Actio pauliana and a set of legal acts

The Dutch Supreme Court broadens the possibilities for liquidators to attack a set of legal acts by means of the Section 42 Fw actio pauliana (judgment of 20 June 2025, ECLI:NL:HR:2025:975). In this blog, we briefly describe the Section 42 actio pauliana and this (far-reaching) Supreme Court judgment.

Under section 42 of the Dutch Bankruptcy Act, the trustee in bankruptcy may, on behalf of the estate, annul a legal act performed by the debtor before the bankruptcy was declared, if that act was non-compulsatory and the debtor knew or should have known at the time that it would prejudice creditors.

In the case of multilateral or unilateral legal acts addressed to another person that were not performed for no consideration (i.e., for example, against payment), an additional requirement applies: the other party must also have known or should have known at the time that the creditors would be prejudiced by the act.

There is such knowledge of prejudice if, at the time of the legal act, the bankruptcy and a shortage therein were foreseeable with a reasonable degree of probability, both for the debtor and the counterparty (HR 22 December 2009, ECLI:NL:HR:2009:BI8493 and HR 7 April 2017,ECLI:NL:HR:2017:635).

Setting aside a legal act on the basis of (inter alia) Section 42 of the Dutch Bankruptcy Act is called the actio pauliana. The purpose of the actio pauliana is to restore the estate assets and prevent certain parties from being unjustly favoured at the expense of the joint creditors who are thereby prejudiced.

The text of the law, section 42, focuses on the single legal act, while in practice, legal acts are often also related to other legal acts. That is relevant for the rest of this blog.

In its judgment of 20 June 2025 (ECLI:NL:HR:2025:975), the Supreme Court ruled that a combination of legal acts (several related legal acts) can also fall within the scope of Section 42 (freely translated):

“3.3

Section 42 of the Dutch Bankruptcy Act takes the single legal act as its starting point. However, the circumstances of the case may bring that under the scope of section 42 not only a single legal act can be assessed, but also a coherent whole of legal acts as such, i.e. considered as a whole. In this connection, the Supreme Court has previously ruled that, for the application of Section 42, legal acts may form such a coherent whole that their (adverse) consequences must be assessed in connection with each other.4 [4: See the Supreme Court Judgement of 19 December 2008, ECLI:NL:HR:2008:BG1117, paragraph 3.6.2].

It follows from the above that, when applying Section 42 of the Dutch Bankruptcy Act to a connected set of legal acts, what matters is whether this connected set as such has prejudiced creditors. This is consistent with the fact that the assessment of the knowledge of prejudicing of creditors is also applied to the connected whole of legal acts. What matters is that at any moment when performing a legal act that is part of the connected whole of legal acts, the condition has been met that the debtor and, in the case of Section 42, Subsection 2 of the Dutch Bankruptcy Act, the person with or vis-à-vis whom the debtor performed the legal act, knew or should have known that this connected whole of legal acts would result in the prejudicing of creditors. In line with the foregoing, it is also consistent that the assessment of the non-obligation that Article 42 sets as a condition for annulment is also applied to the connected whole of legal acts.

At first sight, the above does seem logical. It was already clear that Section 42 of the Dutch Bankruptcy Act can also be applied to a set of legal acts. What is relevant is that the Supreme Court applies the above-described criteria for a successful application of actio pauliana, which are written for the single legal act, to the combination of legal acts. The requirements of prejudice and knowledge of prejudice then relate to the set of legal acts as a whole. It even goes so far that the knowledge of prejudicing creditors exists if that knowledge existed at any time (so not necessarily from the beginning) when the legal acts were performed. And also the criterion for application of section 42, that the legal act was performed without obligation, is applied by the Supreme Court at the level of the whole set (the combination) of legal acts.

This seems to considerably expand the scope of the actio pauliana and thus the toolbox of the bankruptcy trustee.

Criticism

Verstijlen is critical of this judgment in his note (NJ 2025/188). The mere fact that knowledge of prejudice exists in one act does not automatically mean that the entire set of legal acts is tainted. The moment at which that knowledge exists is relevant. Not every combination constitutes a set. And this judgment opens up the possibility of circumventing the restrictive Section 47 of the Dutch Bankruptcy Act, which deals with the annulment of mandatorily performed legal acts.

