Vol 12 (2015) - Issue 3

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Good News for Lenders in the Netherlands

Introduction
On 1 October 2012, the financial assistance prohibition for BVs (private companies with limited liability) was repealed. Under the new regime, a BV is in principle free to provide financial assistance to third parties for the acquisition of its shares provided that the management board determines that the assistance is in the company’s interest and subject to the usual restrictions (primarily the voidable preference rules and the ultra vires rules). The assistance can take the form of, for example, granting guarantees, security or loans.
Two recent judgments, Roeffen q.q. v Jaya BV and ING Commercial Finance v Aukema q.q., limit the scope of, and provide more clarity on, the two abovementioned restrictions and on the duty of care of lenders in the Netherlands more generally, in particular where the financing is granted in the context of a leveraged buyout.

Voidable preference rules
If a company is in bankruptcy in the Netherlands, the voidable preference rules enable the bankruptcy trustee to avoid certain pre-bankruptcy transactions between the company and third parties which are prejudicial to the company’s creditors. (Outside bankruptcy proceedings, a similar procedure is available to individual creditors.) Such transactions can include the granting of security and/or guarantees by the company in the context of a financing deal, where there was no preexisting obligation to do so. In short, the requirements for invalidating these types of transactions based on the voidable preference rules are that the creditors’ possibility of recovery has been prejudiced and the debtor and the counterparty to the contested transaction knew or should have known this (the so-called 'knowledge requirement'). The Dutch Supreme Court has ruled that the knowledge requirement is fulfilled if the bankruptcy trustee can demonstrate that, at the time of the transaction, the debtor and the counterparty could, with a reasonable degree of probability, foresee the bankruptcy and the fact that there would be a shortfall in the bankruptcy estate.
In practice, it is difficult for a bankruptcy trustee to meet this burden of proof. In the Netherlands, there are no rules under which transactions are voidable or void merely because they took place during a particular period prior to bankruptcy: there are no absolute hardening periods. There is, however, a 'suspect period', which is one year prior to the issuance of the bankruptcy order. In certain circumstances the knowledge requirement is presumed to have been fulfilled if the transaction was performed during this period. Such circumstances include a sale for far below fair market value, a transaction with a related party such as a group company or a (direct or indirect) management board member, and the payment of a debt or the giving of security for a debt that is not yet due and payable.
It has been unclear whether the suspect period also applies to the granting of guarantees and security by an obligor in the context of a 'new money' financing transaction. In a recent decision, the Dutch Supreme Court ruled that the shifting of the burden of proof for transactions performed during the suspect period does not apply to 'new money' financing transactions, thereby limiting the scope of the voidable preference restriction on a BV’s ability to provide guarantees and security in the context of a financing (including an acquisition finance).

Ultra vires rules
The second restriction on a BV’s ability to provide financial assistance stems from the ultra vires rules, which entail that a transaction entered into by a company may be annulled by the company itself or its bankruptcy trustee if the transaction exceeded the company’s objects and the counterparty knew or should have known this without independent investigation.