Insolvency and restructuring in the Netherlands are governed by the Bankruptcy Act (Faillissementswet, Fw), which offers three formal routes: bankruptcy (faillissement), aimed at liquidating the assets for the benefit of the creditors; suspension of payments (surseance van betaling), a temporary reprieve for a business that is illiquid but viable; and the Dutch Scheme (Wet homologatie onderhands akkoord, WHOA), in force since 1 January 2021, which allows a court to confirm a restructuring plan that binds dissenting creditors and shareholders. Which route is open depends on whether the business still has a viable core and on how early advice is taken.

This article sets out what each route involves, what the court actually tests, which deadlines apply and where the personal exposure of directors begins. It is written for entrepreneurs and boards facing a liquidity problem, and for creditors trying to work out what a debtor’s filing means for their claim.

What insolvency means under Dutch law

Dutch law does not use a balance sheet test. Under Article 1 Fw a debtor is declared bankrupt where it is in the state of having ceased to pay (de toestand van te hebben opgehouden te betalen), and the court will only reach that conclusion where there is more than one creditor. In practice a petitioning creditor must summarily demonstrate its own claim and point to at least one other unpaid creditor, the so-called supporting claim (steunvordering). A single unpaid invoice, however large, is not enough, and a company with negative equity that continues to pay its bills is not insolvent in the legal sense at all.

That distinction matters commercially. A business can be balance-sheet insolvent for years without any formal consequence, and it can be perfectly solvent on paper yet be declared bankrupt within weeks because it has run out of cash. The trigger is payment behaviour, not the accounts.

A bankruptcy petition can be filed by the debtor itself, by a creditor or, on grounds of public interest, by the public prosecutor. The court hears the petition quickly, often within a few weeks, and a debtor that is served with a creditor’s petition has a genuine but short window in which to settle, to reach an arrangement or to file for suspension of payments or to open a WHOA procedure instead. Waiting until the hearing is usually the most expensive of the available choices.

What happens once bankruptcy is declared

The declaration transfers control of the estate to a court-appointed trustee (curator), supervised by a supervisory judge (rechter-commissaris). The debtor loses the power to dispose of its assets from the moment of the declaration, which under the Act is deemed to take effect at the beginning of the day on which the judgment is given. Individual enforcement by creditors comes to a halt: attachments lapse and claims must be lodged with the trustee for verification rather than pursued in separate proceedings.

Ranking then determines who is paid. Secured creditors holding a right of pledge or mortgage may enforce as though there were no bankruptcy, which puts a bank with security in a materially different position from an ordinary supplier. Certain claims, in particular tax and social security debts and some employee claims, rank as preferential. Unsecured creditors are paid last and, in most Dutch bankruptcies, are not paid at all. The trustee’s own fee and the costs of the estate come off the top.

Employees are in a distinct position. The trustee may terminate employment contracts with the permission of the supervisory judge and subject to a shortened notice period, and the UWV takes over unpaid wages, holiday allowance and pension contributions for a statutory period under the wage guarantee scheme (loongarantieregeling) in the Unemployment Insurance Act. Employees affected by a bankruptcy should register with the UWV promptly rather than waiting for the trustee to act.

Suspension of payments: breathing space, not a rescue

Suspension of payments is available to a debtor that foresees being unable to continue paying its due debts. Only the debtor can apply. The court grants a provisional suspension immediately upon the application, appoints an administrator (bewindvoerder) and sets a date for the creditors to be heard on whether a definitive suspension should follow. From that moment the debtor may only act together with the administrator, so management stays in place but no longer decides alone.

Under Article 223 Fw the court fixes the duration of a definitive suspension at a maximum of eighteen months, and the debtor may ask for it to be extended, each time by a maximum of a further eighteen months. That looks generous on paper. In practice the instrument is weak, because it does not bind secured creditors or preferential creditors such as the tax authorities, and a suspension that cannot be turned into an arrangement is usually converted into a bankruptcy. Our separate guide to suspension of payments in the Netherlands deals with the procedure in more detail.

The realistic use of a suspension is as a holding position while something else is arranged: a sale, a refinancing or a composition with creditors. Since the WHOA became available, much of the work a suspension used to do is done better by a restructuring plan, and the number of suspensions has fallen accordingly.

The WHOA: a plan that binds dissenting creditors

The WHOA allows a debtor that foresees being unable to continue paying its debts to offer a composition to its creditors and shareholders and to have the court confirm it, after which it binds everyone it covers, including those who voted against. It is the Dutch implementation of the EU preventive restructuring framework and it is the single most significant change to Dutch insolvency law in a generation.

The debtor keeps control of the business. There is no trustee and no automatic loss of the power to dispose of assets. The court may appoint a restructuring expert (herstructureringsdeskundige) on the application of the debtor, a creditor or the works council, and where a creditor applies the debtor loses the exclusive right to offer a plan, which is why creditors should not assume the WHOA is a debtor-only instrument.

The procedure comes in two forms. A private procedure (besloten akkoordprocedure) is heard behind closed doors and does not appear in a public register, which protects commercial relationships. A public procedure (openbare akkoordprocedure) is published and is listed under the EU Insolvency Regulation, which makes it recognisable across the European Union and therefore the route of choice where foreign assets or foreign creditors are involved. The choice is made at the outset and cannot easily be revisited.

Creditors and shareholders are divided into classes according to their rights in a bankruptcy and the rights offered to them under the plan. A class accepts the plan where creditors representing at least two-thirds of the total amount of claims of those in that class who actually voted are in favour. The plan must be made available to those entitled to vote at least eight days before the vote, and the court hears the confirmation request between eight and fourteen days after the voting report and the request have been filed. A straightforward restructuring can therefore be completed in a matter of weeks rather than months.