Practical implications for practice

For bankruptcy trustees, this judgment means a broadening of the possibility to destroy (a set of) legal acts. For distressed companies and their counterparties, directors, and advisers, it mainly means: more risk, more vigilance.

We are happy to serve you

Do you have any questions following the above? Feel free to get in touch. We will be happy to look into them with you.

Supreme Court rules on i-ground: what does this mean for employers and employees?

On 18 July 2025, the Supreme Court (ECLI:NL:HR:2025:1171) ruled for the first time on the so-called i-ground for dismissal (Section 7:669(3)(i) of the Dutch Civil Code). This ground makes it possible to terminate an employment contract based on a combination of several partially present grounds for dismissal. The ruling provides clarity on how this cumulative ground should be applied in practice.

The “i-ground”

The “i-ground” was introduced in 2020 with the Balanced Labour Market Act (WAB). The i-ground means there may be reasonable grounds for dismissal if several grounds for dismissal are partially present. This is without any one being sufficient on its own. It involves a combination of grounds like poor performance (d-ground), culpable conduct (e-ground), and a disrupted employment relationship (g-ground). Although none are sufficient on their own, they may collectively be sufficient grounds for dismissal.

When applying the i-ground, the court may award additional compensation: the so-called cumulative compensation (Section 7:671b(8) of the Dutch Civil Code). This amounts to a maximum of 50% of the transition payment. Moreover, it compensates for the fact that dismissal is based on a combination of several “near-grounds”.

The case: employee at Profoto

The case concerned an employee working at Profoto as an image processing developer since 2018. During a stay in Iran, he worked remotely without permission. Additionally, he took an expensive camera belonging to the company without consulting anyone. When his employer asked him to return to the Netherlands (even offering a plane ticket), he refused.

He later reported sick with burnout symptoms, but failed to provide convincing medical evidence. He also failed to attend an important meeting on 30 January 2023, despite repeated requests from his employer. This ultimately led to his summary dismissal.

The court’s ruling

The court ruled that the employee’s behaviour was not so reprehensible as to constitute grounds for dismissal. This was because there were previous instances within the company of employees taking equipment without formal permission or working remotely. Furthermore, the employment relationship had not yet been disrupted to such an extent that restoration was impossible.

There was still room for a constructive discussion. Nevertheless, the court ruled that the combination of some culpability and a partially disrupted employment relationship was sufficient grounds for dismissal on the i-ground. Accordingly, the employment contract was terminated.

Judgment of the Supreme Court

The Supreme Court emphasised the importance of careful substantiation. If a court applies the i-ground, it must clearly indicate the grounds on which the combination of grounds is based.

In this case, the court of appeal had ruled there was a combination of culpable conduct and a partially disrupted employment relationship. However, at the same time, it found there was no culpable conduct within the meaning of the “e” ground. In doing so, the court of appeal failed to sufficiently demonstrate what the culpable conduct did consist of. This, according to the Supreme Court, is insufficient substantiation for applying the i-ground.

Furthermore, the Supreme Court confirmed that even when applying the i-ground, the employer’s obligation to redeploy must be examined. The court must assess whether the employer has done enough to redeploy the employee within the company before it can proceed with termination.

An important aspect of the ruling is that the court may also apply the i-ground and associated cumulative compensation ex officio. Therefore, the employee does not have to explicitly request this. If the court of appeal wishes to apply the i-ground after the subdistrict court has previously rejected the request for termination, the employer must be given the opportunity to withdraw that request. In that case, the employee remains in service.

A similar situation arises when the subdistrict court has terminated the employment contract on other grounds and the court of appeal subsequently rules that only the i-ground with cumulative compensation is appropriate. Thus, the employer must be given the opportunity to withdraw the request. If it fails to do so, the court of appeal may proceed to reinstate the employment contract. Alternatively, it may award fair compensation to the employee on the basis of Section 7:683(3) of the Dutch Civil Code.

Conclusion

With this ruling, the Supreme Court has outlined clear guidelines for the application of the i-ground. A solid substantiation remains essential, even in cases involving a combination of circumstances.

Do you have questions about dismissal and the cumulative ground? We are happy to assist you.

Update for employers and employees: what has changed from the 1st of July 2025?

The summer of 2025 brings important employment law changes that affect both employers and employees. From the 1st of July 2025, new rules and perceptions will apply that may affect terms and conditions of employment, personnel policies and payroll.

