INSOL VENCY OF PUBLIC ENTITIES OTHER THAN THE STATE UNDER DUTCH LAW Johannes A F. Peters and reinout D. Vriesendor IV DI Introduction The question of whether a govemment can go bankrupt in the Netherlands is not a new one. The Supreme Court, for example, was asked as early as 1922 whether a municipality(in this case, Wormerveer)could be decared bankrupt. Through the appeal in cassation, the court did not reach a principled verdict in this matter. Ever since, it has remained a vexed question that regularly kept rearing its head, both in the literature and in case-law. There were some striking cases in which bankruptcy proceedings were filed against a foreign state, such as the Republic of Zaire 2 and the Republic of Surinam In both cases, immunity was assumed on account of the infringement of sovereignty of the state in question. But the question of the position of Dutch public entities-leaving the State of the Netherlands aside-is certa inly still in order at the present time Does a bankruptcy belong to the possibilities for a lower govemment that finds itself in serious financial problems? hat could be done if the prelim inary financing of the Victory Boogie Woogie(more than EUR 36 million!) by the municipality of The Hague had gone awry? What was the situation like when the Dutch province of Zuid-Holland incurred a financial setback running into millions in the Ceteco affair?5 What would happen if the municipality of Enschede were held liable for the many victims of the fireworks disaster in May 2000?6 What will be the consequences of the millions lost in the Dutch province of Gelderland a result of actions by events organizer Gelderland Events?7 In this contribution, the issue is approached from two perspectives. First, the concept of government'is too vague and must be defined more closely( 2 ). The Johannes A. Peters s(university) lecturer of administrative law and Reinout D. Vriesendorp ofessor of civil and commercial law at the Faculty of Law, Center for Company Law, University of Tilburg. the netherlands. Hoge Raad [ Supreme Court]23 June, 1922, W.10933, NJ1922, P 1030 See Jacomin J. van Hof, Barbara Reinhartz, and Liwen Veraart De faillieterklaring van Zaire [The bankruptcy of Zaire), NB 1988, pp. 636-637, and Hof Den Haag [The Hague Court of Appeal18 February 1988, NJ1989, p 602 3 Hoge Raad [ Supreme Court 28 September, 1990, NJ1991, P 247 This concemed the md-1998 purchase of the famous Piet Mondriaan painting by De Nederlandsche BankNV'[The Dutch Central Bank]as a present to the Dutch people. This was a type of risk investment involv ing serious losses, of govemment funds by the ov ince in the commercial trade corporation bank Cetec N V. which was declared bankrupt. As to possible bankruptcy consequences for the province of Zuid-Holland nvolved, see B. Wessels, Kan en provincie faillietgaan? [ Can a province be declared bankrupt?]. NTBR 1999/9, pp. 289-291 On May 13, 2000, the SE Fireworks factory, in the centre of Enschede, exploded, killing 22 people and caus ng enormous damage in the city of Enschede. One of the causes seems t have been gligence on the part of the 7. Gelder land Event s a commercial company which, us ng govemment money supplied by the province of Gelderland, was ping to put the prov nce on the map, an adventure n whch the rovince invested, and possibly lost, several million of euros( November 2001)
INSOLVENCY OF PUBLIC ENTITIES OTHER THAN THE STATE UNDER DUTCH LAW Johannes A.F. Peters and Reinout D. Vriesendorp* IV D 1 1 Introduction The question of whether a government can go bankrupt in the Netherlands is not a new one. The Supreme Court, for example, was asked as early as 1922 whether a municipality (in this case, Wormerveer) could be declared bankrupt.1 Through the appeal in cassation, the court did not reach a principled verdict in this matter. Ever since, it has remained a vexed question that regularly kept rearing its head, both in the literature and in case-law. There were some striking cases in which bankruptcy proceedings were filed against a foreign state, such as the Republic of Zaire2 and the Republic of Surinam.3 In both cases, immunity was assumed on account of the infringement of sovereignty of the state in question. But the question of the position of Dutch public entities - leaving the State of the Netherlands aside - is certainly still in order at the present time. Does a bankruptcy belong to the possibilities for a lower government that finds itself in serious financial problems? What could be done if the preliminary financing of