How the customised relief mechanism works under the CERP Act

The role of the customised relief mechanism in the CERP Act

The Dutch Act on Confirmation of Extrajudicial Restructuring Plans (“CERP Act”, in Dutch: Wet homologatie onderhands akkoord, or WHOA) sets out a procedure for companies to restructure their excessive debt by reaching a composition with their creditors and shareholders. Where previously a composition required the approval of all the creditors, and a single creditor could block the restructuring efforts, this changes with the CERP Act.

Before the composition can be confirmed in court, the draft composition must satisfy various conditions. The first step in preparing a composition is a commencement declaration (section 370(3) of the Dutch Bankruptcy and Insolvency Act (“Insolvency Act”, in Dutch: Faillissementswet). After the debtor has filed this declaration, a number of instruments will become available to facilitate the preparations: for example the cooling-off period (section 376 Insolvency Act) and the authorisation offering protection against action for fraudulent conveyance (section 42a Insolvency Act).

How the customised relief mechanism can be used, and by whom

Besides these specific instruments, the CERP Act also contains a customised relief mechanism: under section 379 Insolvency Act, the debtor or restructuring expert may ask the court “to impose whatever measures and relief it judges to be necessary to protect the interests of the creditors or the shareholders.” The court may also impose measures or relief on its own motion.

Requirements

A request under section 379 Insolvency Act must satisfy a number of conditions. First, the debtor must have filed the commencement declaration, or else a restructuring expert must have been appointed. Second, the measure or relief must be a necessary means to protect the interests of creditors or shareholders.

This second, subjective requirement means that the party requesting the measure or relief must explain why that particular relief is necessary in connection with protecting those interests. It can be inferred from the Explanatory Memorandum that the customised relief mechanism takes its inspiration from the existing arrangements for suspension of payments under section 225 Insolvency Act.

It offers the debtor the possibility to request specific protection, for example if that cannot be derived from the cooling-off period, such as an obligation for a particular vendor to continue (conditionally) to deliver its goods or services. The Explanatory Memorandum mentions the possibility for the court to establish (on its own motion) a deadline for voting on the composition, or to impose an obligation on the debtor to inform creditors at regular intervals on the progress that is being made with the preparations for the composition.

Conclusion

The CERP Act presents explicit parameters for what information must be included in a composition and the process that the composition must then go through. The customised relief mechanism makes it possible to insert additional measures or relief into that process as required specifically for a particular composition or restructuring process. It appears that the possibilities under the mechanism are limited only by the imagination of the debtor, the restructuring expert, their advisers and the court itself.