Debt Collection in The Netherlands

• Dutch corporations' payment behaviour is very strong with payment usually taking place within 47 days; however, the regulations applying the new EU Directive on late payments are less strict than EU standards.

• In fact, although the courts are trustworthy, the most effective way to avoid unnecessary costs is often to arrange payments, and a specialist collection agency may often be appropriate to receive reimbursement.

• When the debtor is insolvent, loan renegotiation tools become accessible but are inefficient and ineffective, with most bankruptcies ending without payment of any distributions to unsecured creditors.

1. Summary

1.1. General financial information

1.1.1. Financial information relating to domestic companies is generally available.

1.2. Key legal structures

1.2.1. Corporate debt liability is determined by legal structures, which can be described as follows:

• Sole proprietorship is available for individually managed small businesses for which no commercial structure is required. In this scenario, the claimant shall be held responsible for all contractual debts. Also two or more individuals may decide to share ownership and responsibilities through Partnerships (Vennootschap Onder Firma, VOF), in which case the partners may be jointly and individually liable for the other partners ' actions. Conversely, limited liability partnerships (Commanditaire Vennootschap, CV) can give limited liability to the partners.

• Private Limited Liability Companies (Besloten Vennootschap met beperkte aansprakelijkheid, BV) represent the vast majority of businesses in the Netherlands, since they do not require any minimum capital funds (EUR 18,000 before October 2012) while the liability of the partners is limited to their contribution. Private Limited Liability Companies (Naamloze Vennootschap, NV) are used to split their money (at least € 45,000) into tradable securities with larger structures. The responsibility of the owners in those companies is generally restricted to the valuation of their stock.

• Foreign companies may alternatively settle in the Netherlands through branch offices providing foreign parent company with no liability limitations. Joint Ventures that take the form of any legal structure mentioned above, but incorporation is not mandatory, therefore a contract drawn up for this reason would be appropriate.

1.3. Regulatory framework

1.3.1. The Netherlands has a system of Civil Law in which the laws are codified and not dependent on case law. The judiciary is based on various courts in general authority that contend with allegations that take into account the sums at stake, rather than on the basis of the subject matter.

1.3.2. County Courts (Kantongerecht) would normally deal with small claims of up to EUR 25,000 whereas claims exceeding this amount would fall within the jurisdiction of District Courts (Rechtbank). For the second instance, the Court of Appeal (Gerechtshof) would then be qualified, whereas the Supreme Court (Hoge Raad) is the court with ultimate jurisdiction.

2. Receiving payments

2.1. DSO - Days Sales Outstanding

2.1.1 Dutch domestic corporations' charging conduct is outstanding and rewards normally take place within 47 daily (figures for 2016), or after distribution. Delays of up to 14 days may be expected but these are uncommon and may be explained by the fact that domestic businesses often use payment delays as a way of controlling cash flow as a result of a lack of banking help.

2.2. Late interests

2.2.1. The EU Directive 2011/7/EU which stipulates that payments must be made in the EU within 60 days was supposed to have been transposed into Dutch law on 16 March 2013 by means of a new Act extending the requirements of the Dutch Civil Code on the contractual payment deadline.

2.2.2. Unlike other EU Member States, the implementation rule is no more strict than the provisions of the Directive: payment of business-to-business transactions can not extend 60 days unless otherwise specifically stipulated by an agreement between the parties (and ensuring the contract is not grossly unfair). According to the Law, late payment interest should be determined on the basis of the reference rate of the European Central Bank, raised by at least 8 percentage points (compared to 7 with the previous rule).

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2.3. Costs of debt collection

2.3.1. According to the new section 96 of the Netherlands Civil Code, the borrower is also entitled to receive a fixed amount of EUR 40 to pay for its collection costs and, if the debt is obtained for collection by a third party, the debtor may also be held liable for those costs.

2.3.2. In fact, however, the creditor's terms and conditions are used as a framework for determining the charges and interest for collection. The (lower) mandatory duties of the Dutch Civil Code will only occur if there are no terms and conditions, even if they have not been negotiated properly.

2.3.3. Generally speaking, Netherlands companies have no trouble utilizing competition and expenses as bargaining instruments but would always bear in mind the potentially negative effect on the ongoing business partnership.

