European insolv­ency law is under­go­ing sig­ni­fic­ant changes. Fol­low­ing the 2019 Restruc­tur­ing Dir­ect­ive, on the basis of which the WHOA (Dutch Scheme) was intro­duced in the Neth­er­lands, the EU is tak­ing the next step towards har­mon­isa­tion with Dir­ect­ive (EU) 2026/799. The Dir­ect­ive estab­lishes com­mon min­im­um rules in six areas: avoid­ance actions, tra­cing of assets belong­ing to insolv­ency estates, pre-pack pro­ceed­ings, the duty of dir­ect­ors to sub­mit a request for the open­ing of insolv­ency pro­ceed­ings, cred­it­ors’ com­mit­tees, and key inform­a­tion factsheets.  The implic­a­tions for the Neth­er­lands are sig­ni­fic­ant: the Bank­ruptcy Act will need to be fun­da­ment­ally revised in sev­er­al respects. This involves min­im­um har­mon­isa­tion — Mem­ber States may main­tain or intro­duce stricter rules — but the defin­i­tions of ‘insolv­ency’ and ‘dir­ect­or’ are expressly determ­ined by nation­al law.  The imple­ment­a­tion dead­line is 22 Janu­ary 2029.

Dir­ect­ors: timely action is now man­dat­ory

One of the most far-reach­ing changes will be the oblig­a­tion for dir­ect­ors to sub­mit a request for the open­ing of insolv­ency pro­ceed­ings with­in three months in the event of insolv­ency.  Upon imple­ment­a­tion, the Dutch legis­lature will need to define the concept of ‘insolv­ency’ in more detail and may also opt for a short­er time­frame. Fail­ure to sub­mit the request in time may res­ult in lower recov­ery rates for the gen­er­al body of cred­it­ors, and the dir­ect­ors may be held per­son­ally liable for such a deteri­or­a­tion.  The Neth­er­lands cur­rently has no stat­utory oblig­a­tion to sub­mit such a request in this sense, mean­ing that its intro­duc­tion rep­res­ents a sig­ni­fic­ant break with the exist­ing regime.

The oblig­a­tion allows for some flex­ib­il­ity. It may be sus­pen­ded if the dir­ect­ors take meas­ures that are designed to avoid dam­age to the cred­it­ors of the insolv­ent com­pany and that ensure a level of pro­tec­tion for the gen­er­al body of cred­it­ors that is equi­val­ent to the pro­tec­tion provided by the duty to sub­mit a request for the open­ing of insolv­ency pro­ceed­ings.  An example of this would be meas­ures taken by the own­ers of the com­pany to restore the company’s solvency.  Any­one who makes use of this sus­pen­sion option and for whom things ulti­mately go wrong remains liable for the dam­age caused to cred­it­ors that would not oth­er­wise have been caused had the request for the open­ing of insolv­ency pro­ceed­ings been sub­mit­ted in a timely man­ner.  A pos­sib­il­ity of exon­er­a­tion exists for dir­ect­ors who can demon­strate, on the basis of object­ive cir­cum­stances, that the meas­ures taken were reas­on­ably likely to secure an equi­val­ent or bet­ter out­come for cred­it­ors.

The pre-pack pro­ced­ure: from prac­tic­al tool to leg­al frame­work

The pre-pack pro­ceed­ings — whereby a buy­er is sought in con­fid­ence pri­or to the form­al insolv­ency pro­ceed­ings — lack a leg­al basis in the Neth­er­lands. Fol­low­ing, amongst oth­er things, the Heiploeg judg­ment of the Court of Justice of the European Uni­on, such a basis proved indis­pens­able, par­tic­u­larly for the pos­i­tion of employ­ees in the event of a going con­cern.  The Dir­ect­ive now provides the neces­sary frame­work: the liquid­a­tion phase is regarded as insolv­ency pro­ceed­ings insti­tuted with a view to the liquid­a­tion of the assets of the trans­fer­or under the super­vi­sion of a com­pet­ent pub­lic author­ity, so that employ­ees do not auto­mat­ic­ally become employed by the pur­chaser in the event of a pre-pack sale from insolv­ency.

