15 September 2020

R&I update - September 2020 – 2 of 3 Insights

COVID-19 in Netherlands: Legislative proposal

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Temporary Payment Deferral Act 2020

This proposal aims to prevent avoidable insolvencies and offer the court the option to:

  • adjourn the hearing of winding-up petitions
  • suspend any actions for recovery, e.g. garnishment
  • grant temporary payment deferral.

The arrangement only applies to corporations (not banks, insurance companies or investment firms). When requesting an adjournment of an insolvency petition, the debtor must prove that the company did worse than usual due to the restrictive measures taken during the COVID-19 outbreak, resulting in a temporary inability to pay its creditors. The request for an adjournment should be granted if the debtor can prove that it has suffered at least a 20% turnover decrease and had sufficient funds to settle its creditors before the restrictive measures were announced. In addition, there should be a prospect that the debtor will be able to eventually settle its creditors and the creditors' interests may not be substantially and unreasonably affected.

Insolvency petitions may be adjourned for a period of four months at most. The court may order that during this period:

  • creditors may only take recourse against the debtor’s assets after obtaining the court’s authorisation
  • attachments that were levied by creditors can be temporarily lifted.

The proposal also offers the opportunity for a debtor to make a petition before the court in preliminary relief proceedings to suspend enforcement steps already taken and to temporarily lift attachments, so that the debtor would be able to continue the business.

While the proposal has not come into force, the legislative proposal is expected to be adopted by the Dutch Senate shortly. Incidentally, a temporary arrangement is already in place for hearing insolvency cases (including winding-up petitions). This arrangement would mean that the court should weigh the circumstances of the pandemic and related economic situation when hearing winding-up petitions. When defending against the petition, a debtor can consequently appeal on the ground of abuse of power. The debtor should, however, prove that COVID-19 has caused the liquidity issues.

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