Since these changes have already taken effect, we have listed the main points of interest for you. This way, you as an employer can check whether everything has been implemented correctly, and employees can see how their situation is affected.

Do you have any questions or doubts about how the new rules apply and what this means for you in practice? Feel free to contact us — we are happy to help you find the best approach.

Expired statutory holidays from 2024

From the 1st of July 2025, statutory holidays accrued in 2024 will expire (Want to know more about expired holidays? Then read the following blog: Expired holidays (?) – Wieringa Advocaten). For this to apply, the employee must have been aware of the outstanding balance, had the opportunity to take the holidays, and known that the days would expire as of 1 July 2025 if not used. As an employer, it is therefore important to keep accurate records of employees’ holiday balances and to inform them in a timely manner.

From the 1st of July 2025, the gross minimum hourly wage will go up from €14.06 to €14.40. Employees under the age of 21 will also receive a higher minimum wage (Amounts minimum wage 2025 | Minimum wage | Rijksoverheid.nl). Employers are obliged to adjust salaries on time. Late payment can lead to legal and financial risks – so be on time with this.

Collective wage increases: what does it mean for you?

Many collective agreements provide for wage increases starting from 1 July. Does your industry have a collective agreement? If so, employers will likely need to raise wages. Keep in mind that late payments can have legal and financial consequences, so please stay alert. (Want to know more about collective agreements? Then read the following blog: Labour law in NL: Collective bargaining agreements (CAOs) – Wieringa Advocaten).

Employers with 100 or more employees have been required to report on their staff’s commuting and business travel since the 1st of July 2024. (Want to know more about the reporting obligation? Then read the following blog: CO2 reporting employee travel mandatory from July 2024). This involves recording how employees travel (bicycle, car, public transport) and how many kilometres are travelled per mode of transport. These data had to be submitted to RVO.nl by the end of June 2025. Enforcement can take place from the 1st of July 2025.

Extension of scheme for victims of occupational diseases

From the 1st of July 2025, the TSB (Substance-Related Occupational Disease Benefit) scheme will be further expanded. Workers who have fallen ill due to exposure to certain hazardous substances can receive a one-time financial allowance from the government through this scheme. This allowance compensates for the loss of healthy life years and will amount to €25,679 in 2025.

If an employee has also received compensation from their employer or client, this amount will be deducted from the allowance.

While the scheme previously covered lung cancer from asbestos (mesothelioma), among others, three new occupational diseases will be added from the 1st of July 2025:

  • Silica lung cancer caused by inhalation of respirable crystalline silica;
  • Silicosis, an incurable lung disease due to inflammatory reactions after exposure to silica;
  • Nasal and sinus cancer due to wood dust, caused by inhalation of wood dust, for example during woodworking.

Study costs clause and mandatory education: what is the situation?

Many employment contracts contain a study costs clause. In this blog, we will discuss mandatory education and the conditions for a valid study costs clause. We will also discuss a recent case in which the court ruled that the employer had not made it sufficiently clear to the employee what the consequences would be if the employee had to pay the study costs.

Mandatory education

The law on study cost clauses was amended on 1 August 2022. Pursuant to Section 7:611a of the Dutch Civil Code, an employer must offer mandatory education without any costs. This applies if the training is necessary for the performance of the work or for the continuation of the employment contract. In addition, training that is mandatory under a law or collective labour agreement must also be offered free of charge. A study costs clause is not valid for compulsory study costs.

However, it is not always clear in all cases when training is mandatory. This regularly leads to legal proceedings. For instance, the Rotterdam Subdistrict Court (ECLI:NL:RBROT:2024:8929) ruled that a course in German language and regulations was not compulsory training for a combination machine operator. In another case, the court ruled (ECLI:NL:RBZWB:2024:6859) that the SVH Social Hygiene training course was compulsory for an apprentice chef.

Conditions for a valid study costs clause

If the training is not mandatory, the parties are free to agree on a study costs clause. The study costs clause is not specifically regulated by law. Nevertheless, the Supreme Court ruled on the reimbursement of study costs in its judgment of 10 June 1983 (Muller/Van Opzeeland). A study costs clause is valid if the following conditions are met:

  1. It is clear how long the employer will benefit from the knowledge and skills acquired during the study programme.
  2. It has been agreed that the salary for the study period must be reimbursed if the employment relationship ends during or immediately after the study period.
  3. The reimbursement obligation is reduced proportionally during the period referred to in 1.