Mem­ber States are obliged to intro­duce pre-pack pro­ceed­ings com­pris­ing two phases: a pre­par­a­tion phase, the aim of which is to find an appro­pri­ate buy­er for the debtor’s busi­ness, and a liquid­a­tion phase, the aim of which is to approve and execute the sale and to dis­trib­ute the pro­ceeds to the cred­it­ors.  Dur­ing the pre­par­a­tion phase, the sale pro­cess must be com­pet­it­ive, trans­par­ent and fair and meet mar­ket stand­ards.  The pre­par­a­tion phase starts when a mon­it­or is appoin­ted at the ini­ti­at­ive of the debt­or; the mon­it­or must be inde­pend­ent from the debt­or and any party closely related to the debt­or.  The com­pany largely retains its man­age­ment powers dur­ing the pre­par­a­tion phase.  Upon the com­mence­ment of the liquid­a­tion phase, the court or the com­pet­ent author­ity author­ises the sale on the recom­mend­a­tion of the mon­it­or, either via a pub­lic auc­tion or fol­low­ing approv­al by the cred­it­ors.  The key cri­terion is the best-interest-of-cred­it­ors test: no cred­it­or may be worse off under the pre-pack pro­ceed­ings than they would be in a piece­meal liquid­a­tion.

The frame­work offers clear advant­ages to acquirers. The acquirer takes over the busi­ness free of debts and liab­il­it­ies, unless the acquirer expressly con­sents to bear those debts and liab­il­it­ies.  Execut­ory con­tracts which are neces­sary for the con­tinu­ation of the busi­ness are assigned to the acquirer without the counterparty’s con­sent — unless the acquirer is a com­pet­it­or of that coun­ter­party.  Inter­im fin­an­cing is pro­tec­ted against avoid­ance actions.  Parties closely related to the debt­or are eli­gible to act as acquirers, but only under stricter con­di­tions: they must dis­close their rela­tion­ship in their bid to the mon­it­or.  Should they fail to do so, the court or the com­pet­ent author­ity may revoke the bene­fits of the debt-free trans­fer.

Avoid­ance actions: clear time lim­its replace the open-ended stand­ard

The bank­ruptcy claw­back pro­vi­sion — referred to in the Dir­ect­ive as ‘avoid­ance actions’ — is being rad­ic­ally revised. Where­as cur­rent Dutch law does not spe­cify fixed sus­pect peri­ods and the bur­den of proof regard­ing know­ledge of the pre­ju­di­cial trans­ac­tion is com­plex, the Dir­ect­ive intro­duces clear ret­ro­spect­ive peri­ods.

The Dir­ect­ive dis­tin­guishes between three cat­egor­ies.

1. Pref­er­ences with­in three months of the sub­mis­sion of the request for the open­ing of insolv­ency pro­ceed­ings

If (i) the debt­or is unable to pay its debts, and (ii) without being obliged to do so, (iii) the debt­or sat­is­fies an indi­vidu­al cred­it­or or provides secur­ity with­in three months of the bank­ruptcy peti­tion, then this trans­ac­tion may be set aside. In the case of com­puls­ory set­tle­ment of the debt – that is, in a man­ner as agreed – an addi­tion­al require­ment applies (iv) that the cred­it­or knew the debt­or was insolv­ent.

2. Leg­al acts in exchange for no or mani­festly inad­equate con­sid­er­a­tion

For leg­al acts per­formed in exchange for no or mani­festly inad­equate con­sid­er­a­tion, a sus­pect peri­od of twelve months applies, without a require­ment of know­ledge.

3. Leg­al acts inten­tion­ally det­ri­ment­al to cred­it­ors

In the case of leg­al acts by which the debt­or has inten­tion­ally caused a det­ri­ment to the gen­er­al body of cred­it­ors, the peri­od is exten­ded to two years, and both the debtor’s intent and the oth­er party’s know­ledge of that intent must be proven.

In the case of parties closely related to the debt­or, the requis­ite know­ledge is pre­sumed. That pre­sump­tion is rebut­table.

A suc­cess­ful avoid­ance action obliges the bene­fi­ciary to return the actu­al bene­fits them­selves or to pay their mon­et­ary equi­val­ent. The insolv­ency prac­ti­tion­er has a max­im­um of three years from the com­mence­ment of the insolv­ency pro­ceed­ings to bring such a claim.

