or shareholders (cross-class cram-down). For this to occur, there must be at least one class voting in favour that would be “in the money” – meaning they could reasonably expect some payment in the event of bankruptcy proceedings.

It follows from the WHOA regime that the size of the claim is of great importance. There is no formal verification process. The restructuring plan offeror should provide with the restructuring plan proposal a list of creditors and shareholders with voting rights, and the size of their claim or the nominal amount of their share and in which class(es) it is filed. If this amount is disputed, this should be stated. If it appears that incorrect amounts have been included by the restructuring plan offeror, the court will refuse approval of the restructuring plan.

Furthermore, the WHOA provides the debtor with several supporting measures that may serve him/her in offering the restructuring plan. For example, the WHOA allows the debtor to restructure continuing agreements. Also, the court can be requested to protect securities for financing, which is necessary to continue the business during the proceedings, against a claw-back action (a so-called actio pauliana claim instituted by the trustee) in case it should result in bankruptcy.

In addition, the court may be requested to declare a cooling-off period, which may result in restricting creditors’ recourse, lifting attachments or suspending bankruptcy and suspension of payments petitions. The court may also be requested to rule on aspects relevant to the composition of the restructuring plan, including class certification, voting eligibility and the content of the restructuring plan. Furthermore, the court may make such determinations and provisions as it deems necessary to safeguard the interests of creditors or shareholders.

If at least one class has assented to the restructuring plan, the debtor or the restructuring expert can ask the court to confirm the restructuring plan. This usually requires that the assenting class consists of creditors who, in the event of the debtor’s bankruptcy, can be expected to receive a payment in cash (so that they are in the money). In the event no restructuring expert or observer is yet involved in the proceedings, the court will appoint an observer (see 4.5 The position of Office Holders in Restructuring, Rehabilitation and Reorganisation for his/her tasks and powers).

Next, the court will (ex officio) consider the general grounds for dismissal, such as the absence of the insolvency situation or non-compliance with procedural rules. In addition, creditors or shareholders who have not assented to the restructuring plan may invoke additional grounds for rejection – for example, when it turns out that these creditors or shareholders are in a less favourable position on the basis of the restructuring plan than if the debtor’s assets were to be liquidated in bankruptcy, or when the restructuring plan deviates from the priority of claims.

If the court confirms the restructuring plan, the procedure comes to an end and the restructuring plan becomes binding on all creditors and shareholders concerned subject to the restructuring plan. The restructuring plan also becomes binding on all creditors or shareholders who did not assent to the restructuring plan or who did not vote at all.

The confirmation judgment provides an enforceable title for the creditors, allowing them to enforce compliance with the restructuring plan by invoking the judgment. If the debtor fails to comply in a timely manner with the restructuring plan, he/she will be obliged to compensate creditors and shareholders for any damage suffered as a result. In addition, creditors may also have the option to dissolve the restructuring plan.

The starting point is that the debtor retains the management and disposal of his/her assets regarding the course of business (debtor in possession). The debtor can therefore continue to carry on its business and perform legal acts during the WHOA procedure. This is also the case in the event a restructuring expert or observer is appointed. Even once a cooling-off period has been declared, the debtor remains authorised to use, consume and dispose of the assets, but only to the extent this falls within the ordinary course of business.

The debtor can request the court to authorise certain legal acts, in particular providing security for obtaining extra (new) financing or (extraordinary) sales to generate liquidity. If the restructuring should fail and bankruptcy proceedings were to be opened, the trustee cannot annul the legal act in question if it has been approved by the court.

As long as no restructuring expert is appointed, it is the debtor’s exclusive power to offer a restructuring plan. After a restructuring expert is appointed, he/she may offer a restructuring plan, but the debtor is still authorised to also propose a restructuring plan, but in that case only via the restructuring expert.

In the Netherlands, in a WHOA procedure, restructuring experts are not appointed by default. This will be assessed in each procedure. An observer or restructuring expert may be appointed in a WHOA procedure.

