This newsletter discusses the legislative proposal for a Financial Institutions (Special Measures) Act (Wet bijzondere maatregelen financiële ondernemingen; "Intervention Act") that was submitted to the lower house of the Dutch Parliament on 26 October 2011 by the Minister of Finance and the Minister of Security and Justice. The purpose of the proposed Act is to supplement the powers of the Dutch Central Bank (De Nederlandsche Bank; "DNB") and the Minister of Finance to intervene at financial institutions that are experiencing serious problems. This is to be accomplished by amending the Dutch Financial Supervision Act (Wet op het financieel toezicht; "DFSA") and the Bankruptcy Act (Faillissementswet). A public consultation on a draft of the legislative proposal was held earlier this year (see our newsletter of 15 April 2011 with the title "Intervention Act").


  • Introduction
  • Transfer regime: resolution of distressed banks and insurers
  • Interventions intended to safeguard the stability of the financial system
  • Post-event restriction of counterparty rights
  • Legal protection


According to the explanatory memorandum accompanying the legislative proposal, the financial crisis has shown that the existing intervention possibilities are insufficient with respect to financial institutions that already have serious problems. The emphasis of the current supervisory regime is on prevention. Supervisors may, at an earlier stage, attempt to steer a financial institution by issuing a formal directive (aanwijzing) or by appointing a special administrator. Should a financial institution nevertheless find itself in serious difficulties, the DFSA provides tools that focus primarily on the institution's imminent bankruptcy, but does not offer the authorities any means of bringing about a timely and orderly resolution of the institution without resorting to bankruptcy – an option that would have less far-reaching social costs.

Another disadvantage of the existing measures, according to the explanatory memorandum, is that they are too focused on individual financial institutions and the interests of those directly involved with them, such as their creditors. The financial crisis has highlighted the fact that the public interest in maintaining the stability of the financial system may also necessitate intervention.

The proposed Intervention Act is intended to change this situation by adding two new categories of statutory powers:

  • A new chapter – Chapter 2.5.4A, "Transfer" – is to be added to the DFSA granting DNB powers to procure that a bank or insurer which is experiencing problems is transferred, in whole or in part, to a third party.
  • In order to safeguard the stability of the financial system, the Minister of Finance is to be granted extensive powers to intervene at financial institutions; these powers are included in the legislative proposal as a new Part 6 of the DFSA entitled "Special measures regarding the stability of the financial system".

At EU level, the European Commission has initiated the process of developing an EU framework for the management of crises in the financial sector. In this regard, the Commission advocates three pillars: prevention of and preparedness for problems, early intervention and orderly resolution. In view of the great importance attached to having a stable financial system, the Dutch government has decided not to wait for EU legislation, but to itself propose rules along the same lines enabling the timely and orderly resolution of financial institutions (specifically banks and insurers). The Dutch government is therefore going ahead of the Commission to some extent (specifically with regard to the third pillar). Various other countries have already adopted supplementary instruments for combating problems in the financial sector, examples of such countries being the United Kingdom (Banking Act 2009) and Germany (Restrukturierungsgesetz).

To increase the effectiveness of the supplementary measures set out therein, the proposed Intervention Act also adds another new chapter to the DFSA – Chapter 3.5.8 – entitled "Post-event counterparty rights". This chapter restricts certain rights of the counterparties of a bank or insurer (or a company belonging to the same group), after the bank or insurer has been subjected to one or more of the measures set out in the proposed Act.

Lastly, the proposed Act contains a new DFSA provision in connection with the plans announced by the government to reform the financing of the deposit guarantee scheme – ex ante financing instead of ex post financing – as well as an amendment to the Dutch Banking Act (Bankwet). This amendment excludes the possibility of certain legal acts performed by DNB (including the provision of emergency liquidity assistance) being nullified, at the request of a creditor (under the Dutch Civil Code) or a bankruptcy trustee (under the Bankruptcy Act), on the grounds that the relevant act constitutes a fraudulent conveyance (actio pauliana). The rationale behind this rule is that, in view of the interest in the unhindered performance by DNB of its duties, it is necessary to prevent the uncertainty that would exist if such nullification proceedings could potentially be initiated.

Transfer regime: resolution of distressed banks and insurers


Once a bank or insurer is experiencing serious problems, DNB has no authority under current law to procure the transfer of its activities (in whole or in part) to a third party as a going concern. Although such a transfer can in some cases be effected within the context of insolvency proceedings – the emergency regime (noodregeling) and bankruptcy (faillissement) – in practice the institution in question will by then have become a "gone concern". In addition, DNB cannot direct the transfer process, because it has no power to instruct the administrator appointed under the emergency regime or the bankruptcy trustee.

