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Performance and creditor arrangements in times of corona





The corona crisis has a substantial impact on the economy and enterprises. Business activities come to a standstill, customers suspend their payments and revenue is lost. This means that, despite various supportive government measures of the Dutch government, a large number of companies is struggling with liquidity problems.

In this memo we explain to what extent contracts must be fulfilled and how companies may restructure their obligations by means of a (private scheme of) creditor arrangement. The following legal issues are covered:

(i)             Performance of contracts (Chapter 2);

(ii)           The creditor arrangement (Chapter 3);

(iii)          The private scheme of creditor arrangement under current law (Chapter 4); and

(iv)          The private scheme of creditor arrangement under future law (Chapter 5).


In times of this corona crisis, it is important for both the supplier of a product or service and the purchaser thereof to know to what extent the contract still has to be performed. The general rule is that contracts made remain valid and must be observed, but there are some exceptions to this rule, namely (i) force majeure, (ii) unforeseen circumstances and (iii) the principles of reasonableness and fairness.

First of all, it is necessary to verify whether the contract contains a provision regarding force majeure or unforeseen circumstances (such clauses are often referred to as force majeure, material adverse change, hardship or frustration). If the contract is governed by Dutch law (which, in short, is the case if this has been agreed or if no choice of law has been made, but the residence of the consumer, the location of the real estate or otherwise the ordinary residence of the seller, service provider or distributor is located in the Netherlands), this clause should be interpreted on the basis of the Haviltex criterion. This means on the basis of the meaning that the contracting parties back and forth could reasonably assign to these provisions in the given circumstances as well as based on what they could reasonably expect from each other in this respect. This could partially depend on the social circles to which the parties belong and what legal knowledge may be expected of them. If the contract has not been negotiated (as is usually the case with general terms and conditions or when entering into an already established contract), this provision will have to be interpreted more literally. It must be inferred from the interpretation of the provision whether an appeal to force majeure or unforeseen circumstances is indeed possible in the present case and what the consequences thereof are, such as the possibility of full or partial dissolution, modification or suspension and the obligation to pay compensation of damages or to enter into renegotiations.

If no contract has been concluded or if the contract does not contain specific clauses regarding force majeure or unforeseen circumstances, one must fall back on the statutory provisions regarding force majeure and unforeseen circumstances. However, the threshold for invoking force majeure or unforeseen circumstances is high.

2.1. To invoke force majeure

In order to successfully invoke force majeure, the following requirements must be met:

(i) there must be a justified breach that cannot be attributed to the debtor (i.e. the person who has to perform), in other words: an impediment to perform that justifies an appeal to force majeure, and only if the debtor is not liable for the cause of such impediment. The (justified) breach will usually consist of an impediment or an impossibility to still be able to perform the contract. An impediment to perform is not only present if performance is absolutely impossible for any person, but also if performance has become impossible for the concerned debtor or has become practically too onerous. Companies and institutions that are mandatorily closed pursuant to government measures, such as universities and the catering industry, simply cannot perform their obligation to provide a service (but if alternatives are available, such as online solutions, in principle the contract must still be performed in this alternative way, unless this is practically too onerous for the party effecting a performance). It is a different matter for other companies and institutions that, for perhaps valid reasons, decide not to deliver their products or services. In principle, they can deliver, although that may be less practicable. Not being able to deliver due to problems at the supplier of the party effecting a performance will only lead to force majeure if, for instance, it is impossible or practically too onerous to switch to alternative supplier in time; and

(ii) the impediment to continue to perform must concern the relevant performance itself. Force majeure does not occur if the initially existing balance between the mutual performances is broken by a later change in circumstances, for example as a result of price increases. After all, the relevant performance itself - for example the delivery of a sold good - is not impeded. However, this imbalance in performances could be of relevance for the invocation of unforeseen circumstances or the principles of reasonableness and fairness (see below). The counterparty of the party effecting a performance usually only has the obligation to pay. Payment is in principle always possible (except for international exchange restrictions, for instance), with as a result that the customer cannot invoke force majeure. Liquidity problems of the customer cannot lead to the successful invocation of force majeure, but a creditor arrangement may be possible (see below).