Restructuring Expert

The Bankruptcy Act mentions various rights and powers of the restructuring expert. Typically, he/she will discuss with shareholders and creditors the restructuring plan to be proposed. He/she is also authorised to request the amendment or termination of continuing agreements of the debtor, the declaration of a cooling-off period, or an early court ruling on key aspects of the restructuring plan. He/she can then also classify shareholders and creditors into different classes, submit the restructuring plan for voting, and ask the court to confirm the restructuring plan. In carrying out his/her duties, the restructuring expert has extensive power to obtain information from the debtor.

Observer

The task of the observer is to supervise the formation of the restructuring plan, taking into account the interests of the collective creditors. The observer does not have the power to propose a restructuring plan himself/herself but does have extensive power to obtain information from the debtor. Furthermore, regarding several requests by third parties, the observer will have the opportunity to present his/her views to the court – for example, regarding the request to appoint a restructuring expert, or the request to limit the debtor’s power to use or dispose of assets.

The guiding principle is that creditors and shareholders who have not assented to the restructuring plan, should not be in a less favourable position than if the assets were liquidated (monetised) in a bankruptcy procedure. Shareholders may in principle retain equity, but this would not be very likely. Their position will usually be limited by (among other things) the best-interest-of-creditors test and the absolute priority rule. Creditors can usually exercise their ordinary rights, but this right may be suspended during a cooling-off period.

In principle, the WHOA procedure cannot be thwarted by contractual intercreditor covenants, as the debtor is usually not a party to such a covenant. If the debtor is a party to such a covenant, it can seek an amendment to the covenant under the WHOA.

Secured Creditors

In principle, the WHOA does not provide the facility to deprive security holders of their securities. As mentioned, the starting point is that (secured) creditors should not be in a less favourable position than in a bankruptcy procedure, so a secured creditor is usually entitled to the (liquidation) value of the security object.

Unsecured Creditors

Unsecured (trade) creditors must, in principle, comply with their contractual obligations. Events and acts of the debtor related to the preparation or performance of a restructuring plan under the WHOA do not constitute grounds for the amendment of obligations or liabilities towards the debtor, for the suspension of the performance of an obligation towards the debtor or for the dissolution of an agreement entered into with the debtor.

Similarly, any default by the debtor prior to the imposition of a cooling-off period does not provide grounds for such amendment, suspension or dissolution, provided that the debtor has provided security for the performance of new obligations.

Cooling-off

In the event a cooling-off period is imposed at the request of the debtor or restructuring expert, this may affect the position of (some of) the creditors. In brief, the cooling-off period prevents the exercise of creditors’ (recovery) rights against the debtor and the assets in his/her possession and thereby facilitates the continuation of the business. As a result, inter alia, secured creditors cannot exercise their rights, and creditors with a retention of title cannot recover goods, if they are not authorised to do so by the court during the cooling-off period. In addition, during the cooling-off period (pre-restructuring) attachments can be lifted and suspension of payments or bankruptcy petitions are suspended.

Set-off/Transfer

In principle, set-off can be carried out as usual during a WHOA procedure. If the debtor has established an undisclosed pledge on a registered claim or on the usufruct of such a claim, the pledgee is not entitled to set off against a claim from the debtor during a cooling-off period, if the debtor has provided substitute security. In principle, the creditor of a claim against the debtor is entitled to transfer such claim to a third party.

Dutch law has three statutory insolvency procedures (see 1.2 Types of Insolvencies for an overview): (i) the statutory debt restructuring scheme for natural persons, which restructures a natural person’s debts so that they can continue with a “clean slate”; (ii) suspension of payments, which aims to restructure a debtor’s debts; and (iii) bankruptcy, which aims to liquidate the debtor’s assets and distribute the proceeds to creditors.

Statutory Debt Restructuring for Natural Persons

The request for admission to the statutory debt restructuring for natural persons can be made only by a natural person. The request will be granted if it is likely that the debtor will not be able to continue paying his/her debts as they fall due, he/she has been acting in good faith during the three years preceding the request, and that the debtor will duly fulfil the obligations arising from the debt restructuring scheme and will endeavour to obtain as much money as possible for distribution among his/her creditors.

