Dutch Government's proposals for a new form of binding, pre-insolvency composition - the "Dutch Scheme"

by DLA Piper

DLA Piper

In September a draft bill was published for public consultation, pursuant to which a district court may be asked to confirm a restructuring plan between a company and its creditors and shareholders concerning the rescheduling and restructuring of debts to prevent bankruptcy. Confirmation from the district court results in the restructuring plan not only binding the creditors and shareholders involved, but also creditors and/or shareholders that have not voted in favour of the composition.

This draft bill is a revision of a previously published draft and is referred to as the Continuity of Companies Act II (Wet Continuiteit Ondernemingen II, the "WCO II"). The proposal was inspired by the UK scheme of arrangement and the US Chapter 11 procedures.

The aim of the draft bill is to help to rescue operationally viable companies which are coping with excess debt and are at risk of bankruptcy, in circumstances where the proposed rescue is opposed by a small number of creditors and/or shareholders.

Main features

WCO II provides for a relatively cheap and quick procedure to implement a composition outside of bankruptcy. If the composition is supported by the majority of creditors and/or shareholders and is approved by a Dutch court, creditors and/or shareholders which have not voted in favour of the composition will nevertheless be bound by its terms.

The debtor is obliged first to try to reach a consensual restructuring plan with its creditors and debtors. It is only entitled to consider a composition if this first step fails.

Like the English scheme, the restructuring plan can be implemented outside formal insolvency proceedings and no trustee or administrator needs to be appointed. During the entire procedure, the debtor remains in full control of its assets.

Only legal entities and professional individuals or those carrying on a business are eligible to propose a restructuring plan under the WCO II. The plan can bind all types of creditors and shareholders (including secured creditors) but is not required to include all creditors and shareholders. Thus the plan can seek to compromise the claims of only one set or specified class of creditors.

A restructuring plan should only be considered in justifiable circumstances and must therefore satisfy the following criteria: (i) effecting the restructuring plan is necessary and will provide adequate relief to avert an imminent bankruptcy of the company, (ii) there is at least one class of creditor or shareholder involved of which a large majority supports the restructuring plan; and (iii) the restructuring plan is reasonable, in the sense that the aggregate interests of the creditors and shareholders involved in the plan benefit or, at the very least, would not be prejudiced if the restructuring plan is effected. This last criterion means that (a) the creditors and shareholders may not end up in a materially worse position as a result of the restructuring plan than they would be in the event of bankruptcy and (b) the costs of carrying out the restructuring envisaged by the plan, and the consequent value to be realized from the plan (i.e. the going concern value) is fairly distributed among the various classes of creditors and shareholders.

In principle, the debtor needs to take the initiative to offer a restructuring plan to all or some of its creditors and/or shareholders. However, if a debtor faces insolvency but refuses to propose a plan despite being urged to do so by any of its creditors, the creditor can apply to court to appoint an expert who will be able to propose a restructuring plan on behalf of the debtor. An expert can also be appointed by the court if the debtor's restructuring plan has not been accepted by any voting class.

Following voting, the court must confirm the plan for it to become binding on all parties. The procedure includes a Chapter 11-style cram down mechanism, which gives the court the authority to confirm the plan, notwithstanding the objections of certain creditors.

The procedure is confidential until the court has provided its confirmation decision and includes a number of additional features, such as (i) the ability for the debtor to request a stay of insolvency proceedings and enforcement actions; (ii) the ability of the court to set aside ipso facto clauses; and (iii) the power to terminate onerous contracts.

International context

Several years ago, when proposals were first made for this procedure, the draft bill included a provision for the procedure to fall within the scope of the European Insolvency Regulation, thus ensuring automatic recognition of its effects throughout Europe. However, the revised draft bill does not include any references to the Insolvency Regulation. No explanation is provided, although it could relate to the desire for the procedure to be able to cram down the claims of secured creditors which could conflict with the "rights in rem" provisions of the Regulation. Whether this is the case or not, with no reference to the Regulation, it is now unclear what connection to the Netherlands is required in order for a debtor to be authorized to initiate the WCO II procedure. Ideally, this will be addressed in the final draft bill.

The revised draft bill was open for consultation until 1 December 2017 and will hopefully soon be submitted to parliament.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© DLA Piper | Attorney Advertising

Written by:

DLA Piper

DLA Piper on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.