The impact of the coronavirus is currently being felt by everyone worldwide. Significant uncertainty regarding the duration of virus-related measures and the ongoing tightening of new measures are raising many questions for entrepreneurs. Frequently asked questions include:

1. Can I appeal to force majeur What if I am unable to comply due to these circumstances?
2. Can I appeal to the unforeseen circumstances What if I am unable to comply due to these circumstances?
3. Does an agreed upon term apply? penalty clause during the coronavirus?
4. Covers the insurance the damage for a period of business closure or event cancellation due to the coronavirus?
5. Can I have another shareholders' meeting keep after the call for social distancing and the ban on gathering in one space?
6. What is the effect on me as a buyer in a business takeover?
7. To what extent can I, as an entrepreneur, rely on support measures from the Dutch government?

Below, we attempt to answer these most frequently asked and important questions regarding businesses and the coronavirus. If you have any further questions about your specific situation or contracts, or other questions regarding the legal implications of the coronavirus, we are happy to help. Please feel free to contact Wintertaling Attorneys & Civil-Law Notaries.

 

 

1. Force majeur

The basic principle of Dutch law is that agreements (contractual or verbal) must be honored. Failure to do so can have various consequences, including the obligation to pay damages under Article 6:74 of the Dutch Civil Code. A question many entrepreneurs face is whether they can invoke force majeure if they are unable to fulfill their obligations due to (the measures surrounding) the Coronavirus.

There are three ways in which force majeure can be invoked:

• The legal arrangement;
• A specific force majeure clause in a commercial contract; and
• A provision in applicable general terms and conditions;

 

Legal regulation

In Dutch law, Article 6:75 of the Dutch Civil Code stipulates the circumstances under which a non-performing party can invoke force majeure. This article stipulates that force majeure exists if a failure to perform cannot be attributed to a party, nor should it be held accountable by virtue of its fault, law, legal act, or generally accepted principles. Simply put, if you are in breach due to external factors and this cannot be attributed to you, force majeure exists. A successful claim of force majeure under Dutch law depends on the specific circumstances of the case and therefore has a high threshold. In all cases, for a successful claim of force majeure, the non-performing party must demonstrate that:

• compliance has become impossible;
• the impossibility of performance is not attributable to that party or its fault;
• consequences of impossibility cannot reasonably be avoided;
• impossibility was unforeseeable at the time the contract was concluded; and
• Neither law nor agreement stipulates that the party should be held responsible for the non-compliance.

It's important to note that the statutory force majeure provision applies to situations in which the debtor is unable to perform. However, it doesn't cover all the consequences for contracting parties who, due to changed circumstances, find themselves in a different position than when they entered into the agreement. For example, if the coronavirus causes a shortage of imported products from China, a Dutch electronics retailer will not be able to invoke force majeure with its customers because the purchase price has increased and they will therefore no longer make a profit. After all, the lack of a profit margin does not make it practically impossible to supply the products. An exception to this principle applies, for example, if the debtor is unaware of or unaware of their obligations.

 

Specific force majeure clause

Many (commercial) contracts contain a force majeure clause (also known as material adverse change (MAC), force majeureor act of god clause, Although not always legally identical, the clause is included. Parties to an agreement can use this clause to contractually expand or limit the legal concept of force majeure. Whether the current coronavirus falls under a force majeure clause depends on the wording of these provisions in the contract and/or the general terms and conditions. Force majeure clauses may specifically mention illnesses, epidemics, or quarantine measures as circumstances for a successful claim of force majeure. However, a general description of the circumstances is more often sufficient: All external causes beyond the company's control. In these latter cases, however, it is not yet certain whether the outbreak of the coronavirus also falls under force majeure circumstances. It is therefore wise to consider these general circumstances in addition to these general ones.catch-all’' provision, to identify (sector) specific external risks, which can, however, be the subject of negotiations - for example, American parties that contract with Dutch parties would like to include floods ('‘flooding’') cannot be included under the MAC concept, because these are risks that are difficult to insure.

 

General terms and conditions

If no force majeure clause has been included in the core provisions of the agreement, in some cases the general terms and conditions can be relied upon. For the general terms and conditions to be applicable, they must be part of the agreement, and therefore offered by one party and accepted by the other. Legally, there is no requirement that a counterparty actually read the general terms and conditions before being bound by them, although stricter requirements apply to consumer transactions.[1]

An example of a force majeure clause in general terms and conditions is:

“15.1. Neither party is obligated to fulfill any obligation under an agreement if prevented from doing so by force majeure. Force majeure includes, but is not limited to, a non-attributable failure to fulfill obligations, including flooding, fire, overheating, dust, terrorist attacks and/or acts of war.

