Netherlands: Implementation of the Restructuring Directive – will secured creditors’ rights be affected?
The Wet Homologatie Onderhands Akkoord (Act Homologation Private Agreement, ‘WHOA’) has come into force on 1 January 2021. This Act (partly) implements Directive (EU) 2019/1023 of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt (‘restructurings’) (the ‘Directive’), amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency). The Directive in so many words leaves Regulation (EU) 2015/848 of 20 May 2015 on insolvency proceedings (European Insolvency Regulation recast (‘EIR’) unaffected; it is to be regarded as compatible and complementary.
How and to which extent may the rights of (non-Dutch) secured creditors, and in particular financiers be affected by the WHOA? This short article focuses on such creditors, whose claims are secured by way of ‘real rights’: mortgages, pledges and/or assignments.
The answer to this question differs based on which kind of WHOA restructuring will be used: two different tracks are available: a ‘public’ restructuring and a ‘non-public’ restructuring. Only the ‘public’ restructuring may be subject to the EIR, i.e. when (i) the debtor has its centre of main interests (COMI) in an EU state (except Denmark) and (ii) cross border elements are involved. A ‘non-public’ restructuring is not being published, not subject to the EIR, and unless there are specific rules of recognition, is only effective within the Netherlands and is only subject to Dutch local legislation (the EEX and/or Lugano do not apply).
Dutch courts will have jurisdiction for a ‘public’ restructuring when the COMI of the debtor is in The Netherlands. For a ‘non-public’ restructuring there must be ’sufficient connexion’ which is a wider reaching criterion: e.g. when substantial assets are in The Netherlands: a vessel could create such jurisdiction.
‘Public’ restructuring and EIR
Article 8 EIR states that the opening of insolvency proceedings does not affect the rights in rem of creditors or third parties in respect of tangible or intangible, moveable or immoveable assets belonging to the debtor which are situated within the territory of another Member State at the time of the opening of proceedings […]. Rights in rem are described as (among other things) (a) the right to dispose of assets or have them disposed of and to obtain satisfaction from the proceeds of or income from those assets, in particular by virtue of a lien or a mortgage and (b) the exclusive right to have a claim met, in particular a right guaranteed by a lien in respect of the claim or by assignment of the claim by way of a guarantee. Thus, a ‘public’ restructuring in a EU country does not preclude/affect enforcement by a mortgagee in respect of goods in another EU country. This also applies to a moratorium.
‘Non-public’ restructuring or a restructuring when the EIR does not apply in view of a COMI outside the EU (or in Denmark)
The rules applying in a ‘non-public’ restructuring basically are the same as in a ‘public’ procedure, but secured creditors cannot invoke the ‘protection’ of article 8 EIR. Thus also secured creditors may be grouped in a class, be subject to participating in a restructuring and may have to deal with a moratorium.
Also under Dutch law a creditor with a ‘real right’ can enforce its securities irrespective of an insolvency. But here are two comments to be made: (i) also creditors with secured claims are subject to a moratorium in a non-public restructuring, and (ii) such ‘real rights’ are only enforceable when this is based on a treaty (EEX or Lugano).
As for (i): Creditors may apply to the court to set aside the moratorium or to allow them to enforce the rights. The court will weigh the interests of the parties involved.
And as for (ii): Although creditors with ‘real rights’ governed by another law (e,g, Panama or Liberia) may, in division proceedings following a public sale, rank according to the similar rights under Dutch law, they cannot organize a public sale on the basis of their real right; they would need another title to enforce and would participate/claim on the basis of a priority right. Thus, they will be subject to a WHOA restructuring.
However, this does not necessarily mean that they will have to agree to a devaluation of their claims. With a (single) shipping company, the assets of the owner generally consist of the vessel, its earnings and its bank account credits. All of these will have been mortgaged, assigned and/or pledged to the financier. Under Dutch law only crew primes mortgage in the proceeds of sale of a vessel when auctioned. In case of such sale crew would therefore be ‘in the money’. Crew has no interest in supporting a restructuring and thereby getting less money. Therefore, it is likely that there will be no other creditors than the financier and crew who are ‘in the money’, who would vote in favour of a restructuring, being this a requirement for making a restructuring possible. But delay may be caused due to a moratorium, which, as stated, will then also apply to the financier.
Of course, a financier shall not sit back but defend its position in line with the above, and make sure no other classes are ‘in the money’ and vote against a restructuring.