the Victory Boogie Woogie (more than EUR 36 million!) by the municipality of The Hague had gone awry?4 What was the situation like when the Dutch province of Zuid-Holland incurred a financial setback running into millions in the Ceteco affair?5 What would happen if the municipality of Enschede were held liable for the many victims of the fireworks disaster in May 2000?6 What will be the consequences of the millions lost in the Dutch province of Gelderland as a result of actions by events organizer Gelderland Events?7 In this contribution, the issue is approached from two perspectives. First, the concept of `government' is too vague and must be defined more closely ( 2). The * Johannes A.F. Peters is (university) lecturer of administrative law and Reinout D. Vriesendorp professor of civil and commercial law at the Faculty of Law, Center for Company Law, University of Tilburg, the Netherlands. 1. Hoge Raad [Supreme Court] 23 June, 1922, W.10933, NJ 1922, p. 1030. 2. See Jacomijn J. van Hof, Barbara Reinhartz, and Lidwien Veraart, De faillietverklaring van Zaïre [The bankruptcy of Zaire], NJB 1988, pp. 636-637, and Hof Den Haag [The Hague Court of Appeal] 18 February 1988, NJ 1989, p. 602. 3. Hoge Raad [Supreme Court] 28 September, 1990, NJ 1991, p. 247. 4. This concerned the mid-1998 purchase of the famous Piet Mondriaan painting by De Nederlandsche Bank NV [The Dutch Central Bank] as a present to the Dutch people. 5. This was a type of risk investment, involving serious losses, of government funds by the province in the commercial trade corporation bank Ceteco N.V. which was declared bankrupt. As to possible bankruptcy consequences for the province of Zuid-Holland involved, see B. Wessels, Kan een provincie failliet gaan? [Can a province be declared bankrupt?], NTBR 1999/9, pp. 289-291. 6. On May 13, 2000, the SE Fireworks factory, in the centre of Enschede, exploded, killing 22 people and causing enormous damage in the city of Enschede. One of the causes seems to have been negligence on the part of the municipal authority. 7. Gelderland Events is a commercial company which, using government money supplied by the province of Gelderland, was going to `put the province on the map', an adventure in which the province invested, and possibly lost, several million of euros (November 2001)
PETERS/VRIESENDORP second perspective concerns the aim, size, and working method in the case of bankruptcy( 3-4). By eventually making the perspectives converge, we can shed some light on the question of whether a government can go bankrupt in the Netherlands and respond to the questions posed in the Questionnaire( 5) Governments in sha pes and sizes If there has ever been a clearly defined idea of what government'is, in the present-day socal constellation, it is a vague concept. Not only new steering mechanisms like self-regulation and competition, but also socal ordering and role pattens like privatization and liberalization have caused a large number of actors to become involved in public tasks. Since these tasks, which concern the public interest, 8 are carried out by organization foms perta ining either to public or to private law, a clearly delim ited definition of govemment cannot be given, let alone in one form or another, an organogram That does not mean to say, however, that no kind of ordering can be applied with respect to the executors of public tasks. Three distinctions can be made which can be relevant in the framework of the problems under discussion 6 public-law and private-lawentities b. implementation of tasks and exercise of powers, c. exclusively public activ ities or also perfomance of other commercial activ ities 2.1 Public-law and private -law legalentities The first distinction that can be made has to do with the legal form ofan organization Private-law legal entities ha ve the legal forms regulated in Book 2 of the Dutch Civil Code(hereafter DCC), which means that their organization is regulated by the provisions set forth in Book 2 DCC. The legal forms in question are the Naamloze Vennootschap or B. Private company with limited liability the vereniging assocation], and the Stichting [foundation]. The organizational form of public-law legal entities are set out in special laws rather than in the Civil Code, although the latter does refer to them in Article 2: 1. This placement has to do with the closed system of legal entities that the Civil Code was origina lly intended to be: it is only the legislator that can confer legal persona lity on organization forms In this respect Article 