If these conditions are not met, the study costs clause is not valid and the employee does not have to repay the study costs.

Insight into the consequences of repaying study costs

In a recent case (ECLI:NL:RBZWB:2025:2796), the subdistrict court had to rule on whether an account manager had to repay the costs of courses he had taken. The employee terminated his contract shortly after completing a two-day course in basic hydraulics. The employee believed that the course had been “more or less” forced upon him. The court found that this did not mean that the course was necessary. Therefore, Article 7:611a of the Dutch Civil Code did not apply.

Because the course was not part of mandatory training, the parties were free to agree on a study costs clause. However, the study costs clause could not be invoked in this case. The employer had not made clear in advance what the costs of this course would be and what the consequences would be if the employee left. The employer could not refer to a general provision in the employment contract. The employment contract did not specify which courses were covered by this provision and what costs were involved. In other words, the employer should therefore have explained the financial consequences of this provision more clearly. Because this had not been done, the employer was not entitled to offset the study costs. If the employer had done so, the course could possibly have been offset.

Conclusion

In conclusion, it is important to know when a study costs clause is valid. Since 1 August 2022, reimbursement is not permitted for mandatory education. Strict conditions apply to non-mandatory education.

Do you have any questions about the study costs clause? We would be happy to help you.

The restart in bankruptcy: the Dutch scheme of arrangement, the share transaction and the asset transaction

After six years of hard work, he had to close his coffee shop. The pandemic, high rent and a few wrong decisions had taken their toll. A week after closing, he walked past the building and saw that everything was still there: the coffee machine, the chairs, and even the chalkboard with “Thursday: Apple Pie!”. With the help of a loyal customer who missed his cappuccino, the coffee bar made a restart. Same beans, same barista, but now with an accountant in the mix. That is how things can go.[1]

Private limited companies facing financial problems that threaten the survival of the company, but whose business activities are viable, may be suitable for a restart in bankruptcy. In this blog series, a “restart in bankruptcy” means a continuation of (part of) the company after bankruptcy, possibly within the same legal entity. In this blog, three forms of restart in bankruptcy are discussed: the Dutch scheme of arrangement, the share transaction in bankruptcy and the asset transaction in bankruptcy.

The Dutch scheme of arrangement

The company can enter into a form-free agreement with its creditors, often agreeing that the company will repay part of the debt to creditors and waive the rest. This is called offering a ” private bankruptcy arrangement” (onderhands akkoord). If creditors agree, the company’s bankruptcy is lifted. If creditors do not agree, the board or the trustee in bankruptcy can ask the court to adopt the bankruptcy arrangement. We call this homologatie (court approval). The agreement is then called a “compulsory composition” (dwangakkoord), because the creditors are “forced” to agree.

The Dutch scheme of arrangement has the advantage that it allows the company’s name recognition to be maintained, as do many favourable commercial contracts. In addition, creditors usually receive more money than in a liquidation, because the Dutch scheme of arrangement allows the bankruptcy to be settled relatively quickly. Of course, a bankruptcy arrangement does have to be financially viable. Creditors excluded from the compulsory settlement can also challenge it.

The share transaction in bankruptcy

A restart in bankruptcy could also take place when (at least) one shareholder (e.g. the holding company) transfers its shares in the insolvent company to a new shareholder. A share transfer has the advantage that the company’s name recognition and favourable commercial contracts can usually be retained. In doing so, be aware of so-called “change of control” provisions: these can cause an agreement to terminate.

It may be difficult to find a new shareholder willing to acquire the shares because, after all, he is taking over a company with known (and possibly unknown) debts. Moreover, to continue the company, he will have to make a capital injection, whether or not accompanied by a bankruptcy arrangement to restructure the company’s debts, or he will have to deposit the capital injection in the bankruptcy account of the trustee, who will then distribute.

The asset transaction in bankruptcy

Another way to restart in bankruptcy is by the trustee transferring the company’s assets to another entity that wants to continue the business. Due to the private company’s private nature, a transfer often takes place to sitting stakeholders. To transfer the assets, the trustee needs approval from the supervisory judge (rechter-commissaris). Once the asset transfer is completed, the bankruptcy of the selling company ends through dissolution or distribution.

The asset transaction is relatively attractive to potential buyers, as all unacknowledged liabilities basically remain with the bankrupt company. The downside is that the commercial loss for the company left behind is great as it ceases to exist, and with it its trade name.

