Article 369(10) of the Dutch Bankruptcy Act (DBA) stipulates that there is no legal remedy against decisions of the court within the framework of the WHOA scheme. Is this rule in accordance with Article 16 of the EU Preventive Restructuring Directive 2019/1023 regarding appeals?
In the Netherlands, in principle, no appeal or appeal in cassation is possible against a court judgment confirming a WHOA composition. According to the parliamentary documents underlying the WHOA’s passing, the justification for excluding a legal remedy against a court’s decision lies in the fact that a composition is always concluded in a pressing situation of imminent insolvency. In order to prevent bankruptcy liquidation, a WHOA agreement must be implemented quickly after confirmation (homologation) by the court and this requires a final decision that does not run the risk of having to be reversed. It is also in line with the character of the private pre-insolvency composition procedure (the “WHOA-scheme”) as a flexible, effective and efficient framework through which an entrepreneur can solve his financial problems in a timely manner, and which must quickly lead to a final decision.
Is this “no-appeal” provision sustainable?
Court of Appeal The Hague. In April 2023, the Court of Appeal of The Hague had to rule on this question. In the judgment it also gave its opinion on Article 16 of the EU’s Preventive Restructuring Directive (PRD) 2019/1023. The latter provision is based on the idea that interested affected parties should be able to appeal a decision on confirmation of a restructuring plan issued by an administrative authority. EU member states should also be able to introduce the option of appealing a decision on the confirmation of a restructuring plan issued by a judicial authority, according to the wording in recital 65.
The case before the Hague Court of Appeal concerned a group of companies whose business was concerned with the purchase, management and execution of debtor portfolios. It went through a WHOA process, but the scheme reached was rejected by the court of first instance. The debtor appealed against the decision rejecting the scheme’s homologation, but the court found there was no legal remedy against such a decision pursuant to Article 369(10) of the DBA. Other options to try to get a judgment on appeal also failed. The Court of Appeal ultimately ruled that the debtor’s appeal should be dismissed.
Ex officio judgment. Subsequently, the Court of Appeal issued its own judgment ex officio on the basis of the PRD 2019/1023. Because the implementation period for the Restructuring Directive in the Netherlands had expired (the latest deadline was 17 July 2022), the Court was obliged to interpret the Dutch Bankruptcy Act as much as possible in line with the wording and purpose of the Restructuring Directive. However, the court said its obligation to interpret the DBA in conformity with EU law was limited by the general principles of law, in particular the principle of legal certainty and the prohibition of retroactive effect, and couldn’t serve as a basis for an interpretation contra legem, against the national law.
The ultimate question before the court was whether Article 16(1) of the PRD 2019/1023 has implications for its assessment of the appeal lodged by the debtors, in that the directive requires the opening of an appeal? In the English language version of the PRD, Article 16(1) provides: “Member States shall ensure that any appeal provided for under national law against a decision to confirm or reject a restructuring plan taken by a judicial authority is brought before a higher judicial authority. Member States shall ensure that an appeal against a decision to confirm or reject a restructuring plan taken by an administrative authority is brought before a judicial authority.”
Languages. The Hague Court of Appeal considered that Article 16(1) of the PRD 2019/1023 in the Dutch language version instructs member states to ensure that national law appeals against a court decision confirming or rejecting a restructuring plan are brought before a higher court. According to the Court of Appeal, the meaning of the Dutch language version of this directive provision is not unequivocal, certainly when compared to the authentic other language versions.
The Court of Appeal’s view was in line with the general tenor of Dutch and German legal literature. It supported its judgment by referring to the text of the same provision in the French, English and German versions of the PRD 2019/1023, noting that it follows EU member states should ensure that if (i) a court decision confirms or rejects a restructuring plan and (ii) national law allows an appeal against such a decision, that appeal is lodged with a higher court. The implication is that there is no obligation for a full right of appeal against court decisions on a restructuring plan, such as in this case the decision to reject a request for homologation of a private agreement.
