11 November 2013

Options for a speedy restructuring through bankruptcy

Dutch insolvency practice is increasingly looking for possibilities to effectively restructure failing companies rather than liquidate them in order to safeguard creditors’ interests, and preserve jobs and economic activity. In line with international developments, pre-packs are on the rise and consultation on a bill to regulate pre-packs is currently on-going.

This information is available in English only.

To offer alternatives to liquidating a failing company, the Dutch legal system is increasingly providing more tools to facilitate pre-packs and thus ensure the preservation of value for all stakeholders. In the Netherlands, a pre-pack is a restructuring through bankruptcy proceedings where a restructuring plan is agreed in advance of a company filing for bankruptcy. The Dutch statutory regime offers limited tools for restructuring and the Dutch Bankruptcy Act does not facilitate pre-packs. To date, the Dutch parliament has not taken steps to improve the legal framework, although Dutch courts are becoming increasingly inventive in assisting re-starts.

Practice has long argued for enhancing the ability to implement pre-packs. Most courts, prompted by the financial crisis and its fallout, have allowed the appointment of a “silent trustee” (stille bewindvoerder) on request of the company and/or its creditors some time before the formal filing of a bankruptcy petition. Some recent noteworthy Dutch pre-pack reboots are Prime Champ, Ruwaard van Putten Hospital and De Schoenenreus.

The main advantage of a pre-pack is that the distressed M&A can be prepared relatively calmly, thus creating the best chances for continuation of the company’s viable parts. During a short period before formal filing, the silent trustee works with the company to help prepare a pre-pack or another form of reboot by collaborating with all involved. As part of this process, the court furthers the appointment of the silent trustee as the bankruptcy trustee once the bankruptcy petition is filed and declared, so that the silent trustee can execute the pre-pack.

To further facilitate pre-packs and create a statutory basis for this practice, the Minister of Security and Justice proposed a separate bill to parliament in which the appointment of the silent trustee referred to above, but in the bill addressed as ‘prospective trustee’, will be regulated. This will provide market parties and restructuring professionals with the certainty that pre-packs, prepared with a prospective trustee, are indeed available as a valid restructuring tool. The bill provides guidance as to the conditions under which a prospective trustee can be appointed, his or her mandate and mode of operation, and how courts will deal with those issues.

After implementation of this bill, counsel of the management board of a failing company will have to request that the court appoint a prospective trustee. The management board will have to convince the court that with the appointment of the trustee, the interests either of the company’s combined creditors or of society, e.g., preservation of employment, are served. The court will decide on the request in chambers and can appoint a prospective trustee and a prospective supervisory judge without publishing these appointments. The company’s management board retains control and will have the company’s funds at its disposal. The prospective trustee will observe, be informed about the dealings of the company and research together with the management board the possibilities of a pre-pack. The prospective trustee can indicate which preparations are necessary to reduce or divert disadvantageous consequences of a potential bankruptcy. The prospective trustee will report to the prospective supervisory judge. The salary of the prospective trustee will be paid by the company where he has been appointed. His salary will be paid out of the estate as administrative expenses in the event of bankruptcy. After the prospective trustee has finished his job, either because the company has been declared bankrupt or because he has been dismissed at his own request, the company’s or the prospective supervisory judge’s, he must file a report with the court. If there is a bankruptcy, the report will be publicly available; if there is a reboot, the report will remain secret.