Leiden Law Blog

Act on the Collective Settlement of Mass Claims Applies in Insolvency Cases

Posted on by Bob Wessels in Private Law
Act on the Collective Settlement of Mass Claims Applies in Insolvency Cases

During the last decade, the Netherlands has witnessed  several cases of severe distress or insolvency of financial institutions. Earlier this year, SNS Reaal had to be nationalised by the Dutch government, but also the cases of ICESAVE (branch of Landsbanki) and DSB Bank have drawn attention. The insolvency of the latter bank has led to recent changes in the Dutch Bankruptcy Act.

DSB Bank was declared insolvent in October 2009. It  allegedly violated its duty of care towards several thousands of its customers, resulting in tens of thousands of tort claims. In 2011 it became clear that in the DSB insolvency, all these thousands of claims would have to be verified. This would lead to a time-consuming, rather inefficient, costly and burdensome method of verification and validation of each and every one of these claims.

Since 2005 Dutch legislation contains a collective settlement procedure of mass claims on an opt-out basis (Wet Collectieve Afwikkeling Massaschade, WCAM). Its aim is to encourage and facilitate the settlement of multiple tort claims that arise from some earlier event. Under the law, the parties to a settlement agreement (WCAM agreement) may submit a joint request to the Amsterdam Court of Appeal to declare the agreement binding to all parties involved, including all those who may have suffered damages but are not party to the settlement itself. Several requirements must be met, including the requirement that the agreement must be concluded between: (i) one or more parties which have bound themselves in the terms of the agreement to compensate the damages caused by the event; and (ii) a foundation or association representing one or more groups of parties that have suffered damage and for whose benefit the settlement agreement was concluded. Prior to its decision, the court will assess whether the foundation or association representing the injured parties is representative, and whether the settlement is ‘reasonable’. Importantly, if the court decides to declare the agreement binding, it will bind all persons covered by its terms, unless such persons decide to opt out.

Following an evaluation of existing legislation early 2011, a draft bill was published that aimed to encourage parties to negotiate a WCAM agreement. Later in 2011, the Ministry of Security and Justice extended the draft bill to include insolvency situations. According to this bill, the remedies under the act could also be available in the case of bankruptcy.

According to the Ministry, the WCAM proceedings are suitable to replace the costly and time-consuming verification proceedings discussed above. This means that claims will not be compensated on the basis of the individual characteristics of each and every claim as is the case in a common process of insolvency verification. Under the new regime, claimants must first be admitted by the administrator under the common rules of liquidation in bankruptcy. Then, these claimants are  categorised in groups. Finally, their damages are  compensated on the basis of the characteristics of the class to which particular individual claimants belong. Thus, a regime of individual submissions of claims for validation in verification proceedings by each and every creditor is replaced by a regime in which the administrator settles the claims under the WCAM agreement by admitting them to the list of recognised creditors.

Interestingly, the Council of State (Raad van State) questioned whether the new system might be contrary to the principle of paritas creditorum, as in this system, creditors are not entitled to dispute the claims of other creditors under a WCAM agreement once it has been declared binding, and the creditors that are parties under the agreement may not set up a defence against the other group’s claims,. The Ministry, however, countered by arguing that the other creditors were entitled to challenge the validity of all or parts of the WCAM agreement during the collective WCAM proceedings before the Amsterdam court of Appeal. Finally, the winning argument referred to the advantage for the other creditors of disputing the claims in such proceedings compared to the existing Bankruptcy Act allowing for thousands of individual disputes in the verification proceedings.

The Act came into force on July 1 2013, and has amended the Bankruptcy Act on some seven points. It also includes rules regarding notices and downloading a WCAM agreement to make sure that creditors not located in the Netherlands are well informed and can be included in the agreement.

Add a Comment

Name (required)

E-mail (required)

Please enter the word you see in the image below (required)

Your own avatar? Go to www.gravatar.com

Remember me
Notify me by e-mail about comments