International Litigation – Netherlands – Mark-Hendrik de Vries

Davids Law is a high-quality mid-market boutique firm specialised in Insolvency, Restructuring and (Corporate) Litigation, within a national and international context.

Davids Law is one of the very few committed niche law firms in the Netherlands specialised in restructuring and insolvency which has our absolute focus. For more than fifteen years we have been representing companies, directors, creditors, shareholders, bondholders and investors in a variety of insolvency and conflict situations.

Davids Law has a solid international professional network, providing quick access to additional expertise as and when this may be required or desirable. We have worked on numerous high-profile insolvencies and domestic and international restructurings.

Mark-Hendrik advises and litigates on insolvency related disputes, liability of board members and corporate issues. He has in-depth knowledge of insolvency, corporate and insolvency law. In addition, he is an expert in seizure, foreclosure and execution law. Mark-Hendrik combines a hands-on mentality and pragmatic advice coupled with legal professionalism and keen enthusiasm. This is an approach that is very much appreciated by all his clients. He can help clients prevent and resolve conflicts that may arise. He strives to keep all those involved on board through effective mediation that avoids proceedings.

In the event that legal proceedings prove unavoidable, clients can count on him to provide impassioned, expert support going all the way to represent clients’ interests.

Mark-Hendrik’s broad experience, including as bankruptcy trustee/receiver, guarantees a carefully-considered litigation strategy that takes account of all risks and opportunities to deliver the optimal result.

Currently, I act on behalf of the stakeholders of companies and organizations facing (impending) discontinuity. We regularly see how directors and supervisors are sued privately. Particularly in the case of companies in financial difficulties, policy choices can later lead to creditors blaming management. Such cases of (threatened) discontinuity place exceptional demands on good governance, as there is then insufficient liquidity for timely payment of all creditors. Choices have to be made under great pressure about the continuation of the company, the payment of creditors and the use of restructuring instruments. Whereby the director runs the risk of personal fiscal, civil and/or criminal liability.

I successfully defended the board of a bankrupt reintegration company. For municipalities, UWV and private companies, the company carried out their reintegration obligations to job seekers (700 clients). The bankruptcy trustee held the board liable for the bankruptcy deficit of some €1.6 million. This claim was successfully rejected.

I also assist creditors and/or bankruptcy trustees in cases of insolvency. In that capacity on behalf of the creditors of a bankrupt medium-sized national transport company (turnover approx. €3 million), I successfully held the directors liable. The District Court and Court of Appeal ordered that the board pay the shortfall of some €1.5 million. Recently the Supreme Court allowed this judgment to stand in cassation proceedings.

Directors’ and supervisors’ liability. Stakeholders are increasingly willing to challenge directors. In addition, legislation has broadened the grounds for directors’ liability. So that since 2021, directors and supervisors of foundations and associations are more likely to be found liable in the event of bankruptcy. And the Dutch Data Protection Authority (Autoriteit Persoonsgegevens) can, on the basis of the GDPR (General Data Protection Regulation, 2018), fine directors if a company acts in violation of the GDPR.

In the Netherlands, the three best-known forms of ADR are arbitration, binding advice and mediation.

Especially when parties have a lasting relationship, that is, when they have to continue working together after the dispute has ended, ADR is a good alternative to litigation. ADR pays more attention to the context of a dispute and is less concerned with the legal part of it, which is precisely the focus of proceedings in litigation (at the court).

Arbitration is most similar to court proceedings. An advantage of arbitration is the specific expertise of the arbitrator. We see that arbitration is used especially in the construction industry and arbitration clauses in construction contracts are standard. For companies, arbitration is also very attractive because the proceedings are not public. Thus, reputational damage can be avoided. The downside is that arbitration is expensive.

Binding advice – unlike arbitration – is a non-statutory facility and is commonly used in consumer issues. A binding opinion ends in a settlement agreement. If it is breached, then performance or damages must still be enforced in court.

Mediation is also a non-statutory form of ADR. The mediator does not give a decision. The mediator is not above the parties, like the government judge, arbitrator and binding counsel, but between them. Mediation, like binding advice, ends with a settlement agreement. Mediation is originally used for private matters such as divorce. However, there is a strong tendency that mediation is used to resolve business disputes. It is my experience that mediation is effective, fast and cost efficient.

The main institutions are the government courts: the district courts, courts of appeal and the Supreme Court. Specific government courts are the Enterprise Court for disputes within companies, and the Netherlands Commercial Court (NCC) in Amsterdam.

The NCC (NCC District Court and NCC Court of Appeal) is well positioned to swiftly and effectively resolve international business disputes. It is built on a solid foundation: the reputation of the Dutch judiciary, which is ranked among the most efficient, reliable and transparent worldwide. And the Netherlands – and Amsterdam in particular – are a prime location for business, and a gateway to Europe. Proceedings are in English. Judgments are in English. The NCC has the tools to communicate effectively and provide swift and firm guidance in complex litigation.

Besides these governmental resolution institutions, there are several arbitration institutions of which the Netherlands Arbitration Institute (NAI) is the most important. The NAI aims to promote a number of different types of alternative dispute resolution: arbitration, binding advice and mediation, in particular by providing trade and industry with soundly regulated arbitral, binding advice and mediation procedures.

Brexit

After the Brexit, the UK is no longer bound by European regulations. This includes Regulation 1215/2012, the Brussels I bis-Regulation. Under this regulation, a judgment from another EU member state is automatically recognised and can also be enforced without court intervention. For proceedings started after 31 December 2020, judgments are, however, no longer automatically recognised and directly enforced in the UK.

