Simplifying and standardising Dutch insolvency Law: the impact of the proposed EU Directive


In the process of simplifying and standardizing Dutch insolvency law, the proposed EU Directive for harmonizing insolvency law introduces a shift from subjective to objective criteria in avoidance actions.

Shifting towards uniform transaction evaluation

The European harmonisation proposal marks a significant departure from the Dutch legal framework regarding insolvency and avoidance actions. It introduces three grounds for avoidance:

  • preferences (Article 6);
  • transactions against no or manifestly inadequate consideration (Article 7); and
  • acts intentionally detrimental to creditors (Article 8).

These grounds supersede the current Dutch distinction between voluntary and mandatory legal acts, pivotal in the execution of Articles 42 and 47 of the Dutch Insolvency Act. In Dutch law, voluntary legal actions are more susceptible to being voided. This change signifies a shift toward a more standardized approach to assessing transactions in insolvency cases, with reduced emphasis on the underlying intent and a heightened focus on the streamlining of voidable action identification. The proposed Directive aims to simplify the process by prioritizing the examination of effects over intentions associated with these actions.

Expanding the scope of voidable actions

The upcoming harmonisation under Article 11 of the Directive will expand the range of voidable actions in Dutch law, encompassing actions by third parties, which are currently not voidable according to Dutch law. This represents a significant transformation in Dutch insolvency procedures, suggesting a more comprehensive assessment of transactions and actions related to insolvency, and increasing the legal complexities for businesses and insolvency practitioners. The inclusion of third-party actions in the scope of voidable transactions could lead to increased legal scrutiny and complexities. Businesses and practitioners may need to exercise greater diligence in their transactions (particularly those involving third parties) to ensure compliance with the new broader standards set by the Directive. This could also mean a more intricate legal landscape with potentially more legal disputes and challenges in insolvency cases.

Balancing creditor protection and transactional certainty

The Directive proposes a significant deviation from the current Dutch approach to avoidance actions. Instead of deeming successfully challenged legal acts retroactively null and void with extensive ramifications for all parties involved, the Directive focuses on monetary claims for compensating the estate for any detriment caused. This limitation of avoidance actions to claims for damages and the restriction on the counterparty's ability to use voidably obtained rights against the estate introduces a nuanced approach, balancing creditor protection with transactional certainty. It is crucial, however, to recognise the Directive's provision for minimum harmonisation, allowing EU member states, including the Netherlands, the discretion to implement stronger effects of avoidance actions. This flexibility implies that the practical impact of these changes in Dutch law could be less drastic.

From subjective to objective criteria

In the context of the proposed Directive's impact on Dutch insolvency law, a particularly notable aspect is the shift from subjective to more objective criteria in the assessment of avoidance actions. This change represents a significant departure from the current Dutch legal framework, where the focus predominantly lies on demonstrating knowledge or presumption of detriment to either the debtor or the counterparty. Under the Directive, subjective requirements are minimised, with a greater emphasis placed on objective circumstances, such as the timing of the challenged act. This adjustment marks a substantial evolution from the traditional Dutch approach.

The Directive removes subjective requirements for incongruent coverages, contrasting with Dutch law, which has such requirements, but operates under a statutory presumption in similar instances. This presumption in Dutch law is broader in temporal scope, extending to acts performed within a year before insolvency, compared to the three months specified in the Directive. For congruent coverages, however, the Directive retains some subjective elements, particularly concerning the creditor's awareness or presumed awareness of the debtor's financial distress. This nuanced shift towards objectivity in the Directive indicates a move towards simplifying and standardising the process of identifying voidable actions. Yet it retains elements of subjectivity to cater to the complexities of different types of transactions.

Enhanced protection of financing in Dutch insolvency proceedings

The Directive, in Article 6(3)(c), excludes acts from being considered avoidance actions if they are carried out directly in exchange for fair consideration to the benefit of the insolvency estate. This specific provision is intended to safeguard the continuity of day-to-day business operations, rather than addressing transactions related to general company financing. When it comes to interim financing provided during a restructuring effort, the Directive offers clarity and assurance to all parties involved. In line with Consideration 10 of the Directive, such financing should be shielded from avoidance actions through its categorisation as legal actions performed directly in exchange for fair consideration to the benefit of the insolvency estate. Dutch law currently lacks this level of certainty. The Dutch Supreme Court has ruled in numerous cases that there is no distinct avoidance framework in place for the granting of security rights in the context of providing rescue financing. The implementation of the Directive into Dutch insolvency law would address this gap and provide essential protection for financing in rescue proceedings, which would be beneficial for all parties involved.

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