Dutch and European legislatures will continue to focus their insolvency efforts on business rescue as a preferred alternative to winding-up and liquidation. We expect the much-anticipated proposal introducing court confirmation for extrajudicial restructuring plans to enter the formal legislative approval process early 2019. In parallel, the European legislature reached political consensus on the Restructuring Directive just before the end of 2018 so the directive will likely be formally adopted in 2019. Both initiatives are aimed at reinforcing the reorganising capacity of distressed companies.
Dutch court confirmation of extrajudicial restructuring plans – CERP
The legislative proposal, echoes of which started in 2014, calling for court confirmation for extrajudicial restructuring plans is almost ready to make its way through Dutch parliament. The revision process has taken up more time than expected because the legislature decided to both take into account the comments resulting from the public consultation in 2017, and to make some additional amendments. These latter changes are aimed at making the proposal even more suitable for international, multi-jurisdictional restructurings. We expect a draft bill to be sent to Dutch Parliament early this year. For a detailed discussion of the draft, see our Legal Alert and dedicated website.
Uncertain future for Dutch pre-pack
The prospects of the bill bringing a pre-packaged asset sale restructuring to the Netherlands (the Continuity of Companies Act I) is less rosy. Even though it was nearing completion in 2017, its fate has since become unpredictable. The reason for this was a European Court of Justice decision that a pre‑packed asset sale is not exempted from the rule that employees are automatically transferred to the buyer of a company’s assets. This exemption does apply in the case of a bankruptcy. In the meantime, Dutch appellate courts have confirmed that asset sales by the trustee in bankruptcy remain valid even if the buyer continued – part or substantially all of – the activities of the bankrupt business without taking over all employees. The current proposal may very well be withdrawn in 2019 in order to be substituted by a revised one.
As for Europe, political agreement about the Restructuring Directive that was proposed by the European Commission was reached at the end of 2018. In late December 2018, the institutions reached agreement on the directive. The main purpose of the draft directive is to address financial distress at an early stage to avert insolvency proceedings, and preserve employment and business value. It is hoped that this purpose will be achieved by eliminating differences in national insolvency and restructuring related legislation that impede the free movement of capital within the EU. This will strengthen the business rescue culture in all of the EU member states. The draft directive will now be revised linguistically, after which it is ready for formal adoption and publication. This is expected before the European elections in May this year. Once adopted, member states will have two years to implement the directive into their national legislation.
The date for Brexit draws closer, without any substantial outlook at an alternative for the European Insolvency Regulation recast between the EU and the UK. Our expectations for Brexit are set out in a newsletter we published late 2018. A further Brexit update is also included in this Crystal Ball Gazing issue.
New legislation entering into force
2019 is also the year in which some legislation that was completed in 2018 enters into force. Various procedural aspects of Dutch bankruptcy proceedings, which were amended through the Modernisation of Bankruptcy Proceedings Act, will start supporting a more efficient and effective liquidation of bankruptcies. Implementing a European directive and aiming to advancing the BRRD, an additional category of unsecured debt that is highly suitable for a bail-in in case of a bank’s bankruptcy will strengthen banks’ ability to head stormy weather.
In addition, new recovery and resolution rules for insurers aimed at preventing insurers’ disorderly failure took effect on 1 January 2019. Read our Crystal Ball Gazing article here.
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