A successful appeal to force majeure has as an effect that there is no right to compensation of damages due to a breach in the performance nor is there a possibility to claim specific performance of the contract, considering that this has become (practically) impossible. However, either party can dissolve the contract. In the event of a dispute about such dissolution, the judge will have to assess whether in these specific circumstances an exception exists in such manner that the breach does not justify dissolution including its consequences, due to the particular or insignificant nature of the breach. The counterparty is also entitled to suspend its own counter-performance insofar as the breach of the party effecting a performance justifies this.

All in all, an appeal to force majeure will often not succeed. The extent to which the counterparty can successfully terminate or suspend depends on the circumstances of the case, but given the current special circumstances dissolution or suspension may be less likely to be allowed. After all, mutual dependency as well as the behaviour of the parties also play a role. If corona is the cause of the breach, it is more likely a judge will expect the counterparty to reasonably try to cooperate in finding a solution (in the sense of agreeing to changes in nature and time of performance) rather than to send a notice of default, to claim interest and fines or otherwise fail to recognize the problems and interests of the party effecting a performance.

2.2. To invoke unforeseen circumstances

A successful appeal to unforeseen circumstances entitles the debtor to demand modification or termination of the contract if the performance of the contract has become extremely onerous for him due to unforeseen circumstances. In order to successfully invoke unforeseen circumstances, the following requirements must be met:

(i) after the conclusion of the contract circumstances arise that are not considered or foreseen in the contract. It therefore concerns a circumstance that the parties have not taken into account. In the relevant legislative process, for instance, a natural disaster is considered as an unforeseen circumstance. The fact that a natural disaster is known to occasionally occur does not mean that such disaster cannot qualify as an unforeseen circumstance in the event it actually occurs. The fact that a pandemic occasionally occurs does not mean that invoking unforeseen circumstances is therefore not possible. The criterion is whether the parties anticipated the circumstance when they entered into the contract; and

(ii) the unaltered performance of the contract has become unacceptable by standards of reasonableness and fairness. For instance, if without an adjustment to the contract there will be such a disturbance in the value ratio that such imbalance no longer qualifies as a factored in risk. An example hereof: if a contract remains unaltered while a contracting party would be confronted with major financial and / or business problems. Another variant concerns the situation that a contract has lost its meaning because the purpose that the parties initially had for such contract has been achieved or has become unattainable. For instance, a mechanical engineering plant will be able to have its purchase contract with the component supplier modified if it is no longer worthwhile to market the envisaged products due to an invention unknown at the moment the parties entered into the contract. A third variant is if it is extremely onerous to comply with the contract. This variant is adjacent to force majeure, but offers the possibility of partial modification of the contract while an appeal to force majeure has an all-or-nothing character trait.

However, if an appeal to unforeseen circumstances is honoured, a contract may be terminated or modified. The judge has considerable liberty in this respect and can rule, among other options, temporary unilateral or mutual suspension, the grant of retroactive effect and the obligation to attach further conditions to the contract, including (whether or not temporary) modifications in the performance to be performed and the consideration to be paid. Because of this, it is advisable for the parties to enter into negotiations themselves, as they then have more influence on the content of the amended contract than when the amendments are left to the discretion of the court.

The basic assumption for an amendment to the contract is that an agreed risk distribution must be maintained, now that the parties have thus agreed. In addition, account should be taken of benefits enjoyed by a party as a result of the corona crisis, such as government contributions and cost reductions. Legal science sometimes advocates a 50/50 distribution (subject to exceptions due to agreed risk distribution or benefits enjoyed) of the damage or defect, as neither party is blamed for the corona crisis. This solution strikes us as not entirely correct, considering that the examples on which this proposed equal distribution are based, relate to the situation of (always without the fault or blame of any party) a valuation error of the valuator appointed by the parties, a defect in the delivery of one party to the other or the unknown effects of an announced change in legislation. Moreover, it is difficult to translate, for instance, an extreme loss of demand or an imminent bankruptcy due to the corona virus into a modification in the contract with suppliers of a company that is already threated in its continuity. The revenue problem, after all, usually cannot be attributed to one specific supplier. In addition, shareholders, creditors and other suppliers could benefit from the unfavorable contract adjustment with the concerned supplier. It seems more obvious to us that it is necessary to assess on a case-by-case basis whether the high threshold has indeed been met and, in those exceptional cases, that the disadvantage is not distributed by default on a 50/50 basis, but that only the unacceptable part will be amended. One-off contracts or orders already placed are usually less likely to be amended (unless this is not onerous for the seller) and for term contracts, temporary modifications may be possible on the basis of termination periods or volume or price adjustments or on the basis of terms during which a supplier can reduce its own purchasing. This will usually be more difficult in the case of commercial lease contracts, although a temporary modification seems possible if the tenant temporarily has to close due to government measures.