15.2. If the force majeure situation lasts longer than ninety (90) days, the parties have the right to terminate the agreement in writing with immediate effect, without any liability to either party for damages. The parties will settle pro rata for any performance already performed under the Agreement.”[2]

 

A viable defense?

Regarding the coronavirus, there's no clear answer to the question of whether a breach of contract due to the coronavirus constitutes a successful claim of force majeure. This will vary from case to case – for example, a provider of a SaaS service might not readily be able to invoke this, but a parcel service temporarily short of delivery personnel might.

 

Consequences at the political level

The French Minister of Economy, Finance and Justice, Bruno le Maire, has announced that penalties will not be payable if a successful claim of force majeure can be made. A successful claim under French law requires that three conditions are met: unforeseeability, the circumstances must be beyond the control of the contracting parties, and they must result in an impossibility to perform the contract.[3] This makes the French system comparable to the Dutch one.

The Chinese Council for the Promotion of International Trade has announced a similar measure, allowing (Chinese) contracting parties to invoke force majeure in the event of non-performance due to the coronavirus.

The Dutch government has not yet commented on an appeal to force majeure.

 

 

 

2. Unforeseen circumstances

It's more obvious to invoke unforeseen circumstances. It's more common for the terms under which the original contract was concluded to be unreasonable in the current situation than for there to be an actual impossibility to perform. These unforeseen circumstances are regulated in Article 6:258 of the Dutch Civil Code and are an elaboration of the so-called restrictive effect of reasonableness and fairness under Article 6:248, paragraph 2 of the Dutch Civil Code. "Unforeseen" does not mean that circumstances arose that were unforeseeable at the time the contract was concluded, but that circumstances arose for which the contract did not "provide.".

These circumstances must make it unacceptable to leave the contract unchanged. This means that a high threshold applies: if performance of the contract is "merely" undesirable, this is not sufficient grounds for amending the contract. An appeal to unforeseen circumstances should be accepted with caution.

Normally, this means that an economic crisis cannot be invoked as an unforeseen circumstance, because price fluctuations are inherently part of business risk. This is different when such a disruption of the value relationship occurs that a discounted risk can no longer be considered a factor. The latter is the case if a party would experience significant financial and/or business difficulties due to the unforeseen circumstance under a contract that remained unchanged. In that case, an appeal to unforeseen circumstances can be made.

When an appeal to unforeseen circumstances is possible, the ultimate goal is for the judge to restore the balance disrupted by the unforeseen circumstance, taking into account the changed situation. The judge will then amend the contract in such a way that the risk for the party that can successfully invoke the unforeseen circumstances can be limited. A basic principle here is that the loss is divided 50/50.

 

 

 

3. Penalty clause

Commercial contracts regularly include penalty clauses stipulating that a party will be liable to pay a penalty in the event of an attributable breach of contract (breach of contract). The wording of the penalty clause in the contract determines how and when a party is liable to pay a penalty. In the current situation, the coronavirus can hinder the fulfillment of obligations and thus trigger the penalty clause. In cases where parties invoke the penalty clause, they can be challenged in court using the following arguments:

(i) the penalty clause should be declared inapplicable on the grounds of reasonableness and fairness;

(ii) the amount of the fine should be reduced because fairness so requires.

Moreover, a successful appeal to force majeure (see under force majeure) may mean that there is no breach of contract. As indicated above, the Dutch legislature or courts have not yet addressed a specific COVID-19 situation in which a penalty is invoked.

 

 

 

4. Insurance

Can your company claim on its business insurance for damages resulting from a significant drop in production or even business closure due to the coronavirus? Business interruption insurance often provides short-term coverage for the loss of company income due to damage or loss to company buildings.

Damage resulting from a major disease outbreak, such as the coronavirus, is often excluded. This means that—depending on the circumstances of the case—the damage, production decline, and company closure period resulting from the coronavirus are likely not covered by these insurance policies. For example, the terms and conditions of Rabobank/Interpolis's business interruption insurance policy state that adverse consequences resulting from viruses are not covered.[4] Nationale Nederlanden also does not insure damage caused by the coronavirus, as there is no "material damage".[5]

In addition, Dutch hospitality businesses will only be allowed to open if they offer takeout or delivery. Events where people gather are also prohibited due to current regulations.[6] If a successful appeal to force majeure cannot be made for these cancellations, the business owner will be held liable for the damages. This raises the question of whether the business owner can recover damages from insurance.

In that case, there are several options: for example, you could rely on liability insurance, cancellation insurance, event insurance or credit insurance.

Whether these insurances will also cover event cancellations due to the coronavirus depends on the applicable policy terms. Businesses should consider the following:

• How is the insured event described in the policy provision?
• is government intervention required for cancellation?
• Is damage caused by an outbreak of epidemics or pandemics excluded?
• What is the amount insured?
• what is your deductible?
• What are the damages and total costs covered in the event of an insured event?

