This is a working document that will be updated twice a week. The current version is from 12 mei 2020.

The corona virus and related government measures are having a profound impact on the economy and businesses. Companies are confronted with a loss of turnover and a suspension of payments by customers that have also been affected. This often leads to a shortage of liquidity. In order to help entrepreneurs to address such a liquidity shortage, we have bundled relevant information and advice in this hub.

The following topics are covered:

• New Financing – government measures to provide credit support
• Existing financing
• Limiting liquidity issues –
• Directorship during a liquidity shortage
• Financial reporting
• (Im)possibilities for a composition with creditors and a restart of the business

New Financing – government measures to provide credit support

The Dutch government has extended the existing guarantee schemes to provide credit support. Below you will find a short description of the relevant schemes and how these have been extended in connection with the COVID-19 outbreak. Would you like to know more about any of these guarantee schemes and the applicable eligibility criteria? Please click here.

Corporate Finance Guarantee (GO-scheme)
The GO-scheme (Garantie Ondernemingsfinanciering) is designed for large and medium sized enterprises facing difficulties with obtaining financing. Under the current GO-scheme, banks can get a 50% state guarantee on bank loans and guarantee facilities from EUR 1.5 million up to EUR 150 million per company. This maximum amount used to be EUR 50 million, but as part of the corona-measures the Dutch government has temporarily increased this maximum amount to EUR 150 million as per 27 March 2020. On 7 April 2020 the government has added a temporary corona-module (GO-C). The maximum guarantee rate under the GO-C has been increased from 50% to 80% for large companies (with annual revenues of  EUR 50 million or more) and 90% for small and medium-sized enterprises (with annual revenues of up to EUR 50 million). In addition, as per 7 April 2020 the government has further increased its budget to EUR 10 billion (this was already increased on 17 March 2020 from EUR 400 million to EUR 1.5 billion). The GO-C is subject to approval by the European Committee (which is pending). If approved, the GO-C will also apply to loans extended as from 24 March 2020 until the date the new regulations become effective. Read more here.

SME Credit Guarantee Scheme  
From 16 March 2020 to 1 April 2021, the government-guaranteed scheme for loans to small and medium-sized enterprises (SME) Credit Guarantee Scheme (Borgstelling midden- en kleinbedrijf:BMKB) will be extended to support SMEs affected by the Covid-19 outbreak. With this SME Credit Guarantee Scheme the government partly guarantees loans made available to SMEs that wish to take out a loan but are unable to provide the lender with sufficient security. Under the extended SME Credit Guarantee Scheme, the government guaranteed loan has been increased from 50% to 75%. Read more here.

Credit Guarantee Scheme for Agriculture
From 18 March 2020 to 1 April 2021, the Credit Guarantee Scheme for Agriculture (BL) will be extended with an additional module: the Credit Guarantee Scheme for Agriculture (BL-C) (Borgstelling MKB-Landbouwkredieten). Healthy agricultural or horticultural enterprises that have experienced liquidity problems as a result of the outbreak of Covid-19 may use the BL-C for a bridge loan of maximum EUR 1.2 million or EUR 2.5 million, depending on the type of business. Read more here.

Small Loans Corona Guarantee scheme (KKC scheme)
The KKC scheme (Klein Krediet Corona Garantieregeling) is intended for micro, small and medium-sized enterprises with a relatively small financing need between EUR 10,000 and EUR 50,000. By providing these guarantees, the Dutch government enables financiers to provide an additional EUR 750 million in bridging loans for these enterprises. The scheme has yet to be approved by the European Commission under the Temporary European Framework Covid-19. The Dutch Government intends to have the scheme available from mid-May 2020. Read more here.

Existing financing

Six Dutch major banks, non-bank related lenders and financing platforms apply eased policies towards companies in financial distress that cannot comply with their existing financial obligations. Moreover, it is foreseeable that banks and other lenders will review their loan documents to check whether they are entitled to limit their exposure by refusing or limiting further drawdowns. More information is provided in the articles below.

Policy of the Dutch banks
The corona crisis has caused financial distress for companies in various industries. As a result, companies seek contact with their banks to resolve this. Six major Dutch banks have decided to allow for a six-month deferment of repayments under existing loans for “financially healthy” companies in all industries. This deferment applies to financing arrangements up to EUR 2.5 million. The joint measure of the banks is aimed at providing help to companies to deal with the consequences of decreasing revenues. Some of the banks have indicated to apply the measure in a broader sense, also including companies with a financing arrangement of over EUR 2.5 million. More information can be found here.

