1. Legislative changes: are there any additional processes or support which have been introduced as a response to the pandemic which I may not have considered previously?
A legislative proposal has been prepared that introduces a procedure for a pre-insolvency restructuring plan (WHOA) offering an efficient process to effect a compulsory composition between the company and some or all of its (secured) creditors and/or shareholders.
The WHOA is currently being discussed in the Dutch Parliament, and there are loud appeals for an accelerated legislation process. It is however not yet clear when the WHOA legislation will come into force.
Temporary Act on Moratorium of Payments 2020
On 4 June 2020, a draft of the Temporary Act on Moratorium of Payments 2020 (Tijdelijke Betalingsuitstelwet 2020) was published for internet consultation, a preliminary phase in the legislative procedure where citizens are invited to respond to draft legislation before a draft proposal is submitted to Parliament.
The proposed Temporary Act on Moratorium of Payments 2020 aims to provide protection to businesses in distress due to to COVID-19-related government-imposed restrictive measures, in case they are confronted with a bankruptcy filing or executionary measures by one or more creditors. In short, if the debtor can summarily prove plausible causality between its financial distress and COVID-19-related restrictive measures, the court may delay bankruptcy procedures by (initially) two months or impose a moratorium of payments.
It is expected the proposed act will be put before Parliament in an expedited process. The internet consultation lasted only seven days and ended on 11 June 2020, which was rather short. However, because the act is still in a very preliminary phase, there is no specific date or timeline known for its entry into force (if it is voted through by the House of Representatives and Senate).
2. Is there anything else I should look out for?
Nothing specific, other than that it would be good to closely follow the (new and updated) support measures by the Dutch government (as also reported on by DLA Piper on a regular basis).
3. What is the position with respect to the applicability of emergency tax measures , including
a. what they are and apply to;
b. when they are expected to be phased out on or following a return to business; and
c. whether any transitional periods are likely to apply.
The applicability of emergency tax measures depends on the exact measure. Generally, the emergency tax measures introduced so far apply to all businesses. The most important measures taken include the following:
- simplified deferral of payment for almost all taxes
- reduction of interest on tax to 0.01% (from 4% or 8%)
- reduction of interest on overdue tax to 0.01%
- suspension of issuance of fines for late payment of tax
- the option of forming a COVID-19 reserve on the 2019 financial year balance sheet, reducing the 2019 taxable profit (which may result in a refund of tax)
- expansion of work-related costs scheme (3% over the first EUR400,000, instead of 1.7%)
- Competent Authority Agreements with Germany and Belgium on the taxation of salaries of cross-border workers forced to work from home
Some of the emergency tax measures have an end date that may be extended. Others do not have an end date but are likely to be repealed as soon as there is a return to business.
It is too early to tell whether there will be a transitional period. The emergency tax measures may be gradually repealed, or they may apply in full until their goal is reached, followed by a full repeal (where applicable).
4. Are there specific steps that businesses should take to prepare for these tax measures being phased out – for example new timing of
a. payment obligations (and therefore likely pressure on cash flow); and/or
b. filing of returns?
There are no specific steps that businesses should take to prepare for the COVID-19-related tax measures being phased out.
Businesses should, however, be prepared for these measures to be phased out, as they are temporary in nature.
In the short term, this may result in a pressure on cashflow if businesses have opted for deferral of payment of taxes and have used this increased liquidity for other expenses (and have not reserved sufficient cash to pay these taxes).
On the medium to long term, the phasing out of these measures will likely return the cashflow impact of taxes to normal (pre-COVID-19) levels.
5. Should the impact of emergency tax measures be reconsidered by businesses – e.g. are there certain legal transactions (such as sales or reorganisations) that parties should preferably postpone or accelerate?
In general, the measures are intended to improve the liquidity of businesses so they can keep paying their employees and suppliers. The first wave of emergency measures taken did not contain restrictions on, for example, the distribution of dividends or share buybacks. However, from a reputational point of view, it would be preferable to postpone such transactions to a later date, if it is not strictly necessary.
As for future emergency measures, restrictions on the distribution of dividends or the buyback of shares is being considered by the Dutch Parliament. The reason for this being considered is that the measures are intended to improve businesses’ liquidity in order to pay salaries and suppliers and not to draw cash out of the business.
6. Are there any additional measures proposed, in particular any that are targeted at particular sectors (e.g. aviation)?
There is a deferral of Dutch Energy Tax for energy-intensive sectors. The Dutch Energy Tax due during the COVID-19 outbreak will become due later in 2020, temporarily improving the cashflow positions of businesses in those sectors.