The transfer of a distressed bank or insurer (or a part thereof) as a going concern would have a number of advantages. With this in mind, the proposed Intervention Act authorises DNB to procure the transfer of a bank or insurer experiencing serious financial problems ("problem institution"). This applies both in the absence of an emergency regime or bankruptcy, as well as where either of these has been ordered. If DNB concludes that a bank or insurer is a problem institution, it can initiate a transfer of all or part of that institution by preparing a transfer plan. The explanatory memorandum assumes that DNB will search for a private sector purchaser for all or part of the institution, but the legislative proposal also provides for the use of a special "bridge institution".

The proposed Intervention Act distinguishes three types of transfer that DNB may prepare:

  • (in the case of a bank) a transfer of deposit agreements, in which context the explanatory memorandum notes that this would "usually" be financed with funds from the deposit guarantee scheme;
  • a transfer of other assets or liabilities; and
  • a transfer of shares in the problem institution.

A bank or insurer will be considered a problem institution if the following composite criterion is met:

  • there are signs of a dangerous development regarding the institution's equity capital, solvency, liquidity or technical provisions; and
  • there is a reasonable probability that this development cannot be sufficiently reversed or cannot be reversed in a timely manner.

This criterion is based on the criterion for applying the emergency regime to banks under the current Section 3:160 of the DFSA, but is broader than that criterion in some respects. Under the proposed Intervention Act, the broadened criterion (hereinafter the "intervention criterion") will also be used for the application of the emergency regime to a bank or insurer and for declaring it bankrupt.

If DNB prepares a transfer plan, it may notify the relevant problem institution of that fact, but is not obliged to do so. In the event of notification, that institution and its corporate bodies and representatives must cooperate in the preparation of the transfer plan. In addition, after that notification, DNB can require the institution to provide the necessary information to certain third parties, such as a potential acquirer or experts assisting DNB with preparing the transfer plan.

The actual implementation of a transfer plan prepared by DNB would begin with DNB's request to the district court to approve the plan and declare that one or more of the following regimes apply: the emergency regime, the bankruptcy regime or the transfer regime (overdrachtsregeling) as provided for in the proposed Intervention Act. In this regard, the explanatory memorandum states that if the transfer plan relates to deposit agreements or other assets or liabilities, DNB will "in most cases" request application of the emergency regime or the bankruptcy regime, whereas the transfer regime is the obvious choice if the transfer plan relates solely to shares in the problem institution.

The district court can only withhold approval of the transfer plan if the plan fails to satisfy a number of pre-conditions regarding its contents or if the transfer price included in the plan (or the method for determining that price) is unreasonable. In the case of a transfer of assets or liabilities, the district court can also withhold its approval if the transfer would be detrimental to the problem institution's remaining creditors.

If the district court approves the transfer plan and concludes that there is prima facie evidence that the situation described in the intervention criterion has arisen, it will declare the transfer regime applicable. This "prima facie evidence" test is in line with the test to be applied by a district court pursuant to Section 6 of the Bankruptcy Act when deciding whether to declare a debtor bankrupt. The proposed Intervention Act will also, through amendments to the DFSA and the Bankruptcy Act, restrict the district court to applying a similar "prima facie evidence" test using the intervention criterion if DNB requests a court order subjecting the bank or insurer to the emergency regime or to the bankruptcy regime.

Through the judicial approval of the transfer plan and the judgment declaring the transfer regime applicable, the relevant shares, deposit agreements or other assets or liabilities will be transferred to the acquiring party, unless the transfer plan provides otherwise. In the same judgment, the district court will also appoint one or more "transferors". The judgment will, by operation of law, deprive the problem institution of its powers of disposal and management over the portion of its assets to which the transfer plan pertains. The shares, deposit agreements or other assets or liabilities covered by the transfer plan that have not already been transferred through the court's judgment will be transferred by the court-appointed transferor(s) to the acquiring party or parties.

Interventions intended to safeguard the stability of the financial system

The proposed Intervention Act includes a new Part 6 of the DFSA that will grant two new powers to the Minister of Finance in the interests of safeguarding the stability of the financial system. If the Minister is of the opinion that that stability would be "in serious and immediate danger as a result of the situation of a financial institution having its seat in the Netherlands"; he/she may:

  • take "immediate measures" (onmiddellijke voorzieningen) regarding the relevant institution; or
  • proceed to expropriate the assets of, or shares in, the institution.

In both cases the Minister of Finance may, if necessary, deviate from statutory provisions or provisions in articles of association. Furthermore, he/she must consult DNB in advance and, given the importance of the step(s) to be taken, take the decision in agreement with the Prime Minister.

The explanatory memorandum gives the following as examples of immediate measures: the temporary suspension of shareholder voting rights, deviation from the articles of association and suspension of a management board or supervisory board member. The power of expropriation is intended to be invoked as a last resort and may only be used if immediate (or other) measures would not work, would no longer work, or would be insufficient. In accordance with Section 14 of the Dutch Constitution (Grondwet), expropriation under the new Part 6 of the DFSA would only be permitted in the public interest and in exchange for compensation.