The request may be rejected if the statutory debt restructuring scheme is already applicable to the debtor, the attempt at an out-of-court debt restructuring was carried out by an improper person or institution, or if the debtor has debts that are the result of an irrevocable conviction for a crime.

Suspension of Payments

The debtor who foresees that he/she will not be able to continue payment of his/her due debts may apply for suspension of payments. Suspension of payments cannot be granted to a natural person who is not conducting an independent profession or business. After the application is filed, suspension of payments is immediately provisionally granted, and an administrator is appointed. The provisional suspension of payments lasts until the creditors are heard and vote on the definitive suspension of payments. This hearing and vote usually take place after a few months.

Bankruptcy

When a natural person or legal entity has stopped paying its due debts, and has at least two debts with different creditors (at least one of which is due), he/it can be declared bankrupt at his/her/its own request or at the request of its creditors or the public prosecutor’s office.

There is no (legal) obligation for a director of a company to file a petition for bankruptcy under certain circumstances. However, it may be relevant in the context of the director’s personal liability because of wrongful trading (see 7. Duties and Liability of Directors and Officers).

Statutory Debt Restructuring for Natural Persons

After the court has declared the procedure applicable, a fixation and determination of the assets takes place for the estate. The debtor loses the right to dispose of and to manage the assets, with which the administrator is entrusted. In principle, the procedure covers all the debtor’s assets at the time of the declaration as well as what he/she acquires during the procedure. Current contracts at the time of the judgment are in principle not affected by the debt restructuring and must be complied with (by the administrator). Attachments made on assets of the debtor will lapse by operation of the law.

The application of the procedure entails various obligations for the debtor to ensure that he/she makes a maximum contribution and effort to bring as much money as possible into the estate. These obligations include the generating and handing over of income, handing over of assets, a duty to provide information to the administrator and supervisory judge, or asking the administrator’s permission for certain actions.

Suspension of Payments

From the moment the provisional suspension of payments is granted, the regime of the suspension of payments applies in full. In principle, the estate consists of the full extent of the debtor’s assets. With the suspension of payments, the debtor loses the power to freely perform acts of administration or disposition regarding the estate. For these, he/she requires the consent of an administrator. On the other hand, the administrator is not entitled to dispose of the debtor’s assets without his/her consent. The debtor and the administrator must, therefore, co-operate.

The suspension of payments does not affect priority claims or secured creditors, so it mainly affects creditors with unsecured claims.

Bankruptcy

At the moment of bankruptcy declaration, a fixation takes place, causing the legal status of everyone involved in the estate to become unchangeable. The assets belonging to the bankruptcy estate are fixed and no longer under the control of the debtor and individual creditors; the court-appointed trustee is charged with the administration and liquidation of the estate. In addition, the liabilities are fixed as well, which means that only claims that already existed on the date of the bankruptcy declaration (or arise from a pre-existing legal relationship at the time of the opening of the bankruptcy proceedings) can be recovered from the bankruptcy estate.

As a result of the bankruptcy, creditors cannot, in principle, individually attach assets or take enforcement measures. They must submit their bankruptcy claim for verification to the trustee, who settles the general bankruptcy attachment on the bankrupt’s assets for the benefit of creditors. For the verification of a claim, it is sufficient that the creditor submit an invoice, which sufficiently shows the nature and amount of the claim. If a creditor believes that he/she is entitled to a preferential right, a security right (under property law) or a retention right, he/she will have to specify this.

The main responsibility of a bankruptcy trustee in the Netherlands is to represent and settle the company’s estate for the benefit of the company’s collective creditors. In doing so, he/she is under the supervision of the supervisory judge, and needs the permission of the supervisory judge for a number of actions, for instance when he/she intends to initiate legal procedures. In addition, the trustee must also consider public interests, such as the continuity of the company or the preservation of employment. The trustee also examines whether there have been any irregularities that caused the bankruptcy, complicated the liquidation of the bankrupt estate, or increased the bankruptcy deficit. Should the trustee find that any criminal offence was committed, he/she should report this.