Are you involved in an insolvent or bankrupt company and do you want to explore your options? Feel free to contact us. We are happy to explore the best solutions together.

[1] This story is fictitious.

The WHOA

If it is plausible that the company will not be able to continue paying its debts, the company can offer a settlement proposal to its creditors and shareholders under the Act for homologating a private agreement (Wet Homologatie Onderhands Akkoord: WHOA). When the court approves the agreement, creditors and shareholders are forced to cooperate with the agreement. This is called a compulsory settlement (dwangakkoord). The agreement aims to restructure the company’s debt (reorganisation settlement) or wind down its business in a controlled manner (liquidation settlement).

How does the WHOA procedure work?

In the Series the WHOA, you can read what the WHOA procedure looks like in outline and when – and by whom – a WHOA procedure can be started. You will also find a handy roadmap there: roadmap WHOA procedure. An initial evaluation of the WHOA procedure shows that it does indeed provide relief for ailing viable companies, but that there is room for improvement when it comes to awareness of the procedure and the costs involved.

What are the benefits of a WHOA procedure?

In this blog, we reflect on the benefits of WHOA proceedings for (the board of) the company and for creditors/shareholders, in the context of the blog series: the legal positions of limited liability corporate bodies in times of financial hardship.

Benefits of WHOA proceedings for (the board of) the company
  1. A major advantage of the WHOA for the company’s management is that (some) creditors/shareholders can be forced to cooperate in restructuring the company’s debt (reorganisation agreement) or in a controlled resolution of non-viable companies(liquidation agreement).
  2. Furthermore, there is a lot of freedom in the design of the agreement. For example, it is possible to restructure loans (e.g. via a debt for equity swap), cancel debts (partially) or adjust loan maturities.
  3. Not all creditors/shareholders need to be included in the arrangement. For those creditors/shareholders, the arrangement does not apply.
  4. During WHOA proceedings, a cooling-off period can be imposed, meaning that during that period creditors may not seize or take collection measures.
  5. Because the company can in principle continue to operate during a WHOA process, image damage can be mitigated and the value of the company maximised as much as possible.

Advantages of WHOA proceedings for creditors/shareholders
  1. In a WHOA, creditors/shareholders typically receive a higher distribution percentage than in bankruptcy.
  2. Creditors/shareholders have a say in the proceedings and can thus actively participate, vote against and object. They also receive information about the company’s financial condition. In bankruptcy, this is often not the case.
  3. Creditors/shareholders are relatively protected by the courts. For example, the court disapproves an agreement if the fulfilment of the agreement is insufficiently guaranteed (see section 384 Insolvency Act).
  4. Also, with a reorganisation agreement, there is a chance of preserving business relationships and employment by mostly keeping the company afloat.
  5. Because the company can, in principle, continue to operate during a WHOA proceeding, image damage can be limited and the value of the company preserved as much as possible.

If you would like to know whether the WHOA procedure could be of use to you, please feel free to contact us.

Employer found liable despite properly equipped workplace

An ergonomically designed workplace, regular medical inventories, an office gym, chair massage and a “Great Place to Work” certificate. On paper, this employer seemed to have everything nicely in order. After all, the certificate underscores a focus on being a good employer and a healthyworkingenvironment. Yet the Arnhem-Leeuwarden Court of Appeal ruled that the employer was liable for the occurrence of RSI complaints in one of its employees.

Duty of care goes further

Can an employer be liable for RSI complaints (pain in hands, wrists, arms and shoulders, among others, due to repetitive, prolonged or unnatural movements) in a high-risk employee, even if the workplace meets ARBO standards? Yes. Compliance with those standards is not enough. The employer must ensure compliance with instructions and the proper design of the workplace, tailored to the employee. A concrete example of this can be seen in the case study below.

From workplace to courtroom

The employee in question had been employed since 1 July 2009 and most recently worked as a senior reporting & control specialist. He claimed that he had developed RSI complaints during his work. According to experts, the complaints were caused by prolonged screen work exceeding standards, high work pressure, inadequate rest, and poor posture, especially in the neck and shoulders.

In the first instance (ECLI:NL:RBMNE:2021:2666, ECLI:NL:RBMNE:2021:4197 and ECLI:NL:RBMNE:2023:1043), the subdistrict court ruled that the employee had made it sufficiently plausible that he had suffered (health) damage as a result of RSI complaints, and that these complaints had arisen during the performance of his work. The subdistrict court also ruled that the employer had not fulfilled its duty of care to prevent the health damage.