In practice, some policy provisions will exclude damages resulting from cancellation due to an outbreak of illness and in cases of epidemics and pandemics. This means that, in the current situation, not all damages resulting from event cancellations due to the coronavirus will be covered.

 

 

 

5. Shareholders' meeting

The call for everyone to adhere as much as possible to social distancing and the ban on gatherings of 100 people may also have consequences for general meetings of shareholders (GMs).

Dutch law does not stipulate a minimum number of people required to be present at a shareholders' meeting. In theory, the presence of one shareholder is sufficient. However, the articles of association may make exceptions to this minimum, and for companies with multiple shareholders, this is often the case for certain resolutions. Therefore, carefully review your articles of association before convening the general meeting.

Another way to respond to the call of social distancing is organizing a digital AGM. This means, for example, organizing a AGM through a conference call, Skype, FaceTime, or Zoom. Article 2:227a of the Dutch Civil Code stipulates that if a company wishes to use a digital shareholders' meeting, the articles of association must explicitly permit this. Often, the articles of association simply state: `(..) that every shareholder is entitled to participate in the general meeting, to speak at it and to exercise his voting rights, either in person or by written proxy, by means of electronic communication.´ In addition to an explicit provision in the articles of association, other requirements must also be met: shareholders must also be identifiable via electronic communication, be able to take direct note of meetings and exercise their voting rights there.

Finally, Dutch law, Article 2:238 of the Dutch Civil Code, also allows for decision-making outside the AGM, i.e., written decision-making. However, all shareholders must agree to this method of decision-making – the standard statutory majority requirements apply for approval of the resolution.

 

 

 

6. M&A

MAC clauses are often used in acquisition contracts (material adverse changeThe purpose of these MAC clauses is to protect the buyer against material deterioration in the (financial) position of the target company in the period between signing (closing the purchase agreement) and completion (delivery of the shares) to the extent that these moments are separate, for example, to obtain approval from the Netherlands Authority for Consumers and Markets (ACM). The wording of the MAC clause is decisive in determining whether a business interruption due to the coronavirus falls under the MAC clause. An example of a MAC clause is:The Seller's obligation to make Delivery is subject to the following requirements prior to Completion: (…) that no MAC has occurred since the date of this Agreement.´ Now let's hope that the lawyers have formulated the MAC clause in such a way that the Coronavirus is covered by it.[7]

In addition, MAC clauses are generally formulated in such a way that causes outside the company does not fall under the exceptions. In our opinion, the generality of the Corona crisis is therefore usually not under the exception. Then we must return to the general Dutch law concepts of force majeure and unforeseen circumstances (see above).

Example of a MAC clause:

A Material Adverse Change is an adverse effect relating specifically to the Companies, which is materially adverse to the Group Business and leads to a significant deterioration of the net consolidated operational annual results of the Companies, other than an effect or change that is (i) related to information made available for the due diligence investigation, (ii) applicable to economies in general or the industry in which the Companies operate, (iii) the result of a change in applicable law, case law and/or generally accepted accounting or tax principles, (iv) the result of an instruction by or approval of Buyers, (v) political conditions (including changes arising out of acts of terrorism, sabotage, armed hostilities or war), weather conditions or other force majeure events, (vi) any loss of, or adverse change in the relationship with, employees, customers or suppliers of the Group Business directly or indirectly caused by the announcement of the Transaction or any other transactions contemplated by this Agreement, whereby in all events the adverse effect shall be balanced against any positive effects or changes which have occurred since that date

In good Dutch:

A Major Setback is a setback specific to the Companies that has an impact on the Group company and leads to a significant deterioration in the net consolidated group result in the annual accounts of the Companies, other than matters which (i) relate to matters disclosed in the course of the due diligence investigation, (ii) affect the economy as a whole or the industry in which the Companies operate, (iii) result from a change in law, relevant case law or generally accepted accounting principles or tax bases, (iv) result from an order or an agreement by the Buyers, (v) consist of political circumstances (including changes resulting from terrorism, sabotage, armed conflict or war), weather conditions or other force majeure events, (vi) result from losses or setbacks in relations with employees, customers, suppliers of the Group Company caused directly or indirectly by the announcement of the Transaction or any transaction contemplated by this Agreement, and in each case the deterioration will be reduced by any positive effects which have accrued since the date of the setback.

 

 

 

7. Government measures

The above shows that many questions regarding the impact of (the measures surrounding) the coronavirus are still unclear or require specific assessment on a case-by-case basis. However, the Dutch government has announced a package of measures to mitigate the economic impact of the coronavirus.[8] All measures the government has taken to preserve employment that entrepreneurs and businesses can use are listed on the government's website.[9] Two important emergency measures that can support businesses and entrepreneurs during the coronavirus pandemic will be highlighted below.

