The process of the Act on Court Confirmation of Extrajudicial Restructuring Plans (CERP)
Category: Corporate law
It has been over a year since the Act on Court Confirmation of Extrajudicial Restructuring Plans (CERP) took effect in the Netherlands. It amended the Bankruptcy Act, making it easier for companies in the Netherlands facing imminent bankruptcy to effect a restructuring.
The main difference between the CERP and the original Bankruptcy Act is: in settlement agreements, as soon as two-thirds of the creditors (in money) vote in favour of the proposal, the remaining creditors are included in the agreement.
Below is a brief overview of the stages to be completed in order to achieve an extrajudicial agreement based on the CERP.
Commencing CERP process before bankruptcy occurs
If a debtor finds themself in a situation in which it can reasonably be assumed they will be unable to continue paying their debts, there are two ways to commence the CERP process.
First, the debtor can offer a settlement (public or private).
A creditor, shareholder, works council or employee representation can also request that the CERP process be carried out by a restructuring expert to be appointed by the Court. This expert can subsequently offer a settlement (public or private).
Cooling-off period for more time to reach a settlement
In order to grant the debtor more time to prepare a settlement without this impeding individual recoveries, the debtor may request a cooling-off period from the restructuring expert or the Court. This is generally four months and can be extended once up to a maximum of eight months.
Negotiation on the CERP settlement
Once the (draft) settlement is ready, it must be presented to the creditors and shareholders, or to a part of them. This is because it may be decided to exclude certain creditors from participating in the settlement.
The creditors or shareholders must be divided into classes in the settlement. These classes consist of creditors or shareholders with a comparable position in terms of rights, such as preferential and unsecured creditors.
The Court may be asked to rule in advance on the essential elements of the settlement before it is put to the vote.
Offering final CERP settlement and shareholder vote
The settlement is offered to the creditors and shareholders at least eight days before they vote on it by class. The outcome will subsequently be announced within one week following the vote.
Request for confirmation
The settlement is accepted by a class once two-thirds of the creditors (in money) have voted in favour of it.
If the settlement is not endorsed by a single class, it is not eligible for confirmation. If at least one class has endorsed the settlement, the Court can confirm it. The Court can confirm the settlement at the request of the creditors and shareholders. This request must be submitted by a lawyer. The session takes place at least eight and a maximum of 14 days after the request has been submitted.
Creditors and shareholders (who voted against) may request rejection of the confirmation up until the session itself. The law stipulates a number of general and supplementary grounds for rejection that the judge must review. If the judge rules that there are no grounds for rejection, the Court will confirm the settlement.
If the judge rules that there are indeed grounds for rejection, the request for confirmation will be rejected. If the debtor has submitted the settlement for confirmation without having consulted a restructuring expert, the debtor is prohibited from again submitting a settlement for the next three years. If a restructuring expert was indeed used, a new settlement can generally be submitted.
Cross class cram down
Confirmation of the settlement means that the settlement is binding for the debtor and all creditors and shareholders entitled to vote. This means that the settlement may also be binding for creditors or shareholders who voted against it.
Even in the event that a class voted against it, this class may still also be bound by the settlement. This is also known as a cross class cram down. This is possible if at least one class that is “in the money” (i.e. that would have also received money in case of bankruptcy) endorsed the settlement. The debtor must therefore give this proper consideration when categorising the debtors into classes.
Blenheim advises companies
Should you have any questions about the CERP or other matters concerning bankruptcy and restructuring, please do not hesitate to get in touch with Blenheim’s Corporate Team lawyers.