Offering an out-of-court settlement (successfully) becomes easier

Ivo Opstelten, the Minister of Security and Justice, wants to make an out-of-court settlement, in which creditors receive a certain percentage and - if necessary forced - renounce the excess of their claim, easier. The minister wants to make it easier to force creditors and shareholders who are unreasonably obstructive to cooperate. This should prevent more bankruptcies. The regulation applies to legal entities (BV, NV etc) as well as natural persons.

Introduction: current situation

In my daily practice, I often deal with solutions for distressed companies. Often a package of measures includes a proposal to all creditors to write off part of the debts. An agreement does not necessarily mean that the creditors waive part of the claim. An agreement can also mean that part of the claim does not have to be paid until later or that the claim is (partly) converted into shares. Often creditors are willing to agree to this, because if bankruptcy threatens, they will receive even less or even nothing at all.

But sometimes creditors are also obstructive and want to see no less than 100% of their claim paid in cash. This, of course, is their right and therefore, according to current case law, it is very difficult to force a creditor to agree to an out-of-court settlement.

Bill: suspension of bankruptcy petition

It is very much in the interest of all players in the field - as the minister rightly notes - to try to avoid bankruptcies. After all, this results in high settlement costs. Moreover, it brings about a sharp drop in business value, and job losses are common.

Therefore, the bill states that a bankruptcy petition will be suspended if an out-of-court settlement is offered. Moreover, those who finance the arrangement (with an emergency loan) are also protected in the bill.

Declaring an agreement universally binding

If the bill passes, it will soon no longer be necessary for all creditors to agree to an arrangement. A large majority of creditors will soon be sufficient to restructure the debts. Those who remain opposed to the agreement on unreasonable grounds may be forced by the court to cooperate with the agreement. Indeed, the debtor can request that his agreement be declared generally binding.

However, the proposed rule does not apply if creditors can show that they would recover more from bankruptcy than they would under the agreement. Moreover, the coercion rule does not apply to employees.

Conclusion

The fact that the bankruptcy judgment is not issued if an out-of-court settlement is offered already prevents bankruptcies in the first place. Moreover, the chances of success of an out-of-court settlement are increased by the possibility of declaring it generally binding. Thus, the bill offers good opportunities for an ailing company.

For more questions about an out-of-court settlement under the current rules and under the new bill, please feel free to contact me.