Consumer confidence has never dropped so fast and the IMF expects an economic downfall of 7% due to the corona epidemic. Revenues will therefore structurally decline after May 2020, while financial Dutch government support (such as the NOW regulation) will eventually come to the end. In order to guarantee the continuity of your business in The Netherlands it is very important to proactively look at what legal (emergency) measures you yourself can already take as an entrepreneur. This blog therefore contains the best and most Dutch effective legal anti-crisis measures.
1. Active credit management
Unfortunately, the time has come when the person who squeaks the loudest, in case of late payments by debtors, is the first to get paid. A strict credit management ensures healthy liquidity.
It is advisable not to hire a debt collection agency right away when confronted with a with a non-paying client. Rather use the following step-by-step plan:
- Payment term expired? Send a friendly payment reminder within a week.
- Still no payment received a week later? Call your client, personal contact significantly increases the chance of payment and perhaps an early arrangement can be made.
- If payment is still not forthcoming, send a second or final reminder and clearly indicate this at the top of the letter and also state that a collection fee of € x will be added if payment is not forthcoming. Be specific!
- Only when the client is still refusing to pay, it is smart to hire an external debt collecting agency. They can help you get your invoice paid. However, do ask about the costs in advance, as well as whether the costs will be recovered from the client.
2. Strengthen payment terms as well as your general terms and conditions
Check whether your general terms and conditions contain the correct provisions on additional extrajudicial and judicial collection costs. Also make sure that your general terms and conditions are declared applicable in your order confirmation or, at last, in the agreement, otherwise they cannot protect you in a dispute because the conditions are no part of the agreement. Referral to the terms on your invoice is too late under Dutch law!
Next, take a good look at the standard payment term you mention in your invoices and/or general terms and conditions and shorten it if necessary to improve your liquidity. This is only possible when there is no other long-term agreement about the payment term. If you do business with the government, a statutory shortened term of 30 days now applies as a result of European regulations, so you do not have to accept a longer term!
The legal deadline for large companies to pay the bills of their SME suppliers will soon be shortened from 60 to 30 days due to a European guideline which will be Dutch legislation soon. However, when the amendment will enter into force is not yet clear.
If you don’t like chasing debtors and want to maintain a high level liquidity, consider factoring in connection with a calamity credit insurance. The importance of cash during this (upcoming) crisis can’t be underestimated.
A factoring company takes over your credit management and your debtors so you send the invoices through their system and they collect these invoices. The debtor pays on their bank account. They pay you instantly the invoice as soon as it is send, for example, 80% in advance. They charge a certain factoring fee which they pay from the collected invoices.
With an additional credit insurance you protect your company against the damages of possible unpaid invoices. Credit insurance does not prevent customers from not paying their invoices, but the credit insurer takes care of the consequences for you. Do read the insurance- as well as the factoring agreement thoroughly. All kinds of situations are excluded from payment and to avoid disappointment it is important that you check this carefully when entering into such agreements. Whether factoring and/or insurance will be a solution for you depends on the specific circumstances. The corona pandemic will probably be integrated into new agreements. It is possible that factoring or insurance might not even be an option for companies in certain sectors.
4. Timely legal action against breach of contract
Many companies are facing financial problems at this moment because of a significant drop in revenue duo to the coronavirus (measures). For this reason, clients are often trying to save as much money as possible by ending (long-term) contracts. These are often contracts that are not essential for realizing revenue, and/or can be done themselves. Some contractors accept the temporary ‘pause’ of a contract under the threat of a complete termination. However, this is not always contractually possible. Of course, turning a blind eye is a good way to maintain the relationship, but watch out: they might take advantage of you. If you agree out of goodwill, for example with the fact your counter party temporarily does not have to purchase, pay or otherwise comply, always do so “subject to all rights and exclusions”. Also add the condition that the contract will be extended with the period of suspension. You may also consider requesting (additional) security for later performance, especially if it concerns a payment obligation.
Of course, you also have the right not to go along and simply demand compliance. In that case it is relevant whether corona gives the other party a right to suspend, cease performance or terminate the agreement. If this is not the case, it simply is a breach of contract and building up a decent file will be important. The following legal questions could play a big role;
- Is there a right of suspension?
- Is the lack of performing attributable?
- Could it be force majeure?
- Are there any unforeseen circumstances?
- Is it reasonable and equitable to demand compliance?
- Is there a creditor default (schuldeisersverzuim)?
In short, please let an expert take a look at the situation before you act or react against a breach of contract, but do react timely and build up a decent written file. It will definitely come in handy when you, unexpectedly, end up in court. Of course you don’t want to incur too many legal costs, but an analysis of your files and a letter of summons aren’t that much work when the case isn’t too complex. It will be worthwhile in the negotations if you have something to fall back on. The (financial) importance of the contract also determines to what extent the legal costs are reasonable.