The employer appealed this ruling(ECLI:NL:GHARL:2025:281).

According to the employer, everything was in order

The employer argued that the employee had a lot of freedom in his work, the atmosphere was good, there was no structural overwork, he took daily breaks, hardly worked overtime and took regular holidays. According to the employer, this evidence showed that the complaints were not work-related.

In addition, the employer argued that they had fulfilled its obligations under Section 7:658 of the Civil Code. Under this article, an employer is obliged to ensure a safe working environment, including an ergonomically designed workplace. The employer must take the necessary measures, issue instructions and monitor compliance. According to the employer, this duty of care was met: the workstations were periodically medically assessed for ergonomic quality. Before reporting sick, the employee knew the ideal settings and could have supervised the correct application himself.

In addition, the employer highlighted its participation in the “Best Workplaces in the Netherlands” programme and its certification as a “Great Place to Work”. Employees could use a gym, table football and chair massage.

Duty of care requires customisation

The court disagreed with the employer. According to the court, the employer’s arguments do not change the expert’s conclusion that the RSI complaints arose during work. The RSI complaints were the result of exposure to screen work exceeding the applicable standards in the Working Conditions Decree , a high perceived work pressure, insufficient rest periods and a neck and shoulder region that was insufficiently relaxed due to the work posture. According to the court, it is plausible that the RSI complaints arose during the employee’s work.

In addition, the court held that the employer had not fulfilled its duty of care under Section 7:658 of the Civil Code. The court of appeal found that the employer did not dispute that the employee – given his limitations and the nature of his work – ran an increased risk of developing RSI complaints. Nor was it disputed that the employer had to take specific measures for this employee. Nor did it appear that the employer alternated work at a monitor with other work or rest time. As required under Article 5.10 of the Working Conditions Decree.

Moreover, the employer knew that the employee had a congenital disability and that it was difficult for him to leave his workplace to take rest periods. The court ruled that the employer had to ensure the workplace was properly set up and sufficient rest was taken. According to the court, the chair massage and fitness facilities for this employee were not targeted measures to prevent RSI complaints. This is especially true as the employee repeatedly stated that chair massage and fitness are not accessible or effective for him due to his limitations.

The court rejected the employer’s defence that the employee himself could have indicated what he needed and that he ‘did not want to be treated differently from colleagues’. According to the court, the employer must set the workplace correctly and ensure sufficient rest moments for the employee. Even if an employee indicates he does not want to be treated differently from colleagues, the duty of care remains undiminished.

What insights does this case offer for employers?

This ruling underlines once again: the duty of care is not a one-size-fits-all concept. A well-equipped workplace and general facilities are important, but not always sufficient. When there is an increased risk of health complaints, the employer must do more than just take general measures. In this case, that meant: specific measures tailored to the employee.

Do you have questions about your duty of care as an employer or about reducing health risks within your organisation? Feel free to contact us. We will be happy to think with you about how to limit your risks.

Wage sanction: non-compliance with reintegration obligation

An employee is entitled to continued payment of wages during the first two years of illness (104 weeks). During this period, the employee and employer must make efforts towards reintegration. When an employee does not fulfil his reintegration obligations, an employer can impose a wage sanction. Non-compliance with the reintegration obligations occurs, for example, if the employee cannot be reached, does not show up at the company doctor’s office, does not cooperate in drawing up the action plan or refuses to perform suitable work.

If an employee does not comply with his reintegration obligations, an employer must take various legal steps, depending on the (manner of) violation of the reintegration obligations. This blog discusses the different possibilities for an employer to proceed with a wage sanction. If an employee does not fulfil his reintegration obligations after this, this may even ultimately lead to dismissal.

Official warning

An official warning can be used to send a first signal to the employee. This concerns situations when a violation of the reintegration obligation is not (yet) evident, justifying a suspension or stop in pay. The written warning states the facts that (possibly) indicate a violation of the reintegration obligation. An employer may state in the warning that a wage suspension or wage freeze will be applied in case of repetition. An official warning may be given before a wage suspension or wage freeze, but this is not mandatory.