2.4. Protecting ownership

2.4.1. According to Dutch law, preservation of title (RoT) agreements which seek to retain ownership of products until the relevant invoice is paid in full. Yes, the' correct van reclame' requires a borrower to order the cancelation of a contract (as well as the return of the products) in the event that the relevant invoice is left unpaid, but an expanded version of RoT may also require the maintenance of possession of the product until all the creditor's invoices have been paid in full.

2.4.2. In most countries, RoT agreements are mainly used as a means to obtain a form of priority over other debtors in relation to insolvency proceedings. However, in the Netherlands, RoT may be used as a negotiating tool during the pre-legal action process insofar as the seller may order his customer to refund the products on the basis of the General Terms and Conditions and then create a compensation statement for the returned goods. If the customer does not want to comply in a friendly manner, the seller must go to trial but the RoT may be activated again. Usually, the debtor can respond to this procedure within six weeks of the invoice due date.

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2.5. Payments

2.5.1. The most common methods of payment are as follows: bank transfers (bankgiro) are among the most prominent means of payment for international transactions, as they are quick, safe and supported by an increasingly integrated international and domestic banking network. Transfers are usually guaranteed for export transactions by Export Credit Insurance which helps minimize the risk of sudden or unforeseen insolvency of customers.

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2.5.2. Furthermore, Standby Letters of Credit (a bank guarantees the creditworthiness and repayment ability of the debtor) are often used in export shipping transactions because they provide secure assurances that can be enabled as a 'payment of last resort' if the buyer fails to fulfill a contractual obligation. In addition, irrevocable and confirmed Documentary Letters of Credit (a debtor guarantees that a certain amount of money will be made available to a beneficiary through a bank once certain conditions specifically agreed upon by the parties have been met) are increasingly being relied upon.

2.5.3. Bank loans can be costly, checks are not widely used as they give no assurances if left unpaid, and bills of exchange represent debt identification titles which remain seldom used to the degree that they continue to be perceived as a lack of trust.

3. Collecting payments

3.1. Amicable action

3.1.1. While domestic courts are successful, amicable mediation arrangements should always be seen as an alternative to formal trials. Therefore, before beginning legal proceedings against a debtor, asset appraisal is important because it allows assurance as to whether the business is still viable and whether chances of recovery are at best. Moreover, it is essential to be aware of the solvency status of the debtor: if insolvency proceedings have been initiated, the enforcement of a debt (see below) is indeed impossible.

3.1.2. Warning the debtor of a decision to take legal action is not mandatory, although it remains advisable to start legal dunning with a registered Demand Letter recalling the debtor's obligation to pay the principal along with late payment interests (as agreed in the contract or as a reference to a legal rate). Indeed, domestic courts tend to seek proof that the parties tried an amicable settlement before formal legal action was initiated. Additionally, negotiating payment installments is often a fairly easy way to avoid unnecessary costs, and having a collection agency can often be enough to get payment.

3.2. Legal proceedings

3.2.1. Ordinary proceedings. The parties can potentially have a simpler fast-track (kantongerecht) solution to regular legal proceedings, but this usually allows the liability (below EUR 25,000) to be certain and unchallenged. Threatening the debtor to begin insolvency proceedings will, of course, often prove effective as long as one or two creditors own a total of two certain and unchallenged cases against the debtor. The debtors would usually react swiftly in such situations and propose installment payment plans.

3.2.2. In addition, a European Payment Order mechanism which enables the recovery of undisputed debts (under Regulation EC No 1896/2006) may be activated when the debtor entity has assets in other EU Member States. In this situation, the complaining party can order a domestic court to issue an Order to Pay which will then be enforceable without exequatur proceedings in all European Union countries (except Denmark).

3.2.3. Therefore, ordinary legal action should begin if nice selection failed. The claimant must serve the debtor with summons through a bailiff, and usually six weeks would be granted to the debtor to file a response (failure to do so would cause the court to issue a default judgment). The court would then call a meeting, and consider their cases before making a ruling. More proceedings can take place in complex cases.

3.2.4. Required documents: A bailiff will normally be used to initiate a lawsuit when the initial amount is less than EUR 5000 and the debt is left unpaid in the amicable phase. Therefore, it would be important to provide various documents such as:

• copies of all outstanding invoices
• a recent account statement
• copies of the general terms and conditions applicable
• orders (additional)
• order confirmation (additional)
• proof of delivery (additional).