For those proceedings, parties will have to fall back on a 1969 treaty between the UK and the Netherlands on the reciprocal recognition and enforcement of judgments in civil matters. That treaty stipulates that enforcement can only take place after authorisation from the court. This procedure is therefore quite a step backwards from the automatic enforceability that applied under the Brussels I bis-Regulation.

Liability of/for foreign subsidiaries

In the Netherlands, a legal entity can be a director of a legal entity. To ensure that a natural person cannot hide behind the legal personality, Dutch law prescribes that the liability of a legal entity-director also rests jointly and severally on each (the second-degree director) who is a director of that legal entity-director. The director of the liable legal entity may in turn be a legal entity etc. Relevant for cross border litigation: this also applies to foreign legal entity-directors.

However, the liability does not extend to the second-degree directors of a non-statutory legal entity-director based in the Netherlands. Suppose a German GmbH is a director of a Dutch legal entity, one cannot look through the German GmbH to its second-degree directors; the relationship between this foreign legal entity-director (the GmbH) and its second-degree director/natural person is not governed by Dutch law.

The mirror situation is that under Dutch law parent companies can be liable for wrongs of its subsidiaries. Such direct piercing of the corporate veil may occur under very exceptional circumstances only.

An example is when the parent company organizes its multinational corporate group in such a way that it abuses the separate identity of its subsidiaries by using it as a façade to conduct the parent’s own activities, with no other purpose than to prejudice third parties. In such situations, the use of separate legal entities may either be considered unlawful (causing the entities involved being liable for damages on the basis of tort) or, under certain circumstances, Dutch courts may disregard the separate identity of the parent company and that of its subsidiary and treat them as if they were one. See below the case Milieu Defence/Shell in which the Dutch Court held Shell liable for the conduct of its (foreign) subsidiaries.

Foreign law in Dutch Courts

Lastly, it is noted that Dutch Courts are well equipped to apply foreign law. In the event that a Dutch court assumes jurisdiction over the dispute but assesses that the applicable law is other than Dutch law (for example if the conduct in question has occurred in a jurisdiction other than the Netherlands) then Dutch courts will apply non-Dutch law when deciding the dispute, typically relying on expert evidence submitted by the parties’ expert witnesses or by its own court appointed expert.

ESG and director’s liability

Yes. Directors and supervisors of large but also smaller organizations need to take into account the influence of developments in society. Good corporate governance is today one of the three pillars of sustainable business practices (ESG: Environmental, Social and Governance). Views regarding the purpose of a legal entity, and the tasks, responsibilities and liabilities of bodies and members of those bodies are changing. This is reflected in the inclusion of ESG in the proposal for the amendment of the Dutch Corporate Governance Code (2022) and in the draft EU guidelines on Corporate Sustainability Due Diligence (2022). But already there has been an increase in legal proceedings against directors personally in order to hold companies accountable on issues such as climate change (see ClientEarth vs. the directors of Shell).

Shell CO2 emissions of foreign subsidiaries

In this regard, a Dutch Court landmark decision is the decision of the Hague District Court in May 2021.

The case was brought by Friends of the environment (Milieudefensie) and others against Royal Dutch Shell Plc (Shell). They claimed that Shell should be ordered to ensure through the Shell group’s corporate policy that the CO2 emissions of the Shell group, its suppliers and end users are reduced by at least net 45 per cent by the end of 2030.

The court decided that however the obligations in human rights treaties (such as the ECHR) do not directly apply to Shell as a private company and that the UN’s Guiding Principles on Business and Human Rights (UNGP) are non-binding soft law, these rules are nonetheless relevant whether Shell acted contrary in violation of the unwritten standard of care under the Dutch general tort provision. The court was of the opinion that the Dutch unwritten standard of care requires that Shell, as the top holding company with policy-setting influence over the Shell global group, can be held responsible for mitigating the potential adverse human rights impacts of climate change by Shell’s global group companies in relation to their CO2 emissions.

Limiting the size of procedural documents

An issue that has caused a lot of unrest among lawyers in the Netherlands is the limitation of the size of procedural documents to 25 pages.

Summary proceedings initiated by a group of lawyers against these rules have led to a decision by the Supreme Court. In its judgment of 3 June 2022, the Supreme Court gave a – for many lawyers – disappointing answer to preliminary questions in those interim proceedings: courts of appeal are allowed to place restrictions on the size of pleadings in procedural rules.

This ruling has been widely criticised. Many believe that this goes against the importance of the adversarial principle and leads to an obstruction of access to justice. Practice will show how strictly courts of appeal will apply this rule.

Fewer director liability/restructuring proceedings through WHOA

Since 1 January 2021, there has been a new, effective instrument available to companies in dire straits and their creditors: the WHOA (Homologation Private Agreement Act), a genuine game changer.

The WHOA makes it possible to restructure debts by reaching an agreement with creditors and shareholders to which unwilling creditors can also be held. The aim of such an agreement is to restructure debts to cope with any acute liquidity problems. This can involve altering or terminating agreements that present too heavy a burden for the company. Thereby avoiding a possible bankruptcy.

Preventing bankruptcy through this legal facility is expected to significantly reduce the number of directors’ liability proceedings in the future.

I would like to point to our recent 2023 listing in Legal 500 EMEA https://www.legal500.com/firms/237014-davids-advocaten-bv/236238-amsterdam-netherlands/