If a contracting party is declared bankrupt, the starting point is that this does not result in any changes to the existing contract. Nevertheless, if both the other party and the debtor have not yet fully fulfilled their obligations at the time of the bankruptcy declaration, the other party will be in uncertainty as to whether the trustee will perform. With reciprocal contracts, the other party is therefore entitled to summon the trustee to declare within a reasonable time whether he/she will honour the contract. If the trustee is unwilling to perform, he/she himself will lose the right to claim performance. If, on the other hand, the trustee declares to be willing to perform according to the contract, he/she is obliged to provide security for the correct performance.

Statutory Debt Restructuring for Natural Persons

The statutory debt restructuring scheme can end in several ways. The procedure may end by the debtor reaching a restructuring scheme with his/her creditors. Also, the procedure can end (prematurely) without a clean slate for the debtor, for instance because the debtor failed to comply with his/her statutory obligations under the procedure, or by having a clean slate for the debtor and possibly a payment to the creditors. The clean slate for the debtor means that claims for which the procedure was pronounced are no longer enforceable.

Suspension of Payments

Besides through satisfaction of creditors’ claims, the suspension of payments procedure can end through the confirmation by the court of a suspension restructuring plan. The result of the confirmation is that the restructuring plan becomes binding on those creditors who were affected by the suspension of payments, even if they voted against the proposed restructuring plan. In addition, the suspension of payments can end because it is revoked, for example, because the debtor is acting in bad faith in administering the estate or because there is no longer any prospect of satisfying the creditors. It can also end by a simple lapse of the period for which the suspension of payments was granted. Finally, a suspension ends because it is converted into a debt restructuring scheme for natural persons, or bankruptcy.

Bankruptcy

Usually, the bankruptcy procedure will not end because the debtor has paid all the creditors’ claims. Sometimes the bankruptcy will end because the debtor reaches a restructuring plan with its creditors, or, when no restructuring plan is reached, because the trustee proceeds to liquidate the debtor’s assets. The proceeds will be distributed to the creditors in accordance with their priority order. In the least favourable (and most frequent) scenario, the bankruptcy is completed with insufficient funds. This may be done in any stage of the bankruptcy procedure; in this case, the creditors with preferential and unsecured claims receive no payment at all, and for efficiency reasons not even a creditors meeting will be called.

Estate Claims

Estate claims are claims of creditors that arise after the bankruptcy is declared due to deliberate actions or omissions of the trustee in the bankruptcy and claims that qualify as estate claims by law. These are obligations entered into by the trustee for the administration and liquidation of the assets, which include the trustee’s own fees, but also wage and rent debts since the bankruptcy declaration. In principle, an estate creditor can claim payment of his/her claim without having to wait for the liquidation of the assets. In the event that the estate has insufficient assets to pay all estate claims, they are paid in accordance with their respective ranking (first the trustee’s fees, then priority estate claims such as wages related to the period after the opening of the bankruptcy proceeding, and finally ordinary estate claims such as rent after the opening date). In the suspension of payments and debt restructuring scheme for natural persons, the estate claim fulfils a similar role as in bankruptcy (see 2.2 Priority Claims in Restructuring and Insolvency Proceedings).

Secured Creditors and Right of Retention

The basic principle is that secured creditors are entitled to enforce their security right as if there were no bankruptcy. In essence, secured creditors have priority over the proceeds of the specific assets on which they have security. To the main rule that a secured claim has priority over a preferential claim, exists an important exception regarding the preference of the Dutch tax authorities. This preference prevails over a non-possessory pledge, insofar as the pledge rests on movable property at the disposal of the tax debtor which sits on the debtor’s premises and is meant to stay there (usually inventory, not stock).