Non-bank related lenders and financing platform policies
Non-bank related lenders and financing platforms play an important role in the financing of small and medium-sized enterprises (SMEs). Altogether, they were accountable for the financing of about 50,000 SMEs and self-employed workers without employees in 2019. A lot of them operate in industries that have been affected severely by the current corona crisis. Read more here.

In supplement to the Dutch major banks, certain Dutch non-bank related lenders and financing platforms offer solutions to cope with the consequences of the corona crisis to an increasing extent. This article discusses a number of the instituted measures. 

This article aims to provide some clarity and guidance further to a number of questions we repeatedly received from our international CRE lender and borrower client base over the past weeks around their legal position and remedies available to them under Dutch law to protect themselves from any resulting negative impact that they may suffer as a result of the COVID-19 pandemic.

We will also briefly discuss measures that have so far been taken by the Dutch government and representatives of market parties that are relevant to parties with an interest in the Dutch CRE finance market.

Termination and acceleration – remedies
Banks and other credit providers may review their loan documentation to assess whether they are entitled to limit their exposure by refusing or restricting further drawdowns. In some cases they may even consider to accelerate the credit facilities. Possible grounds for a drawstop or acceleration could be a Material Adverse Change (MAC) or another event of default such as a breach of financial ratios.

The burden of proof that a circumstance qualifies as a MAC is on the lender. The lender should act reasonably in forming its opinion that a MAC has occurred. Once a MAC or another event of default has occurred, the question arises whether the borrower can invoke the defence of force majeure. Force majeure is in principle limited to situations where specific performance is not possible (e.g. where specific performance is not permitted due to government measures). Taking this into account it seems unlikely that borrowers can invoke force majeure in relation to the payment of interest, scheduled repayments or a breach of financial ratios. That said, if the credit agreement is governed by Dutch law, borrowers may be able to rely on section 6:258 Dutch Civil Code relating to unforeseen circumstances. On this ground a borrower that is facing a liquidity shortage as a direct consequence of Covid-19 could ask the lender to renegotiate the terms of the credit facilities to effect a suspension or reduction of scheduled repayments, a suspension of interest payments or a reset of financial ratios.

A lender that nevertheless wants to terminate a facility or accelerate a loan that is governed by Dutch law on the basis of an event of default, should be aware that Dutch legal principles of reasonableness and fairness may limit its ability to exercise its rights. If the lender is a Dutch bank, further limitations could arise from the duty of care that banks owe to their clients under section 2 of the General Banking Conditions. This could result in the bank having to observe a longer notice period or a remedy period.

Please click here for more information on the above.

Lower interest deduction capacity due to lower profit
The Netherlands has a general interest deduction limitation, based on which interest is not deductible to the extent the difference between interest paid and received exceeds 30% of the EBITDA of the company involved (or EUR 1 million if higher). If as a result of Covid-19 the EBITDA turns out to be lower, the threshold of 30% will also be lower and a larger part of the interest will not be deductible. Non-deductible interest may still be deductible in a later year (if sufficient profit is made). Therefore, it is important to process the non-deductible amount of interest as a result of the above-mentioned interest deduction limitation in the administration. Do you want to know more about this? Please click here. 

Limiting liquidity issues

In supplement to the aforementioned (government) measures aimed preventing liquidity issues, there are a number of other means by which liquidity shortage can be limited. Please find more information below.

Government measures
The Dutch government has taken important measures in order to minimise any liquidity issues that companies may be facing as a result of the Covid-19 outbreak:

• Emergency Fund Bridging Employment (NOW)
• Deferral of payment of various taxes
• Compensation for Entrepreneurs in Affected Sectors Covid-19 (TOGS)
• Financial support for microcredit provider Qredits
• Corona Bridging Loan (COL)
• Temporary Bridging Loan Program for innovative Startups and Scaleups (TOPSS)

Please find more information here. 

Tax measures
The Dutch government has taken important tax measures to mitigate liquidity issues for businesses as a result of Covid-19. These include, for example, the possibility of deferring payment of taxes, reduction of collection and taxation interest, reduction of preliminary tax assessments as well as various relaxations and concessions with regard to existing tax regulations. Do you want to know more about this? Please click here. 