3.2.5. Time limitations. Commercial claims normally have to be brought before the court within 5 years.

3.2.6. Provisional measures. Pending a final decision, precautionary measures (Kort Geding) can help preserve the rights of the debtor. In urgent matters, the District Courts may order interim measures to protect assets (attachment orders, restraining orders) on the same day ex parte (i.e., in the absence of the debtor). Nevertheless, the complainant will prove that they have a strong case, and that imposing such interventions will deter irreparable harm from happening. Such directions are, in principle, temporary and must be validated by a final decision but are often recognized as definitive in fact by the courts.

3.2.7. Appeal lodging. The filing of an appeal made in first instance may be taken before the Court of Appeal within three months of the parties being informed of the judgment. The court also makes its judgments by means of summarized hearings, taking into account all substantive and legal issues. Decisions made in the second instance may also be placed before the Supreme Court, which deals exclusively on legal matters.

3.2.8. Enforcing court decisions. A judgment shall be enforceable immediately by a bailiff as soon as it becomes final (i.e. when all the places of appeal have been exhausted), but enforcement may also become preventive in practice, even though the judgment is not yet final.

If the defendant fails to satisfy the injunction, a compulsory compliance order in the form of an attachment order may be sought from the judge.

3.2.9. Duration of legal action. Undisputed cases brought to County Court (Kantongerecht) or District Court (Rechtbank) can take around a month. Nevertheless, if the argument is challenged, the courts will make a verdict within a year.

3.2.10. Domestic courts do not in principle take longer to deal with cases involving a foreign party than dealing with cases involving only domestic parties. In fact, however, certain additional delays can exist depending on the complexity of each situation, for example if the agreement is regulated by a specific foreign law, if foreign witnesses or consultants have to be consulted, etc.

3.2.11. Costs of legal action. As a general rule, the losing party would be required to pay the successful party portion of the trial and the legal costs accrued.

3.3. Alternatives to legal action

3.3.1. Alternate Methods of Dispute Resolution (ADR). Alternative Methods of Dispute Resolution are rather unusual in the Netherlands because the courts are effective in making prompt rulings.

3.3.2. Often arbitration is mandatory (depending on the creditor's terms and conditions), but the hearings can remain very costly and would only limit delays in complicated and contested situations. The foreign tribunal may also be regarded when including complex international transactions. For cases which are not opposed, prosecutions are rather recommended before the trial.

3.3.3. Foreign forums. It is very rare to use global courts for the same purpose, though the parties may still agree to add a foreign law to their arrangement. The Netherlands is a signatory to the Rome I Regulation on the law applicable to contractual obligations, which stipulates that the parties to a contract may, by mutual agreement, select the law applicable to the contract, and select the court which will have jurisdiction over conflicts. The country is also a signatory of the Hague Convention of 15 June 1955 on the law applicable to international sales of goods which stipulates that contracts be regulated by the law preferred by the parties, the general meaning of the agreement and the circumstances of the case.

3.3.4. It is essential that the agreement be characterized by an international connection (e.g. one party has elected domicile in another country or the place of execution is located abroad), and that a jurisdiction clause be drafted specifically for this purpose.

3.3.5. Enforcing foreign awards. Compliance Although it is somewhat rare to use global courts to extract enforceable rulings against domestic debtors, international judgments obtained against properties residing in the nation may be imposed in the Netherlands, if such conditions are met. On the one side, decisions made in an EU country will profit from the especially favorable requirements for compliance.

3.3.6. Apart from EU enforcement judgments which are usually enforceable exclusively in domestic courts, the two key ways of imposing an EU judgment in the Netherlands include the use of a European Compliance Order (EEO, as provided for in Regulation EC No 805/2004) where the allegation is undisputed or the declaration of the judgment under the terms of the Brussels I Regulation (44/2001). If the judgment applies as an uncontested assertion, it can be freely implemented (i.e. without registration) through the use of an EEO given the debtor has established properties in the region. Similarly, a European Small Claims Procedure (as provided for in Regulation EC 861/2007) aimed at eliminating intermediate steps can be relied on while enforcing decisions of up to EUR 2000.

3.3.7. The process for filing an EU decision with domestic courts is relatively simple, if the argument is contested. To order for the judgment to be recognized, the judgment holder will appeal to the court involved and provide the court with, among other records, an approved copy of the judgment, a validated transcript and, if interest is asserted, a letter stating the amount and interest rate at the time of the application and forwards. Once the judgment has been published, it can be applied as if it were given by domestic courts (such an exequatur process is no longer required from January 2015, according to Recast Regulation EC 1215/2012).

