How certain elements of the Dutch scheme may (or may not) affect ISDA Master Agreements
On 1 January 2021, the legislative framework for court-approved restructurings of debts outside formal insolvency proceedings (hereafter referred to as the ‘Dutch scheme’, or simply, the ‘scheme’) entered into force. Under the Dutch scheme a debt restructuring plan can be submitted to the creditors for voting, whereby a majority can bind a minority within each class of creditors and the competent court has the power to make the plan binding on dissenting classes of creditors.
The Dutch scheme provides for a number of mechanisms to support a debtor in preparing the debt restructuring plan. Among these supporting mechanisms are:
- a mechanism for the unilateral termination of existing contracts (hereafter referred to as the ‘unilateral termination mechanism’);
- a ban on so-called ‘ipso facto provisions’; and
- a mechanism for a court-order freeze period (afkoelingsperiode) (hereafter referred to as the ‘statutory freeze mechanism’).
In the final stages of the legislative process that resulted in the introduction of the Dutch scheme, members of the Dutch Senate submitted a number of questions about the impact of the legislative proposal on the enforceability of financial framework agreements such as the ISDA Master Agreement. It was thus far unclear how the Dutch scheme would safeguard the netting and financial collateral arrangements entered into under and in connection with these types of agreements. The Memorandum of Reply published on 22 September 2020 (hereafter referred to as the ‘MoR’)4 provides an integrated response to these questions. Despite some imperfections (which we will discuss in this article), the MoR provides useful guidance on how the unilateral termination mechanism, the ban on ipso facto provisions and the statutory freeze mechanism may work in the context of an ISDA Master Agreement.
Given their frequent involvement in restructuring cases as well as financial derivatives transactions and ISDA documentation, ISDA specialist Robert Steeg and Insolvency specialist Daisy Nijkamp are interested in how the unilateral termination mechanism, the ban on ipso facto provisions and the statutory freeze mechanism of the Dutch Scheme might affect the enforceability of certain key provisions of the ISDA Master Agreement.
Their article has been published in Tijdschrift Financiering, Zekerheden en Insolventierechtpraktijk 2021/1.
