# A dividend was paid and the company cannot meet its debts with bank financing already in place
A dividend already paid and a company that cannot meet its debts creates two problems on separate clocks: the bank financing already in place may move into default on its own contractual terms, and the distribution itself may be recoverable if it failed the applicable test when it was made. This applies to the board, the recipient of the dividend and the bank holding the facility, not to a distribution already reversed voluntarily. Standing still lets both problems mature together.
What happens if you do nothing
The facility agreement runs on its own terms regardless of what caused the shortfall. A financial covenant breach typically triggers a notice duty and, if uncured, a right for the bank to accelerate. A cross-default clause can pull other facilities into the same default even where those facilities were never themselves breached. In parallel, a director's exposure for approving or permitting the distribution is measured from the day the board knew, or should reasonably have foreseen, that the company would not meet its debts, and that day does not move because nothing was done about it. Waiting narrows the routes still open once the bank or another creditor moves first.
The routes
| Route | What it takes | Time | Cost driver | What it gives you |
|---|---|---|---|---|
| Engage the bank now | Disclosure of the distribution and the current cash position, followed by a waiver or standstill letter | Days to a few weeks, depending on the bank's own credit cycle | Advisory and drafting time, plus any amendment fee the facility agreement itself sets | Continued access to bank financing already in place while the shortfall is addressed |
| Recover the distribution | A negotiated repayment or a civil claim against the recipient, built on the distribution test applied at the time | Negotiated: weeks. Litigated: months to over a year | Negotiation cost, or court fees scaled to the claim if litigated | A restored balance sheet able to support renewed compliance with the facility |
| Restructure the debt position | A plan that classes the creditors, including the bank if drawn into it, prepared while the company can still meet the entry test | Several weeks once prepared, longer if a class contests it | Process and legal cost of preparing and running the plan, not a court fee in the usual sense | A binding arrangement that can bind a dissenting class, including the bank |
What decides between them
Which route fits depends on facts specific to this situation. If the bank has not yet identified the distribution as a covenant issue, a direct conversation with relationship management is usually the fastest way to keep bank financing already in place on foot, and far cheaper than a contested process. If the recipient still holds the funds, or can be shown to have known the company's position, a recovery claim has more practical value than if the funds have already moved on. Where creditors beyond the bank are exposed and the shortfall is structural rather than timing, only a restructuring plan reaches all of them at once, this being now a matter for corporate law and governance in the Netherlands rather than banking relationship management alone. A related fork arises where a drag-along is triggered and a minority shareholder resists it while the same financing sits behind the transaction: it turns on who controls the process, not on who is technically right.
The deadline that runs
No single statutory date governs this situation, and no public figure exists that would let you calendar it in advance. Two clocks run instead. The first is contractual: the notice and cure period fixed in the facility agreement once a covenant is breached, a matter of what that agreement says, not of Dutch law generally. The second is factual: a director's exposure is measured from the moment the board knew, or should reasonably have foreseen, that the company could not meet its debts, established after the event from the board's own papers. A limitation period applies to a recovery claim against the recipient; no confirmed period is available here, so treat the claim as time-limited rather than open-ended.
Evidence to secure now
Board minutes recording the distribution decision, and whatever balance sheet and liquidity test was applied before payment, are the first documents to locate. The facility agreement itself, with its covenant package and any cross-default clause, decides whether the distribution is a default trigger at all. Correspondence with the bank around the time of the distribution shows what it knew and when. Management accounts prepared afterwards establish the point at which the shortfall became visible, which matters more than its ultimate size. Where the group includes a foreign entity financed through the same facility, a current picture of that structure, of the kind set out in a group map for a German group entity, shows whether the shortfall is confined to the Dutch entity or runs through the group.
Cost drivers
A negotiated waiver with the bank costs advisory and drafting time, plus any amendment fee the facility agreement itself sets; no public figure exists for that fee, since it is set bank by bank and not published. A recovery claim against the recipient costs less if negotiated than if litigated: litigation in a Dutch court adds court fees scaled to the claim value, on top of the time a contested claim takes. A restructuring plan's cost is driven by how many creditor classes it must bind and whether any class contests it, so a plan built around the bank alone costs less than one drawn to bind trade creditors as well. Where the financing itself has been questioned as debt in substance, for example because the financing structure is recharacterised as equity across a border, the cost driver shifts from process cost to the tax exposure that recharacterisation creates.
What we would do in the first week
Locate the board minutes and the test, if any, applied before the distribution was approved. Pull the facility agreement and check, clause by clause, whether the distribution or its consequence is a default trigger under bank financing already in place. Build a short-term cash forecast against actual payment obligations, not against the balance sheet as a static snapshot. Decide, on that basis, whether this is a bank conversation, a recovery claim, both, or a wider restructuring question. If a director's own exposure is already in view, take that assessment through to a review of wrongful-act liability against a director before the position hardens, not after.
What this does not cover
- The tax treatment of the distribution itself, a separate question from whether it can be recovered.
- Formal insolvency proceedings already opened, which run under a different procedure with different deadlines.
- A facility agreement governed by a law other than Dutch law, where the covenant and default analysis will differ.
- Criminal exposure connected with the distribution.
- Exact figures for court fees, bank amendment fees or restructuring process costs, none of which is confirmed for this situation.
Questions
Does paying a dividend automatically put a bank facility in default?
No. A facility only goes into default if the distribution breaches a covenant, a cross-default clause or an express restriction written into that facility agreement, so the first step is to read the agreement, not assume its effect.
Can the company recover the dividend from the shareholder who received it?
A recovery claim is available where the distribution failed the applicable distribution test at the time it was made, but its value depends on what the recipient still holds and on whether the board's own knowledge at the time can be shown.
Is a restructuring plan the right route where only the bank is affected?
Usually not. A restructuring plan is built to bind several classes of creditor at once; where the bank is the only exposed party, direct negotiation is faster and carries a lower process cost.
About this material
Written by Eva Kuipers, who works on governance and Enterprise Chamber matters at Nolthenius & Partners, with a focus on board decisions taken under financial pressure and their downstream exposure for directors.
This situation sits within the group reorganisation service, where a distribution that has outrun the company's ability to pay is a recurring trigger for a wider reorganisation of the financing and the group structure. Where the picture needs to be established rather than assumed, a structure report sets out the group's financing and ownership position as it currently stands.
Last legal review: 2026-09-30