As secured creditors remain essentially outside the bankruptcy procedure, they will not have to share in estate costs. Nevertheless, the secured creditor may be confronted with the consequences of a cooling-off period, which in principle prevents him/her from exercising his/her right of enforcement. The trustee may grant the secured creditor a reasonable period to exercise his/her rights, failing which the trustee is entitled to monetise the relevant goods. In this case, the secured creditor retains his/her priority rights over the proceeds, but has to pay his/her share of the general bankruptcy costs (the estate costs, so including the trustee’s fees).

Creditors with a right of retention retain this right if bankruptcy is declared and will have priority over all against whom the retention right can be exercised, including secured creditors.

Set-off/Trading Claims

In general, a person who is both a debtor and a creditor of the bankrupt debtor may set off his/her debt against his/her claim against the bankrupt debtor, if both arose before the bankruptcy declaration or directly result from legal transactions entered into with the bankrupt debtor before the bankruptcy declaration. Nevertheless, no set-off is allowed if a person has acquired from a third party prior to the bankruptcy declaration a debt to or a claim against the bankrupt debtor, if, when doing so, this person did not act in good faith. Claims or debts taken over after the declaration of bankruptcy may not be set off at all.

The main sources of international insolvency law are the European Insolvency Regulation (recast) (REGULATION (EU) 2015/848, or EIR) and Restructuring Directive (DIRECTIVE (EU) 2019/1023), and Title 1, Section 10, of the Bankruptcy Act. In addition, worth noting are the developments at and insights of the United Nations Commission on International Trade Law (UNCITRAL). These can be regarded as soft law, but also provide inspiration for national law.

The EIR recast stipulates within the territory of the European Union, except Denmark, where an insolvency procedure can be opened. Under the EIR recast, the Dutch courts have jurisdiction to open insolvency proceedings if the Centre of Main Interests (COMI) of the debtor is located in the Netherlands.

The COMI is the place where the debtor usually manages its interests, and which is also known as such to third parties. In the case of natural persons with a business, the COMI is presumed to be the principal place of business, and in the case of natural persons without a business, their actual place of residence. For legal entities, the COMI is presumed to be at the place of the registered office. The Dutch court will have to assess ex officio whether the COMI is located in the Netherlands.

When the COMI is located in another member state, secondary insolvency proceedings can, under circumstances, be opened in the Netherlands. In addition, if the COMI is located outside the EU, but the debtor carries on a profession or business in the Netherlands, the Dutch court may have jurisdiction to open a bankruptcy procedure.

On the basis of the EIR recast, the starting point is that insolvency procedures opened in the territory of the Netherlands are governed by Dutch law. In particular, Dutch law determines the conditions under which the procedure is opened, runs and is ended. Nevertheless, some issues in international proceedings remain at the discretion of foreign courts. The effects of insolvency proceedings on a contract regarding immovable property, for example, are governed by the law of the member state where the immovable property is located. 

Within the EU

Under the EIR recast, in principle, the effects and enforcement of a decision by a member state court to open an insolvency procedure are automatically recognised in the Netherlands.

Outside the EU

With regard to judgments from courts outside the EU, the Netherlands applies the territoriality principle, in the absence of any other binding international regulation or treaty. This means that insolvency proceedings and their consequences are not automatically recognised in the Netherlands, and the powers of the foreign insolvency officer and judges end at the borders of the territory. The territoriality principle has been the subject of several court judgments in which it has been clarified and mitigated. The (softened) territoriality principle is applied in the Netherlands as follows: 

• Foreign insolvency proceedings do not include assets in the Netherlands.
• The legal consequences of the foreign insolvency proceedings cannot be invoked in the Netherlands to the extent that this would result in unpaid creditors not being able to recover the assets in the Netherlands during or after the bankruptcy.
• The territoriality principle is not intended to protect the debtor against the consequences of foreign insolvency procedures, therefore it does not prevent other consequences of foreign insolvency procedures in the Netherlands.

