The compulsory settlement: forcing a creditor to accept

A debtor who cannot pay will usually try to reach a voluntary arrangement with creditors: a percentage of each claim, paid over a period, against a discharge of the balance. The arrangement fails if a single creditor refuses. Dutch law provides two mechanisms for that situation, and which one applies depends on whether the debtor is an individual or a business.

For individuals: the compulsory settlement

Where a debtor has offered a voluntary arrangement and one or more creditors refuse, the debtor can ask the court to compel those creditors to accept it. The court grants that request where the refusing creditor could not, weighing all the interests, reasonably have come to a decision to refuse.

What the court looks at is the relationship between what the creditor is being offered and what it would realistically obtain otherwise. Where the offer represents the maximum the debtor can raise, is properly documented, is supported by the other creditors, and the alternative is a statutory debt restructuring in which the creditor would receive the same or less, refusal is difficult to justify. Where the offer is thin, the documentation incomplete, or the debtor’s own conduct open to criticism, the creditor is entitled to hold out.

The application is typically combined with an application for admission to the statutory debt restructuring scheme, so that if the compulsory settlement fails the debtor is not left without a route.

For businesses: the WHOA

For companies there is a separate and considerably more powerful instrument. Since 1 January 2021, the Act on the Confirmation of Private Restructuring Plans allows a business threatened with insolvency to offer a plan to its creditors and shareholders, divided into classes, and to have the court confirm it. Once confirmed, the plan binds dissenting creditors within a class that voted in favour, and it can even bind an entire dissenting class.

The WHOA is a restructuring tool rather than a debt relief scheme: it can write down claims, convert debt into equity and terminate onerous contracts, and it operates alongside safeguards for creditors, including the right to at least what they would receive in a liquidation.

For the creditor confronted with a proposal

Refusing on principle is rarely the strongest position. The questions worth answering are concrete: what would this claim realistically yield in a bankruptcy or a statutory restructuring, is the offer supported by verifiable financial information, are all creditors being treated equally, and is there any indication of assets not disclosed?

A creditor who articulates specific and substantiated objections is in a considerably better position, both in resisting a compulsory settlement and in negotiating a better outcome, than one who simply declines.

Advice

We advise debtors on structuring an offer that stands a realistic chance of being imposed, and creditors on whether refusal can be maintained. Please contact Law & More.