27 February 2024

Ban on appealing lower court decisions in WHOA proceedings reaffirmed

+ 1 other expert

On 13 February 2024, the Amsterdam Court of Appeal ruled that the statutory ban on filing appeals against decisions by courts of first instance in Dutch WHOA proceedings meets the requirements set out in the EU Insolvency Regulation. According to the Court of Appeal, this regulation does not give parties a stand-alone right to have their case re-evaluated by a second fact-finding court. Parties looking to have a first-instance WHOA decision overturned may only do so under specific circumstances allowing them to override the statutory appeal ban.

As a result, parties to Dutch WHOA proceedings will in principle have only one opportunity to assert their views, often at the sanctioning hearing in first instance. To ensure their views receive adequate consideration by the Dutch courts, especially in complex proceedings, parties should consider indirectly pushing the court of first instance to issue an interim decision (uitspraak over aspecten) before the sanctioning hearing.

Appeal in insolvency proceedings: an international perspective

A court-sanctioned restructuring plan, aimed at preventing a debtor's approaching bankruptcy, typically requires swift implementation to achieve its goal. The possibility of an appeal against decisions by courts of first instance – and the continued uncertainty surrounding the debtor's prospects as a result of an appeal – may frustrate the implementation of a restructuring plan. At the same time, the possibility of appeal provides both judges and parties with the opportunity to rectify initial missteps, and may furthermore add to a clear and uniform application of the relevant legal framework.

US Chapter 11 and UK scheme of arrangement and restructuring plan proceedings reconcile these aspects by subjecting the right to appeal against a first-instance decision to strict limitations. In Chapter 11 proceedings, these limitations seek mainly to minimise the disruptive effect of the appeal on an adopted reorganisation plan and the debtor's recovery. In the context of UK schemes of arrangement and restructuring plans, the relevant limitations focus mainly on the degree to which the first instance decision is flawed and on the chances of successfully overturning this decision on appeal.

The EU legislature has, in Article 16(1) of the EU Restructuring Directive, determined that "Member States shall ensure that any appeal provided for under national law against a decision to confirm or reject a restructuring plan taken by a judicial authority is brought before a higher judicial authority." Furthermore, Recital 34 and Article 5(1) of the EU Insolvency Regulation provide that "any creditor of the debtor should have an effective remedy against the decision to open insolvency proceedings" and that "the debtor or any creditor may challenge before a court the decision opening main insolvency proceedings on grounds of international jurisdiction". Certain EU member states, such as Germany, indeed provide for the possibility of appealing first-instance decisions in insolvency proceedings: again, subject to strict limitations.

Ban on appeal in Dutch WHOA proceedings

Under Dutch statutory law, however, no legal remedies are available against district court rulings in WHOA proceedings, except where these courts derive their jurisdiction from the EU Insolvency Regulation and have not provided a party with the opportunity to present its views in first instance before the initial ruling. Whether or not this meets the requirements set out under EU law has been subject to debate since the introduction of the WHOA.

On 11 April 2023, the Court of Appeal of The Hague dismissed a party's attempt, based on the Restructuring Directive, to appeal a WHOA decision by the Rotterdam District Court. Contrary to the party's assertions, the Court of Appeal held that (i) the Restructuring Directive does not oblige Member States to provide for the opportunity to appeal, and in any case no stand-alone right of appeal in WHOA proceedings can be derived from the directive, and (ii) the Dutch statutory ban on appeal also extends to court decisions rejecting a proposed restructuring plan, as the Rotterdam District Court had issued.

A second attempt at appealing a first-instance WHOA decision, this time based on the EU Insolvency Regulation's provisions regarding international jurisdiction, was dismissed by the Amsterdam Court of Appeal on 13 February 2024. According to the Court of Appeal, the Insolvency Regulation (like the Restructuring Directive) does not provide for a right to appeal against such decisions in WHOA proceedings if parties have been given the opportunity to assert their views in first instance.

These judgments clearly reaffirm the statutory ban on appeal in WHOA proceedings, dismissing attempts at circumvention on the basis of EU legislation. However, both appellate courts leave room for overriding the statutory appeal ban in circumstances where the court of first instance has failed to apply relevant legislation, gone beyond the scope of such legislation, or neglected fundamental principles of Dutch law to such extent that no fair trial can be considered to have taken place.

Lastly, although parties have no direct recourse to the Dutch Supreme Court, the highest court in the Netherlands may still become involved in WHOA proceedings. First, because the court of first instance court may refer preliminary questions to the Supreme Court during ongoing proceedings. The Amsterdam District Court, for example, involved the Supreme Court in WHOA proceedings relating to industry-wide pension funds. Second, because the Procurator General at the Dutch Supreme Court may initiate a Supreme Court appeal "in the interest of the law" once the proceedings in first instance are concluded, albeit without consequences for the outcome of those proceedings. Currently, such an appeal is being prepared by the Procurator General in relation to a WHOA decision by the Rotterdam District Court involving Royal IHC.

Key points to consider for parties involved in Dutch WHOA proceedings

In principle, in light of this ruling, no legal remedies are available against a decision by a court of first instance in Dutch WHOA proceedings. To successfully appeal such a decision, parties will have to meet the high threshold of demonstrating that the court of first instance has failed to apply relevant legislation, gone beyond the scope of such legislation, or neglected fundamental principles of Dutch law to such extent that no fair trial can be considered to have taken place.

This approach benefits the effectiveness of a restructuring plan adopted under the WHOA. Furthermore, the lack of a possibility to appeal is unlikely to create a divergence in first-instance decisions and/or lack of clarity as to the application of the WHOA. WHOA proceedings are presided over by a select pool of specialised judges, who have the opportunity to refer preliminary questions to the Dutch Supreme Court and whose decisions may be subjected to a Supreme Court appeal solely "in the interest of the law".

However, as a result, parties to WHOA proceedings will typically have only one opportunity to assert their views, often at the sanctioning hearing. Especially in complex proceedings concerning a multitude of topics, parties should be careful to ensure that their arguments receive the court's full attention. To do so, the debtor and plan expert could consider raising certain topics before the sanctioning hearing by requesting that the court give a preliminary decision (aspectenverzoek). Other parties, who under Dutch law do not have the opportunity to request such preliminary decision, may consider requesting the appointment of a plan expert to prevent the debtor from having the sole initiative in this regard, provided that the circumstances of the case merit the involvement of this expert. Furthermore, even though Dutch law does not provide parties with a statutory basis for doing so, parties could consider suggesting to the court of first instance that it refer preliminary questions on certain topics to the Supreme Court. In each case, parties should note that – although the Supreme Court has proven that it can act fairly quickly – courts may take the potential delay caused by these procedural steps into account, which may in turn impact the debtor's ability to avoid bankruptcy. Therefore, parties are advised to raise any such steps as early as possible during the proceedings.