This implies that, despite the territoriality principle, the foreign insolvency officer is, in principle, entitled to dispose of assets located in the Netherlands if the insolvency practitioner is authorised to do so under the law applicable to the bankruptcy. However, the foreign insolvency officer will have to respect attachments that are made by creditors and which are not subject to the foreign insolvency proceedings.

Foreign Judgments

With regard to civil and commercial matters, under the Brussels bis recast (Regulation (EU) No 1215/2012), a judgment given in one member state is recognised in the other member states without any form of procedure. Insofar as recognition under another (European) regulation or treaty is not provided for, the Dutch court will have to hear and handle the case itself. In the procedure, it will have to assess whether (and, if so, to what extent) to grant authority to the foreign judgment.

In assessing whether authority can be granted, the Dutch court will, in brief, examine:

• whether the foreign court has assumed jurisdiction on a ground that is generally acceptable by international standards;
• whether the foreign judgment was reached in judicial proceedings that meet the requirements of due process and sufficient safeguards;
• whether the foreign judgment is not contrary to Dutch public policy; and
• whether the foreign judgment is not incompatible with a decision of the Dutch court given between the same parties, or with an earlier decision of a foreign court given between the same parties in a dispute involving the same subject matter and based on the same cause of action, provided that such earlier decision is capable of recognition in the Netherlands.

Adequate co-operation between the parties involved in simultaneously pending cross-border procedures can contribute to the efficient management and settlement of the insolvent estate. For this reason, under the EIR recast, judges and insolvency officers should co-operate closely through, for example, the exchange of sufficient information. In addition, judges and insolvency officers may conclude agreements and protocols to facilitate cross-border co-operation regarding insolvency procedures of the same debtor, and judges from different member states may co-operate by co-ordinating directions to insolvency officers.

As far as we know, no agreements have been concluded with foreign courts to co-ordinate insolvency proceedings. In large/complex cross-border insolvencies, contact does occur between Dutch courts and foreign parties, but this is carried out on an ad hoc basis.

Foreign creditors are not dealt with in a different way in Dutch insolvency procedures compared to equivalent Dutch creditors.

The duties of officers and, in particular, directors of a company, change when the company runs into financial distress or becomes insolvent.

The board (as a collective) is in charge of managing the company and its affiliated business. This includes the day-to-day management of the company and determining the company’s policy and strategy. Where the company is in good financial health, the directors are largely free to manage the company as they deem appropriate, while focusing on the corporate interest. Depending on the circumstances of the case, the corporate interest will usually entail furthering the ongoing success of the company’s affiliated business (activities). The corporate interest may involve other (partial) interests, particularly those of shareholders, employees, creditors, customers, and other stakeholders.

At the time when the company gets into financial difficulties, the corporate interest will be shaped more by the interests of the company’s creditors. From this point on, directors may not allow the interests of shareholders, and other related parties of the company, to override the interests of creditors of the company. At what point in time directors should attribute more weight to creditors’ interests in their duties cannot be said in general and depends on the circumstances of the case. The more serious the company’s financial difficulties, the more the directors and officers should consider the interests of creditors, for example, in their decision-making.

After the company is declared bankrupt, the board’s role becomes a very modest one. After all, with the bankruptcy, the company loses the power to administer and dispose of the company’s assets, which then is the task of the appointed trustee. Acts in respect of the company’s bankruptcy estate by the directors do not bind the estate. However, the directors do have the obligation, for example, to provide to the trustee any information he/she requests, to co-operate in the administration and liquidation of the bankruptcy estate, and to make the accounts and records available.

In the Netherlands, directors and supervisors may be part of one management board (one-tier board, or monistic governance model). However, supervisors may also be part of a separate supervisory board that supervises the board of directors within the company (two-tier board, or dualistic governance model). A two-tier board is most common in the Netherlands, which is why the duties of directors and supervisors are discussed separately in this chapter.

Directors’ liability is subject to a raised threshold for liability: the director is only liable if he/she is found to be seriously culpable. Otherwise, it is only the legal entity itself that is liable. Whether this threshold for liability is met depends on the circumstances of the case.

