Reforms to Dutch Bankruptcy Act take in force from 1 January 2019

Written on 16 Nov 2018

The Dutch bankruptcy law (the Bankruptcy Act) is 125 years old and in certain respects no longer of this time. The Bankruptcy Act of 1893 does not, for instance, take into account matters such as pre-packs, extrajudicial agreements, digital litigation, digital communication, the high number of empty estates (for example, internet companies and/or lease constructions), (complex) bankruptcy fraud and/or the influence of European regulations and developments.

Although it has not been possible to replace the Bankruptcy Act with a completely new law (the last attempt was the “Preliminary Insolvency Act” (Voorontwerp Insolventiewet) in 2007), the Bankruptcy Act has (fortunately) had many updates since 1893.

The most recent update, the Modernization Bankruptcy Procedure Act (Wet Modernisering Faillissementsprocedure) (the MBP), will take effect on 1 January 2019 (see the Royal Decree on entry into force, here). The MBP is part of the bankruptcy law review program that was introduced in 2012 by the Minister of Security and Justice. The purpose of the MBP is to make the bankruptcy procedure more efficient and transparent, by addressing, among others, the following subjects.

Promoting the digitalization of the bankruptcy procedure and improving access to information

This is part of a broader undertaking to innovate and increase quality of legal proceedings in the Netherlands (the so called KEI Program).

Local insolvency registers held by courts will be replaced by one central insolvency register.

Eventually a bankruptcy decision will have to be published almost immediately in the central register. This amendment will not, however, become effective on 1 January 2019, but at a later stage, since this needs to fit in certain developments of the KEI Program.

It is also intended that more information can be shared via the central register. Subordinate legislation (lagere regelgeving) will determine what information will be included in the register (for example, the registration of decisions of the court or bankruptcy judge (rechter-commissaris)).

The examining magistrate can determine whether a creditors’ meeting takes place electronically or physically. This could speed up the process and cut expenses related to renting meeting rooms and travel times.

The bankruptcy trustee is no longer required to communicate the decisions of the bankruptcy judge (such as when the verification meeting takes place) to creditors, but can also do so in another written manner (by email or via a website). This information obligation of the bankruptcy trustee remains in addition to the information that will be provided via the central register.

Speeding up the bankruptcy procedure

Creditors who fail to file their claim on the date set by the bankruptcy judge lose the right to submit their claim for verification. Pursuant to the new section 161a of the Bankruptcy Act, if the bankruptcy has ended with a composition (akkoord) (section 161 of the Bankruptcy Act), a claim that has not been submitted for verification within the deadline can no longer be enforced.

The bankruptcy trustee may sell goods privately without prior consent of the bankruptcy judge if the value remains below EUR 2,000.

The bankruptcy trustee can now also place claims on the list for verification himself (under current Bankruptcy Act this can only be done on initiative of the creditor). This authority is especially useful in bankruptcies where there are many creditors and the financial administration is in good order and where there are (sufficient) assets (boedelactief) in the bankrupt estate.

More tailor made solutions

The bankruptcy judge no longer has to determine the date of the verification meeting within 14 days after the bankruptcy order (when the order has become final and binding), but may do so at his own discretion.

There is more freedom to set up a creditors’ committee (schuldeiserscommissie) (for instance, committees are no longer limited to a maximum of three).

Promoting specialisation with the legislator and support in the legislative process

The reforms introduce the option to appoint multiple bankruptcy judges, so that bankruptcy judges with special expertise can be appointed to overlook specific aspects.

It will also be possible for the bankruptcy judge to appoint experts who assist with specific questions (for instance an accountant) during the bankruptcy.

Transitional law

Bankruptcies that have been or will be declared before 1 January 2019 will still be subject to the old (version of) the Bankruptcy Act.

Conclusion

The MBP is a welcome addition to the Bankruptcy Act and contributes to a more efficient and faster settlement of bankruptcies and thus a higher return for the creditors.