2: 1, first paragraph, DCC, explicitly provides that: "The State, the provinces, the municipalities, the water control authorities, as well as all bodies on which, by virtue of the constitution, regulatory authority is conferred, possess legal persona lity. The second pa of this Article again empha system:"Other bodies to which part of a public task is assigned only possess lega personality if this follows from what has been laid down in the law. Article 2: 1 DCC confers legal personality on public-law organization forms. As 8. Definition by C.A. Schreuder, Publiekrechtelipke taken, priate rechtspersonen [Tasks pertaining to pubhc law, legal entities pertaining to private lawl Deventer. Kluwer 1994, p 33 See, for example, IA. F. Peters, Publiekrechtlijike rechtspersonen [Legal entities pertaining to public law], Deventer. W.EJ. Tjeenk Willink 1997, pp 15ff
PETERS/VRIESENDORP 2 second perspective concerns the aim, size, and working method in the case of bankruptcy ( 3-4). By eventually making the perspectives converge, we can shed some light on the question of whether a government can go bankrupt in the Netherlands and respond to the questions posed in the Questionnaire ( 5). 2 Governments in shapes and sizes If there has ever been a clearly defined idea of what `government' is, in the present-day social constellation, it is a vague concept. Not only new steering mechanisms like self-regulation and competition, but also social ordering and role patterns like privatization and liberalization have caused a large number of actors to become involved in public tasks. Since these tasks, which concern the public interest,8 are carried out by organization forms pertaining either to public or to private law, a clearly delimited definition of `government' cannot be given, let alone, in one form or another, an organogram. That does not mean to say, however, that no kind of ordering can be applied with respect to the executors of public tasks. Three distinctions can be made which can be relevant in the framework of the problems under discussion: a. public-law and private-law entities; b. implementation of tasks and exercise of powers; c. exclusively public activities or also performance of other commercial activities. 2.1 Public-law and private-law legal entities The first distinction that can be made has to do with the legal form of an organization. Private-law legal entities have the legal forms regulated in Book 2 of the Dutch Civil Code (hereafter DCC), which means that their organization is regulated by the provisions set forth in Book 2 DCC. The legal forms in question are the Naamloze Vennootschap or N.V. [public company limited by shares], the Besloten Vennootschap or B.V. [private company with limited liability], the Vereniging [association], and the Stichting [foundation]. The organizational form of public-law legal entities are set out in special laws rather than in the Civil Code, although the latter does refer to them in Article 2:1. This placement has to do with the closed system of legal entities that the Civil Code was originally intended to be: it is only the legislator that can confer legal personality on organization forms.9 In this respect, Article 2:1, first paragraph, DCC, explicitly provides that: "The State, the provinces, the municipalities, the water control authorities, as well as all bodies on which, by virtue of the constitution, regulatory authority is conferred, possess legal personality." The second paragraph of this Article again emphasizes the closed system: "Other bodies to which part of a public task is assigned only possess legal personality if this follows from what has been laid down in the law." Article 2:1 DCC confers legal personality on public-law organization forms. As 8. Definition by C.A. Schreuder, Publiekrechtelijke taken, private rechtspersonen [Tasks pertaining to public law, legal entities pertaining to private law], Deventer: Kluwer 1994, p. 33. 9. See, for example, J.A.F. Peters, Publiekrechtelijke rechtspersonen [Legal entities pertaining to public law], Deventer: W.E.J. Tjeenk Willink 1997, pp. 15 ff
