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Ingrid de Wilde |
Angelique Thiele |
In March 2011 a bill was published for consultation to extend the powers of the Dutch Central Bank (DNB) and the Dutch Minister of Finance to intervene in credit institutions, special purpose reinsurance vehicles and insurers that are experiencing "serious irreversible problems". The bill, referred to as the Intervention Act, is intended to fill the gap between already existing statutory powers with a view to preventing financial institutions from getting into financial difficulties and, at the other end of the scale, existing rules with respect to emergency regimes and bankruptcy of financial institutions.
The proposed Intervention Act gives the DNB the right to transfer (in whole or in part) deposits, assets and liabilities or shares in the capital of a financial institution experiencing irreversible financial problems to a third party by means of forced transfer in a situation where the financial institution still conducts its business.
If a situation arises where the stability of the financial system is under immediate serious threat, the Dutch Minister of Finance can decide to expropriate (part of) the financial institution or to intervene in its business, for example by temporarily revoking shareholder voting rights and suspending powers of the management board or supervisory board of the financial institution concerned.
A transfer of assets by the DNB is subject to the approval of the competent district court, including an approval of a reasonable transfer price. The expropriated parties will have a right to be compensated, the amount of compensation to be calculated according to further rules set out the Intervention Act.
The bill intends also to take into account the provisions of the EU Framework for Crisis Management in the Financial Sector (COM(2010) 579), which is part of the European Commission's action plan towards a more comprehensive legislative framework for dealing with failing banks.
The Intervention Act contains a number of broadly phrased provisions, which restrict the rights of contracting parties under agreements with the financial institution, by limiting their right to invoke certain provisions included in such agreements in case of a measure under the Intervention Act being taken. The aim of these provisions is to prevent a measure under the Intervention Act triggering an event of default or notification event, or even a cross default under agreements entered into by the financial institution concerned, as a result of which the counterparty would have the right to terminate the relevant agreement.
In practice, Dutch financial institutions are party to numerous financial agreements governed by foreign law (such as English or New York law). To ensure as much as possible that the provisions of the Intervention Act will have effect in case an agreement is governed by foreign law, an express section has been added stipulating that, in short, these rules qualify as mandatory rules that must be applied regardless of any choice of law made by parties within the meaning of the European regulation on the law applicable to contractual obligations (Rome I).
The Intervention Act also contains provisions to the effect that, in principle, in case of a forced transfer as discussed above, shares of the financial institution in question will be transferred or expropriated unencumbered. Security rights, rights of usufruct or any attachments made on these shares are converted into a right to receive (part of the established) transfer price, or in the case of expropriation in a right to receive damages in accordance with the further provisions of the Intervention Act.
All in all, it can be concluded that the rights of contracting parties of, or investors in, a financial institution that has become subject to measures as referred to in the Intervention Act will be quite severely restricted. Although this undoubtedly serves a purpose in giving the DNB or the Dutch Minister of Finance the flexibility necessary to try to prevent a true insolvency scenario where possible, it is expected that market participants will try and exercise pressure to limit the scope of these rules, albeit with an uncertain chance of success.
Ingrid de Wilde and Angelique Thiele