3.3.8. On the other hand, decisions taken in foreign countries outside the EU will generally be accepted and applied on a reciprocity basis such that the issuing country is a party to a bilateral or multilateral arrangement drafted for this reason with the Netherlands. Exequatur prosecutions will take place in domestic courts, in the absence of equitable agreements. As a general rule, international rulings would not be challenged on the merits of the case, but the District Courts will refuse admissibility where the foreign ruling is neither definitive nor enforceable in the awarding government, considered inconsistent with domestic public policy or domestic court decisions, unless the applicant has benefited from a proper legal procedure, etc.

4. Managing insolvent debtors

4.1. Insolvency in the Netherlands

4.1.1. The Dutch court process differs significantly from the other processes discussed here although it is obviously in the creditor's favour. While liquidation appears to dominate, the Dutch Bankruptcy Act 1893 (Faillissementswet) handles insolvency by different procedures.

4.1.2. Insolvency proceedings. Out-of-Court proceedings. Practitioners are adamant in indicating that in fact, due to limited flexibility, the termination of settlement litigation tends to occur informally by out - of-court arrangements before the transition into liquidation proceedings.

4.1.3. Debt restructuring. In the Netherlands, the term debt restructuring / rescheduling generally refers restrictively to private individuals under insolvency rule. Corporate debt restructuring therefore occurs rather through the suspension of payments (surseance van betaling) procedure during which the court appoints a Supervisory Judge and an administrator in charge of managing the company while the directors try to reach a compromise with the creditors. A proposal would be accepted, if two-thirds of investors covering three-quarters of the debt support it. The quantities to be paid off are not subject to legal limitations.

4.1.4. A moratorium shall be put in place during debt restructuring (for private persons), suspension of payments or bankruptcy proceedings from the moment the court issued an adjudication order until the insolvency is terminated. That is, when they possess exclusive privileges (RoT, lease, right of distraction), creditors can not demand enforcement of their claims.

4.1.5. There is no regulation in support to creditors' funds, although these operate on a voluntary basis, particularly when a large corporation fails. In both reorganization and liquidation cases, a group of investors is formed mainly by credit insurance companies and the biggest shareholders, in order to collect a quota of representative claims.

4.1.6. Winding up proceedings. Bankruptcy proceedings will begin when the defendant has stopped paying and they are declared bankrupt by the District Court. A bankruptcy will only be proclaimed if there are at least two investors with outstanding demands, if demanded by a lender. Nevertheless, if a bankruptcy is called on the debtor's own appeal, then the second creditor is not required.

4.1.7. Then, the court appoints one or more trustees (curators) responsible for managing the debtor's company. The trustee(s) would then ask for representations from the parties and draw up a creditors list. Therefore, the debtor's properties would be auctioned and the profits allocated to the investors, taking into account their priority level.

4.1.8. Managing directors have no duty to file for bankruptcy or cessation of payments should substantial problems arise; investors due large debts approaching EUR 100,000 and doubting their debtor's ability to pay will tend to call for a quick-track judgement requiring the debtor's properties to be confiscated.

4.1.9. Priority rules.  Usually priority rules apply during the allocation of creditors ' proceeds. Claims relating to the insolvency proceedings would be repaid first and thus have priority over preferential claims (claims relating to tax and social security, claims relating to pledge and RoT) and unsecured normal claims.

4.1.10. In practice, RoT holders would be able to repossess their goods, but for unsecured creditors the chances of receiving dividends from insolvency proceedings are rather low, and the vast majority of bankruptcies are terminated without any dividend payments to unsecured creditors.

4.1.11. Cancelation of suspect transactions. Liquidation trustees normally have the right to ask the court to cancel certain transactions concluded before the insolvency proceedings. Any action taken by the debtor deemed to be detrimental to the creditors would typically be void. A one year suspect period can apply. If the termination of payment proceedings falls and turns into liquidation proceedings, the defendant period begins from the day of the original proceedings.

4.1.12. Duration of insolvency process. Insolvency procedures appear to continue to last between two and five years.

4.1.13. Required documents:

• Copy of outstanding invoices
• Most recent account statements.

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