5. Adjust general terms and conditions
This is the time to make your terms and conditions more crisis-proof. In B2B relationships there is a lot of freedom of stipulate whatever is needed to protect your legal position and company interests. So you can very well strengthen your legal position as a supplier, contractor, landlord, service provider, etc. by setting up your general terms and conditions in a certain way. You can extend your legal and contractual rights and you can also exclude or limit certain legal rights of your counter party. For example, take the right of retention of the delivered products, very important if your customer goes bankrupt. In that case, you can simply remove the delivered products from the bankruptcy estate if your invoices have not yet been paid. You can also exclude, set-off, suspend and dissolve rights of the counter party and so on. Of course, you can also arrange the payment terms and determine the collection costs if the payment has not yet been made.
In short, now is the time to adjust your general terms and conditions in such a way your legal position is more secured so you can rely on it if necessary. Th set can even be used for a stronger position in negotiation. After all, you always try to come to an agreement first, before ending up in court.
6. Reduce personnel costs jointly or unilaterally
Instead of a major reorganization, it is always possible, with the express consent of your employees, to reduce certain personnel costs. Fortunately, the percentage of the salary costs that will not be taxed in 2020 has been extended. So make use of this to give something in return to your employees. That may offer some extra air, but it may also be necessary to eliminate certain costs. Of course, take a good look at the impact on the motivation of your employees. It can do more harm than good.
Under certain circumstances and certain conditions, you can also make a one-sided change in the terms of employment, but let a labor law expert first give you proper advice. This is tricky business, but under the right conditions it’s not impossible.
7. Reorganization after the NOW-regulation period
By far the most effective way to save wage costs is to reduce your workforce and adapt it to the lower turnover. If you receive a NOW subsidy, it is important to submit the application after 31 May 2020. Performing a reorganization during the first stage of the NOW period will be detrimental to the level of compensation. The ‘penalty’ for making an application for dismissal due to economic reasons does not come in the form of a refusal of the NOW subsidy, but in the form of a fine (= reduction) on the NOW subsidy. On our NOW webpage you can find all useful information about the NOW.
The minister of Social Affairs and Employment, Wouter Koolmees, has recently announced that the NOW arrangements will be extended for June, July and August. An interesting addition to this is that the 150% ‘penalty’ for dismissing employees will not recur in the extended rules concerning the NOW. The exact conditions of the extended arrangements will most likely be presented no later than the first of June 2020.
When is reorganization allowed?
Dismissal for economic reasons is possible if there is a structural reduction of your revenue or of your work (period of at least 26 weeks). Also dismissal might be possible if, for technical or organizational reasons, you want to organize your workforce differently and jobs are lost in the process.
In doing so, a correct order must be used with regard to the application for dismissal (principle of reflection). The employer must also prove that it’s not possible to redeploy these employees to another position. Always consider a Dutch legal labor law expert because the Dutch rules for reorganization on economic grounds are very complicated. Above all, a request for dismissal from the UWV takes quite some preparation, it takes at least 4 to 5 weeks to do this. Especially when you have to ask an OR (Works Council) for advice and you will have to involve the union! Therefore, start asking for advice to a labor law expert and start to collect the necessary documents etc. already in May 2020 if you want to file a request ultimately in June 2020.
Of course it is always better to arrange the farewell by means of (a social plan in combination with) a settlement agreement. It goes without saying that the right approach can also prevent your staff from frustrating your reorganization by taking sick leave. Dismissal of sick employees is prohibited in the Netherlands.
8. Compensation for disadvantages
Consider claiming disadvantage compensation from your municipality if emergency regulations were far too strict. For example, your region was not concentration of Corona outbreaks but everything had to be closed and so did your business, causing your turnover to drop unnecessarily. This could be a long shot but it might be a solution to receive some damages. You can always request a feasibility recommendation from a lawyer.
9. Regulating the relationship between the holding and the operating companies
In times when bankruptcies are lurking again, it is important to check whether you have recorded some of the most essential internal agreements in writing between your holding and operating companies. Think of your current account balances, guarantees, loans, renting out business premises, etc. And if you have these agreements, have them checked to see if they offer sufficient security to protect your assets and private possessions in worse times and unexpected bankruptcies of your operating companies. Check whether these situations are sufficiently recorded in writing with the correct securities.
Furthermore, secure your valuable assets by transferring them, for example, to your holding company (but in a fiscally correct way) in good times, in case of bad times.
10. Legal form and partnerships
In the case of a one man business, a personal association, consider switching to a B.V. (the Dutch limited) while this is still possible. This will protect your private assets much better against business creditors. Of course, it can be fiscally unattractive (under a certain profit), but at least consider it. Perhaps pay a little more now, but be protected in private or pay less now, but lose everything later on.
If you are going to do business with more than one shareholder in a limited, please check whether a shareholder agreement is being concluded. Provision will also have to be made there for worse times with, for example, stipulations on share offer obligations (in the event of personal bankruptcy or debt restructuring), on dividend payments and policy, adjustment of management fees or employment benefits in worse times, extra capital injections or loans for work capital to the limited from shareholders, etc.
Questions or advice?
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