Each executive director is obliged to perform his/her duties properly and is (individually) responsible for the general course of affairs at the company. A director may be personally liable to the company in cases of gross mismanagement, except where they are not deemed personally at serious fault, taking into account the division of responsibilities within the board, and have not neglected to take reasonable steps to prevent the consequencesof such mismanagement. In principle, liability among directors is collective.

A director may be held liable to the company if they are deemed seriously culpable. Assessing serious culpability involves considering all relevant circumstances, with a key factor being whether the director acted with the foresight and care expected of a competent and diligent director fully prepared for their responsibilities.

Directors of a company should exercise due care in the performance of their management duties towards, for example, creditors of the company. If a director fails to do so, he/she may be held liable for damages caused as a result by the creditor on the basis of a wrongful act (onrechtmatige daad). Unlike mismanagement as a ground for liability, the wrongful act must be assessed for each director.

In case law, a distinction is made between standards of care with regard to new creditors and existing creditors of the company. The director is, in addition to the company, liable if he/she:

• has acted on behalf of the company, and, when entering into obligations on behalf of the company, knew, or should reasonably have known, that the company would not be able to fulfil its obligations and would not provide an opportunity for recovery for the damage caused; or
• caused or permitted the company to fail to comply with its legal or contractual obligations, and the acts or omissions of the director concerned (in their capacity as director) towards a specific creditor (or creditors in general) were, in the given circumstances, so negligent that the director can be held personally culpable.

The first category includes directors who, on behalf of the company, enter into commitments frivolously. The second category includes directors who bring about or allow the company to make selective payments (by paying just one or a few creditors) or selective non-payments (by paying all creditors but one or a few).

At the time the bankruptcy is declared, the trustee may hold each director jointly and severally liable to the estate for the amount of the debts (including the costs of the estate, such as his/her own fees) to the extent that they cannot be satisfied by liquidation of the remaining assets. The board of directors is liable if it has manifestly improperly performed its duties and it is plausible that this is an important cause of the bankruptcy. If the board fails to keep proper accounting records or fails to timely publish annual accounts, it has performed its duties improperly, and it is presumed that the improper performance of duties is an important cause of the bankruptcy. This means that the improper performance is considered an irrefutable fact, but the directors may try and prove that this was not an important cause of the bankruptcy.

Concurrence of Actions

Whether there is a concurrence of claims by the trustee and an individual creditor based on the same facts, and whether this is permissible, depends on the claims brought. An example could be a situation where a trustee holds a director liable for the bankruptcy deficit because the board of directors improperly performed its duties and this can be seen as an important cause of the bankruptcy, and an individual creditor holds the director liable because he/she acted wrongfully towards him/her directly. In this situation, the director can be held liable by both the trustee in bankruptcy and the individual creditor. The trustee’s role is strictly to act on behalf of all creditors collectively. In the event that some, but not all, creditors incurred damage due to the mismanagement of the directors, these creditors must try themselves to obtain compensation from the wrongdoers; there is no role for the trustee here.

In a different situation, a trustee may bring a wrongful act claim against a director for the benefit of the company’s aggrieved collective creditors. The opportunity also remains for an individual creditor to bring this claim itself against the director based on the same facts. In this case, a proper liquidation of the estate requires that the court first decide on the wrongful act claim of the trustee and then decide on the individual creditors’ claim.

The task of the supervisory board is to supervise the policy of the board of directors and the general state of affairs of the company and its affiliated business. In addition, the supervisory board acts as an adviser to the board of directors. In performing their duties, the supervisory board members shall focus on the interests of the company and its affiliated business (see 7.1 Duties of Directors).

In principle, supervisory board members should supervise in general terms, but under special circumstances the supervisory board should intensify its supervision – for example, when the company is in financial difficulties, or when a substantial restructuring will take place. In performing its duties, the supervisory board can make use of various statutory powers, such as the power to suspend directors. In addition, the company’s articles of association may also assign tasks and powers to the supervisory board.