Confirmation is not automatic. The court examines whether the classes were properly formed, whether the information given was adequate and whether the general and specific grounds for refusal apply. Two safeguards matter most to individual creditors. First, no creditor may be worse off under the plan than it would be in a bankruptcy, the best-interests test, and a creditor who says otherwise must raise it at the hearing. Second, under Article 374(2) Fw a plan must offer small and medium-sized creditors with ordinary claims for goods, services or damages at least 20 per cent of their claim, unless there is a compelling ground for offering less, which must be explained in the plan. Rights of employees under their employment contracts cannot be altered by a WHOA plan at all.

Alongside the plan the court can order a stay of enforcement for an initial period of up to four months, extendable to a maximum of eight months in total, lift attachments and permit the debtor to obtain interim financing that is protected against later challenge. Our article on the WHOA scheme follows the procedure step by step.

Selling the business out of insolvency

Many businesses do not survive as a legal entity but continue as an enterprise in different hands. In a bankruptcy the trustee sells the assets, and a sale to a buyer who continues the business, a relaunch (doorstart), often produces more for the estate than piecemeal liquidation. The trustee is under a duty to obtain the best result for the joint creditors, so a buyer that wants certainty should expect a competitive process and the supervisory judge’s approval rather than a private arrangement.

The pre-pack, in which the sale is prepared confidentially before the bankruptcy is declared and executed immediately afterwards, has no statutory basis in the Netherlands. Its position turned on employment law: in Smallsteps (C-126/16) the Court of Justice held in 2017 that a pre-pack directed at continuing the business did not fall within the bankruptcy exception, so the employees transferred with their rights intact, and the practice largely stopped. In Heiploeg (C-237/20) the Court accepted in 2022 that the exception can apply where the pre-pack is aimed at liquidation, is conducted under the supervision of a court-appointed officer and is governed by statutory or other formal provisions. Dutch practice has been cautious ever since, and legislation to regulate the transfer of an undertaking in bankruptcy and to improve the position of employees has been in preparation but is not in force. Until it is, Article 7:666 BW and the two judgments above govern the position, and any relaunch that involves staff needs employment advice before the structure is fixed.

Where directors become personally exposed

The point at which a company’s difficulties become a director’s problem is earlier than most boards assume. Three routes recur.

The first is Article 2:248 BW. Where a company is declared bankrupt, the trustee may hold the directors jointly and severally liable for the deficit in the estate if the board manifestly performed its duties improperly and that is a significant cause of the bankruptcy. Two failures make this materially easier for the trustee: not keeping proper books and records under Article 2:10 BW, and not filing the annual accounts within the statutory period under Article 2:394 BW. Either breach establishes improper management conclusively and creates a rebuttable presumption that it caused the bankruptcy, which leaves the board arguing about causation from a very poor starting position. Filing the accounts on time is the cheapest insolvency insurance a director can buy.

The second is the Beklamel rule, based on Article 6:162 BW: a director who enters into an obligation on behalf of the company while knowing, or having reason to know, that the company will not be able to perform and will offer no recourse can be personally liable to that counterparty. This is the rule that bites when a struggling company keeps ordering stock.

The third is Article 2:9 BW, internal liability to the company for improper performance of the management task, which the trustee can also invoke. Alongside these sit the tax and pension liabilities: where a company cannot pay wage tax, turnover tax or pension premiums, the board must notify the collector in time, and a failure to give timely notice of inability to pay shifts the burden of proof against the directors under the Dutch tax collection rules.

None of this argues for inaction. It argues for taking advice at the point where the board first doubts that all creditors can be paid, because it is at that point that the choices are widest and best documented.

What to do when the cash runs short

Start with a reliable short-term liquidity forecast, weekly rather than monthly, because the legal test is about payment behaviour and so is every conversation that follows. A board that can show a lender, a supplier or a court what the next thirteen weeks look like is in a different negotiating position from one that cannot.

Then establish whether the problem is liquidity or the business model. A liquidity problem in a business with a viable core is what the WHOA was designed for, and it can often be solved by writing down debt in a plan while trading continues. A structural problem, where the enterprise loses money on every unit it sells, is not solved by a composition, and pursuing one wastes the value that a controlled sale could still realise.

Keep the board’s decisions and their reasons in writing, because directors’ liability is assessed with hindsight and against a record. Deal with the tax authorities and the pension fund early, including the notification of inability to pay. Be careful about payments that favour one creditor over another once insolvency is in sight, since selective payment can be set aside by a trustee through an actio pauliana and can support a personal claim against the director who authorised it. And keep talking to the main creditors: a plan that has been discussed informally with the principal stakeholders before it is formally offered is far more likely to be confirmed.

For creditors, the mirror image applies. Establish early whether you hold security or a retention of title, register your claim with the trustee, and take the deadlines in a WHOA procedure seriously, because objections to a plan must be raised at the confirmation hearing and there is only limited scope for appeal afterwards. Our guide to bankruptcy for entrepreneurs and creditors sets out what a creditor can do at each stage.

Legal advice on insolvency and restructuring

Law & More advises businesses, directors and creditors on insolvency and restructuring in the Netherlands: assessing which route fits the situation, preparing and negotiating a WHOA plan, applying for or defending a bankruptcy petition, structuring or challenging a relaunch, and defending directors against liability claims brought by a trustee. We act for Dutch and international clients and work in Dutch and English.

If your company is under liquidity pressure, or you are a creditor of a business that has filed, the value of advice falls quickly as time passes. You are welcome to contact our bankruptcy lawyers to discuss your position.