To avoid any risks, it is prudent to keep the time between the authorisation and the act to an absolute minimum. The Explanatory Memorandum stresses that a debtor that obtains authorisation to carry out a legal act must perform that act swiftly: as the company is in a very volatile situation, in particular with regard to its finances, the court’s review of the act could potentially have a different outcome shortly after the authorisation is granted. As a consequence, the court will only consider the situation at the moment when the authorisation is requested, and whether no indication exists at that moment that authorising the act will harm the collective creditors. In short, the possible protection under section 42a is very broad.Īs the Explanatory Memorandum also notes, it is virtually impossible to foresee every future implication that a legal act will have for the company. ![]() ![]() ![]() Within this definition, a wide range of acts qualify, from supplying goods to forming contracts. The Explanatory Memorandum lists what types of legal acts fall within the scope of section 42a Insolvency Act: “ all legal acts that need to be performed in connection with that funding”, where “ funding” is understood to cover all possible forms of funding, such as loans and supplies of goods on credit. A key factor here is that the act may not materially harm the interests of any individual creditors. The second requirement states that the act may only be authorised if it is reasonable to assume that it serves the interests of all the debtor’s creditors. The first requirement is that the act must be necessary in order for the debtor’s operations to continue for as long as the composition is being prepared. It is important to bear in mind, however, that only the debtor may make a request under section 42a Insolvency Act, even if a restructuring expert (in Dutch: ‘ herstructureringsdeskundige’) has been appointed to handle the debtor’s case.īefore the court gives its authorisation, it must review the act to establish whether it satisfies two requirements under section 42a. To obtain that authorisation, the debtor must petition the court that is handling the composition proceedings, or (where applicable) the court that appointed the restructuring expert. For this protection to apply, the act must first have been authorised by the court. With this in mind, the Dutch Act on Confirmation of Extrajudicial Restructuring Plans (“CERP Act”, in Dutch: Wet homologatie onderhands akkoord, or WHOA) includes a specific provision, in section 42a of the Dutch Bankruptcy and Insolvency Act (“Insolvency Act”, in Dutch: Faillissementswet), that bars claims for fraudulent conveyance with respect to legallegal acts (in Dutch: ‘ rechtshandeling’) performed once the debtor becomes involved in proceedings under the CERP Act. Without new funding, however, a struggling company’s chances of survival are reduced almost to zero. ![]() Many companies that find themselves in financial difficulty encounter another problem: banks, vendors and other lenders refuse to provide them with credit, out of fear that the company will go bankrupt within the following months and the bankruptcy trustee will void any security that it has provided on grounds of “fraudulent conveyance”. The risks of claims for fraudulent conveyance
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