One of the measures is the accelerated opening of the extended SME guarantee scheme (hereinafter: BMKB) [10]. This scheme has been in effect since March 16, 2020, and will remain in effect until June 30, 2022. Businesses can use the BMKB as a bridging loan or to increase their current account credit, i.e., the amount they are allowed to overdraw. This expansion is essential for the liquidity of smaller businesses that will now lose income or production due to the coronavirus. The Ministry of Economic Affairs and Climate Policy (hereinafter: Ministry of Economic Affairs and Climate Policy) guarantees the loans to businesses through the BMKB scheme, making it easier for them to borrow money. Businesses can apply for this through lenders. Under the regular scheme, the guarantee loan amounts to 50% of the loan provided by the bank. The government guarantee amounts to 90% of this guarantee loan. This expansion measure increases the amount of the guarantee loan in the BMKB from 50% to 75%. This makes it easier and faster for banks to extend credit, and gives companies the opportunity to borrow more money sooner.

A second emergency measure being worked on is the establishment of a new Temporary emergency bridging measure for job retention (NOW).[11] This measure will replace the current working time reduction measure (WTV), which was withdrawn effective immediately (March 17, 2020). Employers of companies of all sizes (small, medium, and large) can apply for a substantial contribution to wage costs under this new measure.

The scheme allows employers who are facing at least a 20% expected loss of turnover due to the coronavirus to apply to the Employee Insurance Agency (UWV) for a three-month wage cost compensation for employees with permanent and flexible contracts. This three-month period can be extended once by another three months, but employers may need to meet additional conditions. The amount of the wage cost compensation depends on the loss of turnover and will amount to a maximum of 90% of the wage bill. For example, if turnover falls to 100%, the compensation will be 90% of the wage bill; if turnover falls to 50%, the compensation will be 45% of the wage bill. This compensation allows employers to continue paying their employees even during periods of turnover loss due to the coronavirus. This new compensation scheme will also apply to the wage costs of employees with on-call contracts and agency workers, for whom the employer is therefore not obligated to continue paying wages. During the period in which the employer receives compensation under this measure, they may not apply for dismissal for their employees on economic grounds.

It is not yet possible to submit a NOW application. Applications can be submitted through the Employee Insurance Agency (UWV) as soon as the start date of the NOW scheme is known. It is clear, however, that the scheme will apply to employers' turnover declines from March 1, 2020. As of March 17, 2020, applications for the reduced-time working scheme will no longer be accepted. All applications already submitted for the reduced-time working scheme will be considered applications for the new scheme; additional information may be requested.

 

_______________________________

[1] Art. 6:232 BW yo. Art. 6:235 yo. Art. 6:233 sub B BW.

[2] https://www.parentix.nl/wp-content/uploads/2018/05/Algemene-voorwaarden-General-Terms-and-Conditions-v2_3-NL-EN-U….pdf.

[3] https://www.maire-info.com/coronavirus/covid-19-et-marches-publics-bruno-le-maire-encourage-la-reconnaissance-de-la-%C2%A0force-majeure–article-24010. Bruno le Maire speaks of imprévisibilité, extériorité and irrésistibilité as regards the requirements for force majeure.

“Concrètement, if you are an entrepreneur of BTP, “a delay in the execution of the contract during the first months of the year and the production premieres in the course of a certain period of salary”, it is a matter of retardation “sans aucune pénalité“, at-il illustré.” https://www.francetvinfo.fr/sante/maladie/coronavirus/coronavirus-comment-le-gouvernement-entend-il-aider-les-entreprises-face-a-l-epidemie_3858871.html.

[4] https://www.rabobank.nl/images/SVZ-PV-01-201_291008245.pdf

[5] https://www.nn.nl/Coronavirus-COVID19.htm#zakelijkeschadeverzekering

[6] Valid from March 23, 2020, see website National government.

[7] Read also https://www.nrc.nl/nieuws/2020/03/19/het-grote-deal-breken-is-al-begonnen-a3994255.

[8] Parliamentary Papers II 2020, 20077147 (Parliamentary letter of 17 March 2020 regarding the emergency package for jobs and the economy)

[9] See https://www.rijksoverheid.nl/onderwerpen/coronavirus-covid-19/veelgestelde-vragen-over-coronavirus-voor-werkgevers/financiele-maatregelen.

[10] https://www.rijksoverheid.nl/actueel/nieuws/2020/03/17/coronavirus-kabinet-neemt-pakket-nieuwe-maatregelen-voor-banen-en-economie.

[11] https://www.rijksoverheid.nl/actueel/nieuws/2020/03/17/coronavirus-kabinet-neemt-pakket-nieuwe-maatregelen-voor-banen-en-economie.