Insolv­ency prac­ti­tion­ers: broad­er powers to trace assets

The Dir­ect­ive strengthens the pos­i­tion of insolv­ency prac­ti­tion­ers in tra­cing assets belong­ing to insolv­ency estates or that are the sub­ject of avoid­ance actions.

At the request of the insolv­ency prac­ti­tion­er, des­ig­nated courts or author­it­ies are empowered to obtain dir­ect and imme­di­ate access to bank account inform­a­tion — both nation­ally and, via the European BARIS inter­con­nec­tion sys­tem, across bor­ders — provided that the inform­a­tion is neces­sary for the iden­ti­fic­a­tion and tra­cing of assets belong­ing to the insolv­ency estate or which are the sub­ject of avoid­ance actions.  Once it has been veri­fied that these con­di­tions have been met, the des­ig­nated courts or author­it­ies shall trans­mit the bank account inform­a­tion obtained to the insolv­ency prac­ti­tion­er who reques­ted it.

Insolv­ency prac­ti­tion­ers shall be gran­ted timely access to cent­ral bene­fi­cial own­er­ship registers without the entity or ulti­mate bene­fi­cial own­er con­cerned being noti­fied.  In addi­tion, insolv­ency prac­ti­tion­ers shall be guar­an­teed dir­ect and exped­i­tious access to nation­al registers and data­bases, such as land registers and intel­lec­tu­al prop­erty registers, without the inter­ven­tion of a court or author­ity act­ing as an inter­me­di­ary.  Insolv­ency prac­ti­tion­ers appoin­ted in anoth­er Mem­ber State must not be sub­ject to sub­stant­ive access con­di­tions that are less favour­able than those applic­able to domest­ic insolv­ency prac­ti­tion­ers.

Cred­it­ors’ com­mit­tees and the key inform­a­tion factsheet

The Dir­ect­ive requires Mem­ber States to allow for the estab­lish­ment of a cred­it­ors’ com­mit­tee fol­low­ing the open­ing of insolv­ency pro­ceed­ings, at the request of the gen­er­al meet­ing of cred­it­ors or of indi­vidu­al cred­it­ors.  The cred­it­ors’ com­mit­tee rep­res­ents the interests of the cred­it­ors as a whole and has the right to hear and be heard by the insolv­ency prac­ti­tion­er on import­ant decisions, the right to be heard in the pro­ceed­ings, and the right to request and receive inform­a­tion.  Mem­bers are, in prin­ciple, exempt from per­son­al liab­il­ity, unless there is intent or gross neg­li­gence.

In addi­tion, the Dir­ect­ive requires each Mem­ber State to draw up a key inform­a­tion factsheet on essen­tial ele­ments of nation­al law on insolv­ency pro­ceed­ings.  The con­tent of key inform­a­tion factsheets shall be con­cise, accur­ate, clear and non-tech­nic­al, and shall include: the con­di­tions for the open­ing of insolv­ency pro­ceed­ings, the rules gov­ern­ing the lodging, veri­fic­a­tion and admis­sion of claims, the rules gov­ern­ing the rank­ing of cred­it­ors’ claims and the dis­tri­bu­tion of pro­ceeds, and the aver­age repor­ted length of insolv­ency pro­ceed­ings.  This key inform­a­tion factsheet is made avail­able via the European e-Justice Portal.  For cred­it­ors with cross-bor­der claims and for investors wish­ing to assess the risk of for­eign insolv­ency pro­ceed­ings, this rep­res­ents a wel­come improve­ment in trans­par­ency.

What next?

The trans­pos­i­tion dead­line is 22 Janu­ary 2029, with a later date of 10 July 2029 for the pro­vi­sions on cross-bor­der access to bank account inform­a­tion via BARIS.  The new rules on avoid­ance actions apply exclus­ively to leg­al acts car­ried out after the trans­pos­i­tion date — there is no ret­ro­act­ive effect.  The Dutch legis­lature will need to draft an imple­ment­ing act in the com­ing years. Stake­hold­ers will be giv­en the oppor­tun­ity to provide input through a pub­lic con­sulta­tion. Dir­ect­ors, insolv­ency prac­ti­tion­ers, cred­it­ors and oth­er inter­ested parties are advised to con­tin­ue mon­it­or­ing devel­op­ments and to assess how the new rules will affect their pos­i­tion.