Suspension of wages

Under Article 7:629(6) of the Civil Code, the employer may suspend the employer’s wages if the employee violates written control regulations. These control rules allow the employer to check whether the employee is actually sick. Consider the situation where an employee fails to show up at the appointment with the company doctor or if the employee is unreachable for the employer and the company doctor. An employee must inform the employer at what times he is hard to reach due to a medical appointment, for example, so that the employer can take this into account.

The salary suspension is intended as a means of pressure. Once the employee still complies with the monitoring requirements, he is entitled to continued wage payment for the period that wages were suspended. There is thus a right to retroactive wage payment.

Wage stop

Article 7:629(3) of the Civil Code lists six cases in which the employer can stop the employee’s wages. Some examples are: deliberately causing the illness, hindering or delaying recovery, refusing to perform suitable work and refusing to cooperate with reasonable reintegration instructions. A wage freeze can also be applied without first imposing wage suspension.

The moment an employee fully meets his reintegration obligations again, the wage freeze must be lifted immediately. The part of the salary that has not been paid does not have to be repaid. This differs from wage suspension, where wages are temporarily suspended.

But first: the duty to warn

Under Article 7:629(7) of the Civil Code, the employer has a duty to warn. This means that an employer is obliged to inform the employee of the reason for the wage freeze or wage suspension within a reasonable period of time. An employer must make it clear that it is a wage freeze or wage suspension. An employee must have clarity about his right to pay as soon as possible so that he can take timely action. If the employer fails to fulfil this warning obligation, there is a risk that the employee may still be entitled to the withheld wages.

Termination or summary dismissal?

Violation of reintegration obligations may lead to termination of the employment contract due to culpable acts or omissions (the e-ground). It follows from case law that dissolution is only possible if the employer has given written notice to comply with the reintegration obligations. Also, an employer must first have tried other sanctions, such as suspension of salary or a wage freeze. It also follows from case law that a request for a termination must be rejected if an expert’s statement is missing, unless the submission of this statement cannot reasonably be required of the employer. Only if these conditions are met does the prohibition on giving notice during illness lapse and the employment contract can be dissolved.

A summary dismissal for violation of the reintegration obligations is less likely. In a recent case before the Court of The Hague, the court upheld the prevailing doctrine that summary dismissal is an ultimum remedium. This means that lesser measures, such as a wage sanction or dissolution of the employment contract, should be imposed first. A summary dismissal is often only possible if there are additional special circumstances. Think, for instance, of an employee who repeatedly fails to comply with his monitoring instructions, neglects agreements made and is unavailable to the employer for a long period of time.

Conclusion

It is good to keep in mind the different wage sanctions when an employee does not comply with his reintegration obligation. We regularly deal with cases in which wage sanctions are imposed. Do not hesitate to contact us. We will be happy to think along with you about the right wage sanction.

The pre-pack at the private limited company in the Netherlands

The pre-pack is a special form of restart in the Netherlands inspired by the pre-packaged administration from the UK. If a private limited company runs into financial difficulties and bankruptcy is suspected to be inevitable, the company (often the management board) can start a pre-pack procedure. This procedure involves a prospective administrator (beoogd curator) preparing an asset transaction before bankruptcy that will take place in bankruptcy.

How does the pre-pack work in the Netherlands?

Although there is no legal basis for the pre-pack procedure in the Netherlands, the vast majority of courts in the Netherlands are sympathetic to it. The legislator aims to give the pre-pack a legal basis soon through the Business Continuity Act I bill.

As a rule, (the board of) the private limited company facing imminent bankruptcy requests the court to quietly appoint a prospective administrator. A prospective administrator has a similar task to that of an administrator: it has to look after the interests of the company’s joint creditors. If the application is granted, the court chooses a prospective administrator from its list of administrators and sets this prospective administrator a deadline (often 11 to 15 days) in which the prospective administrator has to investigate an arrangement outside bankruptcy or a restart in bankruptcy. In the period before bankruptcy, the company retains full power of management and disposition, which means the prospective administrator can only act with the company’s consent.

After preparation, the company files for bankruptcy and the (prospective) administrator submits its final report to the court registry, after which the asset transaction is carried out with the permission of the supervisory judge (de rechter-commissaris).

