European Restructuring Monitor (ERM)
Eurofound's ERM database on restructuring-related legal regulations provides information on regulations in the Member States of the European Union and Norway which are explicitly or implicitly linked to anticipating and managing change.
Article 40 and 213 of the Bankruptcy act; whole Continuity of enterprises act I; whole Bankruptcy procedure modernisation act
Three different types of insolvency proceedings are defined in the Dutch Bankruptcy act (Faillissementswet). These are bankruptcy (faillissement), moratorium (surseance van betaling), and debt restructuring (schuldsanering).
Dutch companies and policy makers expected another option to become available to businesses when facing insolvency, as the Netherlands' House of Representatives adopted the Continuity of enterprises act I (Wet Continuiteit Ondernemingen I, WCO I) in June 2016. Initially, the expectation was that this law would enter into force in 2017. However, formal parliamentary questions and responses from social partners delayed the acceptance of this law. The senate intends to examine and consult further on this proposed law after a pending ECJ ruling (see more information below), together with the proposal for the law on transferring an enterprise during bankruptcy (Wet overgang van onderneming in faillissement). The act outlines an insolvency rescue procedure known as pre-pack, or 'silent administration', which has already been utilised to varying degrees in the Netherlands. The act would give the practice a statutory basis and ensure uniform implementation across the country.
Pre-pack and Continuity of enterprises act I (Wet Continuiteit Ondernemingen I, WCO I)
Pre-pack, short for pre-packaged insolvency, is an insolvency proceeding where a restructuring plan is set prior to a company declaring itself bankrupt. A trustee, the silent administrator, is appointed to ensure the creditors are repaid as much as possible of the funds they are owed through, for example, the sale of assets or parts of the company considered viable, before the formal insolvency proceedings are initiated. The act includes stipulations for employee safeguarding, as it requires the works council or staff representation to be involved in the pre-pack proceedings. However, the creditors' interests always take precedence, as the works council or staff representation can be excluded from the proceedings on the basis of this being contrary to the interests of the company and, thereby, the creditors. The act also outlines the inclusion of the employees' voices in the formal bankruptcy proceedings, as it states that a representative from the works council or staff representation is to be included in the creditors' committee, should the court decide to form such a committee.
The discussion of WCO I has been postponed by the senate because another bill, the 'Law on transfer of undertaking in bankruptcy' (WOVOF), is in preparation. The bill regulates the position of employees in the event of such a restart. The senators have pointed out that the bills are interrelated and therefore want to discuss them jointly. At the moment, there is only a preliminary ruling procedure pending before the Court of Justice of the European Union. The outcome of that procedure may influence how the WOVOF should ultimately look like. Employer organisations are generally in favour of the WCO I, with the following caveats
Ruling of the European Court of Justice (ECJ)
On 22 June 2017, the European Court of Justice (ECJ) made the long-awaited verdict in the Estro case. Questions were raised to the ECJ for a preliminary ruling on the applicability of the labour law rules of transition of company to the pre-pack that has been applied by most Dutch courts since 2011. The Estro case is a well-known example, in which a former childcare company (Estro) with approximately 3,600 employees whose activities were taken over by Smallsteps in 2014 through a pre-pack sales transaction. Smallsteps offered 2,600 employees a contract of employment. Four workers who did not receive a contract of employment, as well as the Federation of Dutch Trade Unions (FNV), have subsequently appealed against Smallsteps, invoking the protection provisions of Directive 2001/23/EC (hereinafter 'Directive').
In summary, the ECJ held that the labour rules of transfer of company apply to pre-pack prepared prior to bankruptcy that is a pre-pack arrangement made prior to bankruptcy with the 'aim' to be declared bankrupt and ensure a restart (including conditions).
The ECJ hereby explains article 5 (1) of the directive in such a way that both the 'bankruptcy procedure' and the 'similar procedure' must comply with the conditions of
The ECJ then finds that the transaction prepared prior to the bankruptcy implies in fact bankruptcy so that the transaction may fall under the term 'bankruptcy proceedings' within the meaning of the directive. However, according to the ECJ, the other two conditions for applicability of article 5 (1) are not met.
The ECJ does not rule out the existence of a certain overlap between the liquidation and continuity objective, but considers that if the main purpose of a proceeding is the maintenance of the undertaking concerned, that proceeding seeks to pursue the activity of the company.
Businesses entering pre-pack deals must keep in mind that they will not be able to choose which employees they would like to take, but that all the employees involved in the company are to be included in the transfer. This could make a restart less attractive to a new buyer.
After the judgement in the Estro case, the use of pre-packs became very limited, however it is expected to change after the new ECJ-ruling on preliminary questions in that matter, that was given on 28 April 2022. Contrary to Estro case, in the Heiploeg case the pre-pack was instituted for the purpose of liquidating of the assets of the company and was conducted under the supervision of competent authorities. According to the ECJ's judgement, pre-packs should be allowed if they meet the above-mentioned criteria. The ECJ held that national courts need to adopt a case by case analysis while deciding whether the use of pre-packs is carried out with a view of insolvency proceedings. Based on that, the ECJ judgement clarified that it is possible to apply insolvency exceptions to pre-packs, but it also emphasised that pre-pack procedures needs to be regulated in statutory law. This supports the initiative of adopting WCO and WOVOF which will facilitate inscribing pre-packs into Dutch insolvency law, however the amendment procedure was even further delayed by this case.
Consequences
Currently in 2021, a draft law is being developed and consulted upon, regarding the transition of an enterprise into bankruptcy (Wet overgang van onderneming in faillissement). This would be an adjustment to Continuity of enterprises act I (Wet Continuiteit Ondernemingen I).
Some more general changes include the establishment of a central, national insolvency register for enterprises. This central register replaces locally held registers in an effort to make the information collection by courts across the country more efficient.
In April 2022 the Insolvency Law Committee gave advise on the preliminary draft of the amendment of Continuity of Enterprises Act I. The Committee suggested limiting the scope of the amendment to promote controlled resolution of bankruptcies of companies with activities of social importance.
The Bankruptcy law has been modernised since 1 January 2019. In terms of the main provisions of the law, not much has changed, and the different types of bankruptcy procedures are still in place. However, the process has been made more efficient through the introduction of, for instance, a central register for bankruptcies. Furthermore, curators are allowed slightly more influence and decision-making power when it comes to the order of paying off debts to different claimants, and in selling assets of below €2,000 in value to help a debtor to pay off their debts. Additionally, the modernisation includes a time limit for creditors to register their claim: if the creditor has not registered their claim within the time frame decided upon by the examining magistrate (rechter-commissaris), the creditor loses their right to claim payments. The idea behind this change is to make the bankruptcy procedure quicker.
In 2021, two laws are still in development and are being consulted upon. These concern the position and protection of workers during the transition of an enterprise into bankruptcy (Wet overgang van onderneming in faillissement). This would be an adjustment to Continuity of enterprises act I (Wet Continuiteit Ondernemingen I).
Eurofound (2016), Netherlands: Rescue procedures in insolvency, Restructuring legislation database, Dublin, https://apps.eurofound.europa.eu/legislationdb/rescue-procedures-in-insolvency/netherlands
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