The statutory section on unforeseen circumstances is often seen as a specific variant of the derogatory effect of the principles of reasonableness and fairness, by virtue whereof an applicable contractual rule between contracting parties does not apply insofar as this is unacceptable in the given circumstances according to the principles of reasonable and fairness. The judge can therefore also decide to set aside such contractual rule. However, there is also an interaction, because the judge can decide that there is no reason for not declaring it applicable, precisely because no modification or dissolution has been demanded. In addition, the statutory section on unforeseen circumstances leaves unaffected that under certain circumstances the contract can be terminated, both if nothing has been agreed in this respect (in which case a normal threshold applies) and even if it has been agreed that such termination is not possible, or at least not prematurely (in which case a high threshold applies).

In conclusion, it can be stated that the basic principle is that contracts must be performed and that deviation from a contract by means of dissolution, suspension, modifications or termination shall only be allowed in very exceptional circumstances. However, when these conditions are met and what the exact result is differs on a case to case basis.


If a debtor (whether or not due to the current corona crisis) finds itself in financial distress, such debtor may opt to offer his creditors a so-called creditor arrangement. A creditor arrangement is in fact a contract that is presented to the debtor's creditors, wherein the debtor offers to pay part of the creditors' claim against full and final discharge. The background for this concept is that in the event of bankruptcy of the debtor, the creditor will usually only receive a fraction or even more often virtually nothing of his claim. The debtor's motive will often be the prevention of a bankruptcy and thus in continuing his business.

A creditor arrangement can take various forms. Usually, in a creditor arrangement it is simply agreed that the debtor will pay a percentage of the relevant claim, but other variants also occur. For instance, it is also possible that a claim is converted into an equity interest (a so-called debt-to-equity swap) or a loan.

The basic principle is that a creditor arrangement is only binding on those who agree to the arrangement.


It follows from the premise of the creditor arrangement that a creditor can in principle choose whether to accept or refuse the creditor arrangement. This may have the consequence that if one or more creditors refuse the arrangement, the bankruptcy of the company must still be requested. Only under very special circumstances creditors who do not want to agree to the proposed creditor arrangement can be forced to cooperate with the arrangement. Such special circumstances exist if the creditor could reasonably not refuse to accept the debtor's offer, in which event the creditor misuses his powers by refusing the offer. This usually occurs if only one relatively small creditor does not agree to the arrangement, as a result of which the entire arrangement will fail and bankruptcy is still unavoidable.

Under current legislation, the creditor arrangement can also be enforced in court in insolvency proceedings. In that case, the debtor in state of bankruptcy or suspension of payments will offer the arrangement. The creditors are not entitled to make such an offer. The proposed arrangement is then put to a vote at a verification meeting, which is held in court. Only ordinary creditors may cast a vote. If at least half of the ordinary creditors present vote in favour of the arrangement and if these creditors represent at least half of the total liabilities, the arrangement is accepted. The court then ratifies the arrangement (homologation). After this homologation, the private scheme of creditor arrangement is binding on all ordinary creditors. Contrary to the extrajudicial creditor arrangement, the ordinary creditors who voted against the arrangement are now also bound by the creditor arrangement. Preferred creditors, such as secured creditors and the Tax Authorities, are not bound by the private scheme of creditor arrangement. However, these preferred creditors may waive their preferential status or voluntarily cooperate with the creditor arrangement.

