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The pre-pack legally stipulated?

20

June

2016

When an organisation is struggling financially and a bankruptcy appears unavoidable, the entrepreneur can ask the court which curator will be appointed to them once the organisation actually goes bankrupt. This curator can then – even before the bankruptcy is final – go to work as a silent administrator without any third parties being aware of this fact. In addition to the silent administrator, the court also appoints a (silent) examining magistrate, who will oversee proceedings once the bankruptcy is filed.

The silent administrator generally acts as a fly on the wall, observing the actions the entrepreneur takes in an attempt to save their business. In practice, this is also known as the “pre-pack.” Once the bankruptcy is finalised, the curator will be familiar with the case, which increases the organisation’s chances of successfully making a new start while retaining its value and employment opportunities. In practice, it is not uncommon for a business to make a new start on the same day that it was declared bankrupt. Well-known examples of pre-pack deals include the bankruptcy and new start for organisations such as Schoenenreus, Marlies Dekkers and the Ruwaard van Putten Hospital.

Not all courts in the Netherlands are willing to take part in this construction. Eight out of eleven courts in the Netherlands will appoint a silent administrator when an eligible organisation asks them to do so. The reason why not all courts cooperate with this measure has to do with the fact that the pre-pack arrangement is not legally stipulated. The courts are therefore not required to cooperate.

The House of Representatives now wants the pre-pack arrangement, and therefore the appointment of a silent administrator and a silent examining magistrate, to be legally stipulated. In doing so, the House follows the Judiciary Council’s advice regarding the “Continuity of enterprises Act I” bill. This bill is designed to modernise bankruptcy law. The bill strives to tie into with a situation that has developed in practice over the years. As outlined in the explanatory statement, the tasks, authorities and role of the silent administrator, as well as the conditions under which the appointment of a silent administrator can take place, will be legally recorded. The bill includes, for example, the requirement for the silent administrator to report on their findings during the pre-pack period. This report must be published shortly after the organisation’s bankruptcy, so third parties can consult it as well. With this bill, the oversight of pre-pack procedures will be improved. We applaud this development. The bill has not been made into a law yet, however, so we must be patient. We will keep you informed about any new developments.

If you have any questions about this topic, feel free to contact Lennart Hordijk.

Written by:
Lennart Hordijk
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