There are no other specific sectors targeted by means of tax measures (but rather with direct financial aid, such as government guarantees and loans).
7. Are there any sectors or interest groups that are now putting forward, or may in the near future request, special tax measures?
Not particularly. The Dutch Order of Tax Advisors has published a list of additional measures the Dutch government could consider. These measures are based on what other EU Member States and some other countries are doing, and what the Dutch government did during the 2008 financial crisis.
There is currently no indication that the Dutch government will introduce measures put forward by the Dutch Order of Tax Advisors.
8. Which taxes might be increased to address the financial burden caused by the crisis, for example,
a. are there political commitments or policy trends that might indicate the likely focus of any tax increase in the future (e.g. to maintain low corporation tax, but to increases taxes on personal wealth)
b. measures to broaden the tax base, such as digital services taxation and a pre-emptive response to the OECD/ G20 Inclusive Framework on BEPS (“BEPS 2.0”)
There are currently no taxes envisaged to increase to address the financial burden caused by the crisis. There is also no political commitment to do so yet. It is likely such measures will not broadly be announced in 2020, as the next elections for the Dutch House of Representatives are scheduled for March 2021.
If any particular political party announces increases in Dutch personal income tax or Dutch VAT (or any other tax that directly impacts a large part of the electorate), this is likely to negatively affect their election results.
However, the taxes that have the highest yield if the tax rate is increased are the Dutch personal income tax and the Dutch VAT (minor tweaks in rates will significantly increase tax revenue).
Although bad for business and not particularly high-yield, given the current sentiment in Dutch Parliament, the Dutch corporate income tax rate may be increased. The reasoning for this would be that businesses have received the most aid and therefore should pay the bill for this aid when the crisis has passed.
The Netherlands has generally been against unilateral action in the area of digital services taxation or a pre-emptive response to the OECD/G20 Inclusive Framework on BEPS, and for good reason. The Dutch government generally takes the position that it is best to have a coordinated response to the tax challenges of the economy to prevent harmful tax competition between states.
It is likely that the Netherlands will proceed with the work regarding BEPS 2.0 after more pressing needs have been met (i.e. after an economic collapse has been prevented or at least mitigated).
9. Are there other actions that ought to be considered by businesses in your country e.g.
a. revisit past tax filings to claim carry back of losses;
b. revise or update preliminary tax assessments;
c. claim bad debt relief for VAT output tax
Businesses should consider reviewing whether they have claimed their one year carry-back of losses and whether they want a preliminary loss assessment for 2019 (if they incurred a loss in 2019).
If taxable profits are expected to be lower in 2020, a revised or updated preliminary Dutch corporate income tax assessment is currently automatically granted (as part of the emergency tax measures).
10. What do you need to consider in terms of your funding requirements for returning to business and are there any return to business financial assistance packages being made available by government?
If your business has temporarily closed, there will in a number of cases be a delay between the incurrence of costs to restart your business and the consequent receipt of income. Consider how you will finance that gap. In particular, if you have any remaining availability under any revolving credit facility, note that there will likely be a drawstop on new funding if a default (or occasionally event of default) is continuing.
No specific “return to business financial assistance packages” are available from the Dutch government. The general GO-Corona Financing can be considered to meet liquidity needs.
The Dutch government will provide guarantees (for "fresh" financing to be advanced by eligible lenders to businesses (the "GO-Ruling"). The percentages guaranteed by the Dutch government for so called “corona-loans” under the GO-Ruling are:
- up to 90% for SMEs and midsize businesses (i.e. business having (i) less than 250 employees and (ii) less than EUR 50m revenues p.a. or less than EUR 43m balance sheet total; or
- up to 80% for large business.
11. How will funding a return to business, including taking on additional indebtedness, impact on your financial or other covenants?
If your business has temporarily closed, consider how to approach the effect this will have on the ability of your business to comply with any maintenance financial covenants. In a number of cases, lenders were receptive to a covenant waiver for the March and/or April testing date.
Consider whether a waiver, or indeed full covenant reset, will be needed for future test dates (and then also consider when would be an appropriate time to try to determine what those reset covenants should be). Particular considerations include:
- (of course) the decrease in revenue/EBITDA over the lockdown period;
- any likely tapered increase in revenue/EBITDA as lockdown restrictions are relaxed;
- costs for restarting the business; and
- payment of any deferred payments (i.e. rental payments, business rates).
Deferred tax payments and/or tax consequences (e.g. of the deferred repayment and/or interest instalment) should also be considered.
12. Are there any remedies such as equity cure or margin ratchets that you should be checking on to provide liquidity to prevent a default or improve their financial position?