As stated before, a judicial creditor arrangement is only possible in the event of a suspension of payments or bankruptcy. In the event of a suspension of payments, the debtor is granted temporary deferral of payments to ordinary creditors. The purpose of such deferral is to reorganize the company as a result of which (part of) the company, or rather its business, can ultimately be continued due to the private scheme of creditor arrangement. Unfortunately, a suspension of payments leads in the grand majority of cases still to bankruptcy.

Unlike a suspension of payment, a bankruptcy aims to liquidate the assets of the company, so that the creditors can be paid out of that proceeds as much as possible. The debtor or creditor can file for bankruptcy if the debtor is in a situation where he has stopped paying. The creditor must have at least two creditors, of which at least one creditor has a claim which due and payable. By means of the bankruptcy, a relaunch of the company can be envisaged. However, due to a bankruptcy a company’s value often decreases.

We must conclude that under current legislation it is required that the debtor must already be in insolvency proceeding in order for him to become entitled to enforce a private scheme of creditor arrangement. Given the current pandemic and the serious consequences for the liquidity position of companies, it is very doubtful whether the private scheme of creditor arrangement can lead to the continuation of the company at such a late stage.


The legislative proposal Homologatie Onderhands Akkoord (WHOA) should change this. It aims to establish an arrangement with which the creditor arrangement can also be effected outside bankruptcy. Although the legislative proposal was already submitted to the House of Representatives in the summer of 2019, it was recently announced that the accelerated introduction may lead to the WHOA coming into effect still this summer.

The WHOA is intended for both companies that are still viable despite payment difficulties and companies whose bankruptcy is unavoidable. Preventive restructuring could avert a potential bankruptcy of a viable company. If a bankruptcy can no longer be prevented, it is possible to have a controlled liquidation (still outside bankruptcy), with the advantage that this may lead to a better result than a settlement in a bankruptcy.

Under the WHOA, both the debtor and any of its creditors or shareholders may request a judge to appoint a restructuring expert who can then prepare an arrangement and present it to the creditors and shareholders. If the debtor is a small or medium-sized enterprise (less than 250 employees and a revenue in the previous financial year of a maximum of EUR 50 million or a balance sheet total of a maximum of EUR 43 million, SME), voting for this arrangement requires the debtor's consent.

Creditors and shareholders are divided into different classes depending on their rights in the event of liquidation in bankruptcy. If at least one class of creditors who would have been paid in whole or in part in the event of bankruptcy agrees to the arrangement (with a 2/3 majority of the total amount of claims from creditors within that class), the debtor or the restructuring expert can bank requests for approval of the arrangement. The debtor's consent is also required here as if he were a SME. The judge will award the request, unless grounds for rejection (as referred to in Article 384, paragraph 2, WHOA) arise. At the request of one or more creditors or shareholders who have voted against the proposal, the court can reject the request for approval if it prima facie appears that these creditors or shareholders are worse off on the basis of the plan than in the event of bankruptcy. In addition, the value in the company realized with the composition must be distributed in accordance with the legal priority applicable to creditors, unless the creditors agree to a different order of priority. No approval by the general meeting is required for offering an arrangement nor for the submission of a request for approval thereof. In addition, shareholders may not unreasonably impede the management board from granting its consent. Appeal and cassation are not possible.

Following the Anglo-American countries, the WHOA has an economic approach and regulates that creditors who are in the money are not thwarted by creditors and shareholders who are out of the money. This is a very desirable improvement.


To put it briefly, a company has a number of options that can be used to mitigate adverse financial consequences, for example as a result of the current pandemic. However, in this memo it became clear that there is a high threshold for the success of an appeal to force majeure or unforeseen circumstances. In addition, a creditor arrangement is possible, but the disadvantage of this is that, in principle, a single creditor can cause the creditor arrangement to fail. Furthermore, under current legislation, a mandatory creditor arrangement is only possible in the event of bankruptcy or a suspension of payments, which makes it very questionable whether a company can continue afterwards. Ideally, the WHOA will enter into force this summer, allowing debt restructuring and business continuation at an early stage.


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