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    Pre-pack legislation adopted by House of Representatives

    On Tuesday the 21st of June, the Dutch Continuity Enterprises Act I (WCO I) has been adopted unanimously by the Netherlands’ House of the Representatives. The WCO I forms part of the legislative program "Recalibration of Bankruptcy Law". The new legislation provides a statutory basis to the current pre-pack practice that has been developed by several (not all) courts in The Netherlands during the past couple years.

    With the implementation of the WCO I, the differences between the various courts as to whether they are prepared to facilitate a pre-pack will come to an end. WCO I provides a statutory basis for the circumstances in which a pre-pack is possible, the role, duties and powers of the 'silent administrator' and the supervision on the conduct of his duties. A Dutch pre-pack can improve deal certainty and the chances of a successful relaunch of viable parts of the enterprise.

    The statutory pre-pack is in line with the practice that has developed over the last years by various courts. A debtor can approach the court with a request to inform the debtor of the identity of the insolvency practitioner and the supervisory judge it will appoint if the debtor will file for bankruptcy. This allows the debtor and its key creditors (most importantly secured creditors) to consult the future trustee (generally referred to as 'silent administrator') and supervisory judge on a possible sale of the assets out of bankruptcy before the start of formal insolvency proceedings. This makes it possible to prepare the sale on a confidential basis before a bankruptcy filing and to implement the sale immediately after the debtor is declared bankrupt. It is further possible to enter into other agreements with the silent administrator, e.g. that arrangements for regards interim-financing will not be exposed to avoidance in bankruptcy.

    Amendment in order to strengthen the position of employees

    In the final phase of the adaptation of the WCO I at the Dutch House of Representatives, an amendment of the proposed regulation was proposed and adopted. This amendment aims to provide safeguards for employees in order to prevent misuse of the pre-pack. In summary the amendment provides for a requirement to involve the works council or staff representation of an enterprise during the phase of 'silent administration', except in cases where that would be contrary to the interests of the enterprise. In addition, under the amendment, the court will appoint a representative of the works council or staff representation to the creditors committee, if and when such committee will be appointed by the court upon bankruptcy.

    The amendment will give employees a voice in the 'silent administration' phase, but it remains to be seen what the actual impact thereof will be. The duty of care of the trustee will not change. His primary duty is to realise the highest possible proceeds for the creditors. In doing so, he takes the (public) interests to preserve employment and other employee interests in consideration, but the interests of creditors to realise maximum proceeds should eventually prevail.

    Timeline to implementation

    The next step to implement WCO I is approval by the Dutch Upper House. The proposal has been submitted to the Dutch Upper House and it is expected that WCO I will become effective in 2017.

    For more information, please contact Stefan van Rossum or Jelmer Baukema.