In some circumstances, it may not be possible to agree a waiver or amendment to your maintenance financial covenants, so it may be prudent to review now any equity cure rights in your credit agreement.
13. What practicalities do you need to consider in relation to audit requirements?
Consider the deadlines to deliver to your lenders your audited financial statements and the practicalities of your auditors being able to carry out their audit.
Will there be sufficient time and access to allow the auditors to gather sufficient, appropriate evidence and finalise their report before the deadline?
The Dutch Authority for the Financial Market (AFiM) has announced it will be lenient to listed companies with deadlines for filing the 2019 annual report and annual accounts and the 2020 half-year accounts for listed companies.
- 30 June 2020 for the 2019 annual report and annual accounts
- 31 October 2020 for the 2020 half-year accounts.
14. What is the process if I need any amendments made or waivers given under my loan documentation (including in respect of financial covenants)?
You will need to consider what proportion of your lenders need to consent to the requested amendment or waiver, whereby the following proportions are typically distinguished:
- all lenders consent;
- super majority lenders consent (typically 80%-90%);
- majority lenders consent (typically 662/3%); or
- in respect of SSRCF/unitranche or FOLO deals you may also need all/majority super senior lender consent.
Amendments to financial covenants generally require majority lender consent and, on SSRCF/unitranche or FOLO deals, the consent of majority super senior lenders to the extent the amendment relates to the super senior covenant.
As a practical point, in our experience, lenders tend to be more receptive to requests for amendments and waivers if a borrower presents to them well thought out and reasoned plans to address any issues in the business. In other words, solutions, not just problems.
Other points to note:
- Is there a "snooze you lose" – and if so, when does it apply?
- Is there a “yank the bank” provision – and if so, when does it apply?
Is it practical reality that the “snooze you lose” / “yank the bank” can be used in the current context – what steps should be taken?
15. Dealing with creditors, including amendments and waivers – Bonds
a. If I can’t comply with the terms of my bond covenants who do I need to notify?
If a default has occurred or is likely to occur, communication with bondholders will often be required through a combination of
- public announcements filed on the exchange where the bonds are listed and the issuer's website; and
- simultaneous notice to the trustee or fiscal agent (as determined by the governing document of the bonds).
Most high-yield eurobonds do not have financial covenants, material adverse effect defaults or cross-defaults to other indebtedness (in the latter case, unless and until there has been an acceleration of the other indebtedness above a threshold amount).
Investment grade bonds, and other bonds that are not high-yield bonds, may include material adverse effect, change of control and cross-default provisions.
Key default concerns in the near term for bonds, whether they are investment grade, high-yield or other bonds which are not high-yield bonds, are likely to be:
- inability to file necessary reports (which may include accounting certifications which may not be made);
- failure to report timely any material developments (if the bond documentation requires such reporting); and
- inability to pay interest or principal.
b. If I need to ask for a waiver or amendment to the terms of bonds issued by my business what steps do I need to take?
Governing documents for bonds will usually have a detailed waiver and amendment procedure. It should be expected that consent from bondholders representing a majority of principal amount outstanding will be required for amendments to noneconomic terms (such as ability to incur additional debt), but that economic terms (e.g. maturity, interest rate, interest payment dates currency) will require 90% to 100%, depending on bond documentation.
Changes to collateral security arrangements may also require super majority consent. The relevant thresholds for bondholder consent will be contained in the trust deed or the indenture of the bonds.
As a matter of first instance, an issuer should have counsel review the amendments and waivers section of the bond documentation, and seek advice of counsel regarding prudent public communications under applicable securities laws and regulations.
c. What is the process for contacting bondholders and holding meetings to agree changes in the terms of my bond documents?
Bonds are held in electronic form via the clearing systems and usually through a custodian who holds the beneficial interest for these bonds on behalf of the end investors. The bonds are also freely traded in the OTC market.
As such, issuers of listed and cleared eurobonds do not generally know who their holders are. To obtain bondholder consent to an amendment, a consent solicitation process will be required. An issuer will typically enlist the aid of a financial advisor and information agent to run a disciplined written consent process via the trustee or fiscal agent.
Bondholder meetings, if required, will be governed by a combination of the bonds' governing documents, the rules of the relevant clearing systems and local statutory provisions.
16. Is the availability of any return to business funding or relief either (a) conditioned on the use of proceeds for green or social purposes or (b) linked to sustainability-related outcomes? If so, what are the applicable purposes or outcomes?
There is no generic requirement as to these requirements. This should be assessed on a case-by-case basis.