Commercial contracts: force majeure and unforeseen circumstances
The coronacrisis will inevitably have an impact on certain commercial contracts. After all, the consequence may be that you, as a party to such a contract, can no longer meet your contractual obligations, such as supplying certain products and/or services. The question then arises as to how to deal with such contractual obligations.

In the Netherlands, in order to answer that question, one must start with the agreement and the applicable general terms and conditions. Only if the concluded agreement does not contain any specific provisions that deal with situations like the crisis at hand, one will fall back on the statutory safety nets of Dutch law. The most obvious legal provisions that may possibly be invoked – in that context – are force majeure, suspension of obligations and unforeseen circumstances.

Whether a party can invoke one of these legal provisions cannot be answered with a general ‘yes’ or ‘no’. It will always depend on all the specific circumstances of the case. An unsuccessful invocation of, for example, force majeure or suspension results in non-performance on the part of the party invoking it, which leads to liability and liability for damages.

Read what our Commercial team wrote about this specific subject. 

Credit management
In times of crisis, liquidity is essential for a company’s continuity. An important part of maintaining sufficient cash flow is managing debtors efficiently. Good credit management limits credit risks and optimises working capital, which is crucial in difficult times. Are you having problems with customers who ask for a postponement of payment, or just do not pay? Do you have customers who you know are at risk of not surviving this crisis? If a company has properly safeguarded its rights as a creditor, as a result of which risks have been identified and anticipated at an early stage, such problems have less impact on the company. It also makes it possible to make proper arrangements for a customer’s deferral of payment.

If a customer does not need to pay upon delivery of the goods and services, the entrepreneur runs the risk of not being able to collect payment afterwards. In order to mitigate that risk, it is possible to include certain rights that offer security in the event of a possible insolvency of the debtor. For example, a right of retention of title, a right of pledge or a (bank) guarantee. In addition, invoking legal rights, such as the right to complain and the right of retention, can also be useful to limit any damage.

Read more about the possibilities to limit credit risks here.

The possibilities to abort negotiations
Against this background of the coronacrisis, it is not illogical to re-evaluate intended investments, transactions and collaborations: is it really necessary to enter into these commitments now or would it be more prudent to abort negotiations in view of the (partly unknown) consequences of the coronacrisis? The question that arises is, however, to what extent the parties are still free – without being liable – to walk away from such negotiations.

The starting point is freedom of contract: the parties are free to choose when and with whom they do (or do not) enter into an agreement. As long as no agreement has been concluded, the parties may therefore, in principle, terminate their negotiations at any time and for any reason whatsoever, without the terminating party being liable towards the other party. However, this could be different under certain circumstances as parties must also take into account the legitimate interests of the party with whom they are negotiating. In this context, aborting negotiations may be unacceptable. In that case, the terminating party may be liable to pay damages and the other party may under circumstances also claim that the parties must continue to negotiate.

Leases
In the Netherlands, landlords and tenants of commercial real estate are also affected by the COVID-19 outbreak. Tenants suspend their payment obligations and/or claim rent reduction. Tenants are no longer able to meet their “obligation to operate”, whether or not by order of the government. Is this allowed and what does this mean for tenants and landlords? Click here for more information.

Directorship during a liquidity shortage

Directors of companies in financial distress are confronted with many different issues, including liability issues. Below we briefly explain a number of these liability issues and provide guidance for managing directors in times of liquidity shortage. Would you like to know more about (one of these) liability issues? Click here for more information. 

Dividend distributions
A liquidity shortage requires the board to be prudent in approving dividend distributions, even when the general meeting of shareholders has already decided to distribute such dividend. If the board does not (correctly) comply with the legal provisions, each board member could be held personally liable as a result thereof. Read more here.

Selectieve betaling bij onvoldoende liquiditeit toegestaan?
A good selective payment policy is key for companies to manage temporary liquidity issues. However, selective payment of creditors can in certain circumstances be unlawful when other creditors are left unpaid without any recourse for the damages resulting from the non-payment. In general, a director of a company should take into account that he can be held liable for engaging in selective (preferential) payments of debts that are due and payable if, given the distressed financial situation of the company, he knows (or reasonably should know) that other creditors are left unpaid without sufficient recourse for the damages resulting from the non-payment and, with regard to the circumstances of the case, no adequate justification for the selective payments. Adequate justification for selective payments can be found in case the board of the company decides to pay certain creditors first so as to facilitate an attempt to rescue its business. Read more here.