Room for formulating policy by the legislator. The court’s explanation was in line with the following part of recital 65 in the preamble to the PRD 2019/1023: “…. However, in order to ensure the effectiveness of the plan, to reduce uncertainty and to avoid unjustifiable delays, appeals should, as a rule, not have suspensive effects and therefore not preclude the implementation of a restructuring plan. Member States should be able to determine and limit the grounds for appeal. Where the decision on the confirmation of the plan is appealed, Member States should be able to allow the judicial authority to issue a preliminary or summary decision that protects the execution and implementation of the plan against the consequences of the pending appeal being upheld. Where an appeal is upheld, judicial or administrative authorities should be able to consider, as an alternative to setting aside the plan, an amendment of the plan, where Member States provide for such a possibility, as well as a confirmation of the plan without amendments…. It should be possible for any amendments to the plan to be proposed or voted on by the parties, on their own initiative or at the request of the judicial authority. Member States could also provide for compensation for monetary losses for the party whose appeal was upheld. National law should be able to deal with a potential new stay or extension of the stay in event of the judicial authority deciding that the appeal has suspensive effect.”
The Court of Appeal concluded that this preamble leaves policy room for member states to determine or limit the grounds for appeal. The Dutch legislator made use of this policy scope, so that opening a legal remedy against a first instance court’s decision through the PRD 2019/1023, would amount to an interpretation against Article 369(10) of the DBA and would run counter to the principle of legal certainty. Leaving aside the answer to the question of whether the debtor could also rely on the direct effect of provisions of the EU restructuring directive (by way of horizontal effect) vis-à-vis its interested parties, the Court of Appeal of The Hague concluded that the wording in Article 16(1) of the PRD 2019/1023, as seen in several, equally authentic language versions, is insufficiently precise and unconditional to give it direct effect, and that the debtor’s appeal should be dismissed. The Court’s decision itself, at least, was not unclear. Whether the interpretation of Article 16(1) is tenable will certainly be tested by other courts in the near future.
Specialisation by judges. In Dutch WHOA proceedings, only the court of first instance decides. The exclusion of legal remedies is easy to understand from the point of view of transaction certainty and finality. However, this choice places a great responsibility on the shoulders of the judges in the courts.
In a 2017 report for the European Law Institute called “Rescue of Business in Insolvency Law”, my German colleague Professor Stephan Madaus and I made several recommendations to improve the quality of judges in restructuring cases. It cannot be ruled out that these proposals were on the table when a so-called WHOA pool of judges was set up in the Netherlands.
WHOA-pool of judges. For a period of three years after the WHOA’s entry into force (i.e. until the end of 2024), the following working method has been introduced:
– each court of first instance (of the eleven courts in the Netherlands) will provide a judge and a legal assistant who is part of the WHOA pool;
– the eleven judges and legal assistants who are part of the national pool are specifically trained in restructuring matters;
– if a case arises, the WHOA judge from the relevant district will hear the case, together with two other WHOA judges from the national pool. They are supported in this by the legal assistant from the relevant district;
– The pool will have no physical location (courthouse or space therein).
It was thought that this method of working in a flexible way would ensure that specialised judges can handle confirmation requests. The working method also promotes knowledge building and enables these judges to quickly “scale up” when economic conditions worsen.
It works well. In Dutch practice, there is general appreciation for the soundness of how WHOA judges decide their cases and how they have found the complex balance between speed and efficiency and maintaining quality and unity of law. Although judges need to build interest and enthusiasm in the financial and economic aspects inherent to restructuring cases, from contact with German colleagues, I understand that they are following the establishment of the WHOA pool as a way of specialising judges with great interest.
Court of Appeal, The Hague, 11 April 2023, ECLI:NL:GHDHA:2023:721
Bob Wessels and Stephan Madaus, Rescue of Business in Insolvency Law, European Law Institute, 2017, https://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/Instrument_INSOLVENCY.pdf
This is a slightly adapted version of a regular column Bob Wessels is writing for Global Restructuring Review (GRR) on the topic of cross-border restructuring and insolvency in a European context. GRR is a subscription-only publication and the column appeared in GRR on 4 July 2023. See globalrestructuringreview.com