The statutory rules on directors’ liability have been declared applicable by analogy to supervisory board members (see 7.2 Personal Liability of Directors). These provisions are interpreted taking into account the (entirely different) duties of supervisory board members. For example, supervisory board members may be jointly and severally liable for the bankruptcy deficit if they manifestly performed their supervisory duties improperly and this was an important cause of the company’s bankruptcy, or if the supervisory board allows the mismanagement of the directors to continue without any (critical) advice and does not use its power to suspend a director. In general, it seems fair to state that supervisory directors will not be liable if there is no basis for directors’ liability.

Besides personal liability, wrongful acts by a director in his/her capacity can also lead to a director’s disqualification under civil law (bestuursverbod). At the request of the trustee in bankruptcy or the public prosecutor, the court may impose a disqualification on a director of a company, when, for example, during the bankruptcy or in the three years prior to the bankruptcy of the company, the director was held liable for a bankruptcy deficit because he/she improperly performed his/her duties and this was an important cause of the bankruptcy, or when he/she acted fraudulently as a result of which creditors were prejudiced and these acts were avoided by the court.

Wrongful actions by a director in his/her capacity may also lead to criminal liability. A director of a legal entity may be punished with imprisonment for up to six years or a fine if, for example, he/she, knowing that this would prejudice the recovery possibilities of one or more creditors of the legal entity, withdrew any property from the estate prior to or during the bankruptcy, or excessively consumed, spent or disposed of resources of the company.

Dutch law distinguishes between non-obligatory and obligatory legal acts when it concerns the setting aside of transactions, such as credit and security transactions and asset sales.

A legal act can be set aside extrajudicially (for instance by letter) if the debtor performed the act without being obliged to do so by statute or contract before the declaration of bankruptcy and if he/she knew, or should have known, at the time of performing the act that it would prejudice the creditors (actio pauliana). When the legal act involves an exchange (ie, there was some form of counter-performance), the act can only be set aside if the counterparty involved also knew or should have known that the transaction would disadvantage creditors. In such cases, it is the bankruptcy trustee’s responsibility to prove that both the debtor and the counterparty had this knowledge.

For certain voluntary legal acts, the law provides presumptions of knowledge where it is assumed that both parties to the transaction were aware the action would harm the company’s creditors. In cases where the legal act involved an exchange and was performed within one year before bankruptcy was declared, this presumed knowledge applies if:

• the agreement is imbalanced, with the debtor’s obligation significantly exceeding that of the counterparty;
• the debtor makes or secures payment for a debt that is not yet due; or
• the debtor, if a legal entity, conducts the transaction with or involving a natural person, such as a director or supervisory director of the entity.

For acts made without any counter-performance within one year before bankruptcy, it is presumed that the debtor either knew or should have known that the transaction would harm creditors.

The payment of a due debt, which is an obligatory legal act, can only be set aside if it is proved that the person who received the payment knew that the debtor’s petition for bankruptcy had already been filed, or that the payment was the result of consultation between the debtor and this creditor, with the aim of favouring the creditor over other creditors through the payment.

The consequence of a successful actio pauliana is that, on the basis of the legal act that has been set aside, an amount paid was unduly paid, and must be repaid. If the setting aside results in an asset returning to the estate, for example because the title to a transfer lapses, the trustee can revindicate in the event that it is not returned voluntarily.

In a bankruptcy procedure, only the trustee can invoke an actio pauliana. If a WHOA procedure took place prior to the bankruptcy, the trustee cannot set aside a legal transaction with a third party if this was approved by the court. For example, the court may have granted authorisation for new financing, including providing security to the financier that was necessary to continue the debtor’s business during the WHOA procedure.

Outside of a bankruptcy procedure, individual creditors can invoke the civil law action pauliana. In principle, the civil pauliana can also be invoked in restructuring procedures, but is unlikely to be successful if the court has granted authorisation to perform the contested legal act.