Reasons to opt for a pre-pack

In a pre-pack, the asset transaction in bankruptcy can take place in the blink of an eye because it has been quietly prepared. As a result, to the public, the company never appears to have been bankrupt. This is advantageous because customers and creditors of the company do not lose confidence in it as a result. This results in value maximisation and preservation of (part of) goodwill, which is a big advantage for companies with a strong brand name or intellectual property. Moreover, the pre-pack usually costs less money and time than a ‘normal’ bankruptcy.

However, the pre-pack in its current form has caused quite a few labour law headaches with regard to the doctrine of transfer of undertaking: for a long time, it was unclear whether or not employees could be dismissed in a pre-pack. With the Transfer of Undertaking in Bankruptcy Bill, the legislator aims to remove these headaches and regulate the employment-law consequences of the pre-pack.

Are you curious about what the pre-pack can do for you or what other actions you can take in the event of a company’s financial difficulties? Feel free to contact us. We will be happy to advise you.

This blog is part of the series Blog series: the legal positions of limited liability company organs in times of financial hardship.

The settlement in bankruptcy

When a bankruptcy has been declared and it cannot formally be reversed, there is still a possibility to escape the usual winding-up of the bankruptcy. That option consists of offering a settlement to creditors. A settlement may offer creditors a better outcome than a complete liquidation of the estate. In this blog, we discuss the procedure, the relevant articles of law and the advantages and risks related to offering a settlement in bankruptcy. We also discuss the difference between the bankruptcy settlement and the WHOA.

What is a settlement in bankruptcy?

A settlement in bankruptcy is an arrangement under the Bankruptcy Act (FW) in which the bankrupt makes a proposal to his creditors to pay part of the debts, usually against final discharge of the residual debt.

The procedure

Offering a settlement in bankruptcy proceeds in several stages:

  1. Drawing up the settlement (art. 138 Fw): the bankrupt or a third party draws up a proposal describing what percentage of claims will be paid to creditors and under what conditions.
  2. Deposit draft settlement (art. 139 Fw): the bankrupt shall deposit a draft settlement at the court registry at least eight days before the meeting of creditors, while simultaneously sending it to the trustee.
  3. Trustee’s advice(art. 140 Fw): the trustee assesses the settlement and gives advice to the creditors and the supervisory judge).
  4. Voting by creditors(Section 145 Fw): at the meeting of creditors, the settlement is voted on. The settlement is adopted if more than half of the voting creditors vote in favour, and these creditors represent at least half of the total debt).
  5. Approval by the court(art. 150-157 Fw): if the required majority agrees, the proposal is submitted to the court for approval. The court assesses whether the settlement is fair and lawful. If approved, the settlement becomes binding on all unsecured creditors.

Advantages and risks of a settlement in bankruptcy

A bankruptcy settlement has the advantage that, as a rule, a higher distribution to unsecured creditors can be realised than with an ordinary winding-up of the bankruptcy. The bankruptcy can also be finalised faster, and part of the bankruptcy costs can be saved. Finally, a settlement offers the possibility for the debtor to continue with a clean slate and to continue the (restructured) business within the same legal entity.

A bankruptcy settlement does not always provide the desired solution. For instance, the agreement may fail because the required majority is not achieved, the court may refuse the approval because the settlement seems unreasonable or unfair, and the settlement only applies to unsecured creditors, allowing, for instance, pledge and mortgage holders to continue exercising their rights.

Difference with WHOA

A settlement in bankruptcy is not the same as a WHOA agreement, which can be offered outside bankruptcy to prevent imminent bankruptcy.

Since the entry into force of the WHOA on 1 January 2021, there is an additional possibility to restructure debts without bankruptcy. The main differences between a WHOA agreement and an agreement in bankruptcy are:

FeatureSettlement in bankruptcyWHOA agreement
Legal basisSections 138-161 FwSections 370-387 Fw
SituationOnly during bankruptcyOutside bankruptcy, in case of impending insolvency
CreditorsUnsecured creditors onlyAll classes of creditors and shareholders
Jurisdiction of receiverPlays a role in assessmentNo trustee involved
TargetSettlement of bankruptcyPreventing bankruptcy

Both tools can be useful, depending on the company’s situation.

Conclusion

A settlement in bankruptcy offers bankrupts and creditors a chance for a more favourable settlement than a complete liquidation. However, the legal framework of the Bankruptcy Act imposes strict conditions on the procedure, including creditor and court approval.

Do you have questions about offering a settlement in bankruptcy or are you facing a settlement as a creditor? If so, please contact us. Wieringa Advocaten is happy to assist you.