New commitments
In a situation where a company is facing liquidity problems, the director of the company will have to be cautious when entering into new commitments, such as new financing, new investments or new purchase orders. At a certain point in time, he should allow the interests of creditors to take precedence over the interests of the company. If the director knows or should know that the company is unable to meet the obligations arising therefrom and also fails to provide adequate redress, this may lead to the director’s personal liability. Read more here.

Consider submitting a notification on the inability to pay 
In order to limit the adverse economic effects of the corona virus, various (tax) measures have been announced to address (temporary) liquidity issues that businesses are facing. If your business is not able to pay its taxes and/or (pension) contributions in time, it is possible to submit a request for special deferral of payment. In that case your business must also report the inability to pay to the Dutch tax authorities and / or the industry-wide pension fund. If this is not done (in time), directors might risk being held personally liable for unpaid tax debts or (pension) contributions. The notification on the inability to pay must be submitted within two weeks after the tax and / or (pension) contribution should have been paid. A request for deferral of payments in principle also qualifies as a notification on inability to pay tax if (i) such a request is submitted by a director of company that is a legal entity, (ii) is subject to corporate income tax and (iii) is not able to pay wage tax and / or VAT. Read more here.

When should you file for a suspension of payments or bankruptcy?
The board is not legally required to file for bankruptcy of its company. However, if bankruptcy is not filed for in a timely manner, this can lead to personal liability of the board member(s). Such liability can often be avoided by discussing your situation with your advisors in time. Read more here.

Corporate authorisations at distance

The COVID-19 virus may also have an impact on the process of adopting resolutions by legal entities. Due to the requirement, either by law or based on the Articles of Association, that a physical meeting is held, many legal entities find themselves in a situation where it has become impossible to hold meetings, due to the ban on public gatherings. This situation affects all legal entities with numerous shareholders or members, and ranges from public companies listed on a stock exchange to associations. As a result, many legal entities are unable to validly adopt resolutions.

In order to alleviate this situation, the government has published an emergency act. This emergency act contains, amongst other measures, rules with regard to the adoption of resolutions by legal entities. The emergency act deviates from certain sections of the Dutch Civil Code, and applies to all legal entities: public companies, private companies, associations, cooperatives and foundations. The sections of the emergency act are materially the same for companies, cooperatives and associations. Please find more information in this article. 

Financial Reporting

Covid-19 already has a financial impact on (the forecasts of) many companies. The financial reporting for the year 2019 for this reason deserves due attention as well, especially now that many companies are in the phase of preparing their annual accounts for 2019.

Covid-19 (therefore) also has an impact on the auditor’s audit of those financial statements and possible (changed) insights into the continuity of companies. This may give rise to further discussions with the auditor, because the actual impact of Covid-19 on the company is in many cases far from clear. This means that impact must be estimated as much as possible. This has consequences both for the company’s financial reporting and for the auditor’s audit of that financial reporting.

Both the Dutch Council for Annual Reporting and the Dutch Association of Auditors have published reports on the question how the company respectively the auditor should deal with (the uncertainties about the financial consequences of) Covid-19. The report of the Dutch Association of Auditors is available in English too. These reports are updated continuously and give a good impression of what can be expected of both the company and the auditor. 

Would you like to know more about the impact of Covid-19 on the annual accounts 2019, the management report and the audit? Click here.

(Im)possibilities for a composition with creditors and a relaunch out of bankruptcy of the business 

Under the current Dutch legislation that a restructuring of debt outside of formal insolvency proceedings can only be accomplished on a consensual basis. This means that a restructuring plan requires the consent of all creditors that are requested to restructure their claims. A composition offered in insolvency proceedings (i.e. a suspension of payments or bankruptcy) can only extend to the unsecured creditors and is not effective towards any preferred creditors or creditors whose claims are secured by a right of pledge or a right of mortgage.

A restructuring can also be effected by a sale and relaunch of the business of the bankrupt company. This will require the cooperation of the bankruptcy trustee and the secured creditors.

Currently a bill is pending in parliament that provides for a new restructuring measure. The Dutch Act on the Confirmation of Privately offer Composition Plan (in short: the “Dutch Scheme”) introduces a compulsory composition outside of formal insolvency proceedings. Such compulsory composition is binding on all creditors (including preferred and secured creditors) and shareholders. The Dutch House of Representatives unanimously approved the Bill on 26 May 2020. It is expected that the Dutch Senate will consider this act with priority with a view to entry into force this summer or shortly thereafter.  

Please click here for more information on the above, including a presentation with an explanation how the Dutch Scheme will work.