Post-event restriction of counterparty rights

The explanatory memorandum notes that financial and other agreements that financial institutions enter into often contain provisions regarding events of default and notification events. If an event of default occurs with respect to one of the parties, such a provision usually confers upon the counterparty the right to terminate the agreement with immediate effect, to accelerate claims or to unwind the agreement in another manner. Provisions about notification events usually oblige a party to notify its counterparty if certain events occur or certain circumstances arise. Interventions by the authorities for the purpose of safeguarding the continuity of a financial institution may, in some cases, constitute an event of default or notification event under the terms of that institution's current contracts and could lead to early termination of those contracts or to the counterparty's becoming aware of the preparation for or taking of such a measure.

The explanatory memorandum notes that the exercise of such acceleration and early termination rights and the notification of counterparties could have a negative impact on the effectiveness of the measures set out in the proposed Intervention Act. The core of the proposed new Chapter 3.5.8 of the DFSA is that such rights cannot be exercised, and the financial institution's obligations to notify cannot be invoked, to the extent those rights and obligations are "triggered" by the taking of one of the proposed new measures or the submission of a request to that end (this also covers acts and events that are connected to such a measure or request).

Under the consultation version of the legislative proposal, the new Chapter 3.5.8 was supposed to apply in respect of all measures that could be taken by any supervisory authorities pursuant to the DFSA. In their feedback, a number of respondents stated that such a broad application of the rule would severely disadvantage the Dutch financial sector vis-à-vis foreign competitors. For this reason, in the legislative proposal as submitted to Parliament the scope of this rule has been limited to the new measures set out in the proposal itself.

Legal protection

The proposed Intervention Act clearly provides for a number of far-reaching new measures, including those that would essentially constitute the forced expropriation of property (of the problem institution itself or its shareholders). The explanatory memorandum therefore discusses in great detail the right to the peaceful enjoyment of possessions as set out in Article 1 of the First Protocol of the European Convention on Human Rights, and the manner in which attempts have been made to have the Intervention Act be consistent with that Article and with the relevant case law. In that context, particular attention has also been paid to protecting the rights of affected "possessors".

If a share transfer plan is submitted by DNB to the district court for approval, the general rule is that the shareholders will not be heard by the court. However, shareholders with a stake of more than 5% will be given the opportunity to be heard, provided that the interests of confidentiality or speed do not dictate otherwise. If such a "major" shareholder is heard, that shareholder may object to DNB's assessment that the situation defined in the intervention criterion has arisen in respect of the relevant institution and to the proposed share transfer price (or the method for determining that price).

Shareholders who have not been heard may object to a judgment by the district court approving the transfer plan. Such an objection must be filed within a period of eight days and cannot be directed against the transfer price (or the method for determining that price). If the objection is upheld, this will only lead to the setting aside of the relevant transfer if the effects of the latter can be reversed without disproportionately serious consequences. In addition, all shareholders – irrespective of whether they were heard prior to the district court judgment or filed an objection thereafter – may object, by means of separate legal proceedings, to the transfer price or the method for determining that price. If a shareholder is of the opinion that the transfer price does not fully compensate the damage directly and necessarily resulting from the loss of his/its share(s), the shareholder may request the Enterprise Chamber of the Amsterdam Court of Appeal (Ondernemingskamer van het Gerechtshof te Amsterdam) to award an additional amount of compensation.

If DNB requests the district court to approve a transfer plan, the problem institution may object to DNB's assessment that the situation defined in the intervention criterion has arisen. In the case of a plan for the transfer of assets or liabilities other than deposit agreements, or for the transfer of shares, the institution may object to the proposed transfer price or the method for determining that price. According to the explanatory memorandum, although the institution is not a shareholder it must be considered to be an interested party. For this reason, it is appropriate that the institution should have the right to object to the price. The memorandum goes on to state that it was not considered expedient to give the institution a right to object to the price in the case of a transfer of deposit agreements, because the value of the underlying (guaranteed) deposits can be objectively and precisely determined. Itis possible that the acquirer is prepared to pay a price for the deposit agreements because he would thereby also acquire a client database. According to the memorandum, it would be going too far to make it possible for the problem institution to object to such a price.

Any interested party may lodge an appeal with the Administrative Jurisdiction Division of the Council of State (Afdeling bestuursrechtspraak van de Raad van State) within ten days of a decision taken by the Minister of Finance, pursuant to the proposed Chapter 6 of the DFSA, to take immediate measures or to proceed with expropriation. In the case of a decision to proceed with expropriation the Minister must – as soon as possible, but in any event within seven days after the decision has become final and no longer open to appeal – make an offer as to the amount of compensation to be awarded and request the Enterprise Chamber to set the compensation at that amount. The Enterprise Chamber will comply with such a request, unless it considers it likely that the amount offered does not fully compensate the damage suffered by the relevant party or parties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.