INSOL VENCY OF PUBLIC ENTITIES OTHER THAN THE STATE regards the aw on public organizations, the first paragraph regulates the legal persona lity (in addition to that of the State, which henceforward will be left out of consideration)of the official decentralized elements of our polity: the so-called public bodies. A public body' is a term pertaining to public law that refers to a community with members, which may include a regulatory authority, but in which in any case public-law powers play a role that can be influenced by the members 0 Some of the public bodies are explicitly mentioned in Art. 134 of the Dutch Constitution, which deals with the creation and discontinuation of public bodies. It is not always equally clear whether a govemment body should be considered a public body II This is why this is often detemined in a specific act. In addition, in pursuance of Article 2: 1, first para graph, DCC, any regulating authority a body may have must be taken into account. In practice, this means that, for qualification,a two-sta ged test applies. Some examples The Nederlands Instituut van register-accountants NIVRA [Dutch institute of chartered accountants] is a public-law legal entity, because it is a public body in accordance with Article l, second paragraph, Registered Accountants Act, and because, in pursuanceof Article 19 of the same statute, the members'meeting The Nederlandse Loodsencorporutie [Netherlands ( Maritime) Pilots Organization] is a public-law legal entity beca use it is a public body on the basis of Article 6, first paragraph, Dutch Pilots Act, and because the members meeting has regulatory powers pursuant to Article 15 of the same statute; The Nederlandse Orde van Advocaten[Dutch Bar Association] possesses leg persona lity because it is a public body on the basis of Article 17 of the Counsel Act, and because the council of representatives possesses regulatory powers in accordance with article 28 of the same statute The Koninklijke notariele beroepsorganisatie [Royal Netherlands assocation of civil law notaries] possesses legal personality because it is a public body on the basis of Article 56 of the Notaries Act, and because the general meeting possesses regulatory powers in accordance with Article 65 of the same statute 2.2 implementation of tasks and exercise of powers The second paragraph of Article 1, Book 2 DCC provides the possibility to confer legal personality on other organization forms. What we are dea ling with in this case is a motley collection of divergent governmentalorganizations. A random selection Compare HD. van Wijk/willem Koninenbelt/Ron. M. van Mal, Hoofdsnukken var bestuursrecht [Topics of adminstrative law, The Hague, Ekevier 1999, p. 122, C. P.J. Goorder Rechtsbenoegdheid n het bestuaursrecht Legal authority in adminstrative law l Zwolle: W.E.J Tjeenk willink 1990, P. 27, as well as P. de Haan/Th. G Drupsteen/R Femhout, Besharsrecht in de sociale redhtstat Dee/ 1. Ontwikkeling, Organisatie Instnimentarian [Administrative law in the socal, law-gowerned state. Part 1. Development Organization, Instruments], Deventer: Klwer 2000,p.184 See the example of the Sociaal Economische Raad Social Economic Council] in J.A. F. Peters
INSOLVENCY OF PUBLIC ENTITIES OTHER THAN THE STATE 3 regards the law on public organizations, the first paragraph regulates the legal personality (in addition to that of the State, which henceforward will be left out of consideration) of the official decentralized elements of our polity: the so-called public bodies. A `public body' is a term pertaining to public law that refers to a `community with members', which may include a regulatory authority, but in which in any case public-law powers play a role that can be influenced by the members.10 Some of the public bodies are explicitly mentioned in Art. 134 of the Dutch Constitution, which deals with the creation and discontinuation of public bodies. It is not always equally clear whether a government body should be considered a public body.11 This is why this is often determined in a specific act. In addition, in pursuance of Article 2:1, first paragraph, DCC, any regulating authority a body may have must be taken into account. In practice, this means that, for qualification, a two-staged test applies. Some examples: - The Nederlands Instituut van register-accountants NIVRA [Dutch institute of chartered accountants] is a public-law legal entity, because it is a public body in accordance with Article 1, second paragraph, Registered Accountants Act, and because, in pursuanceof Article 19 of the same statute, the members' meeting possesses regulatory powers; - The Nederlandse Loodsencorporatie [Netherlands (Maritime) Pilots Organization] is a public-law legal entity because it is a public body on the basis of Article 6, first paragraph, Dutch Pilots Act, and because the members' meeting has regulatory powers pursuant to Article 15 of the same statute; - The Nederlandse Orde van Advocaten [Dutch Bar Association] possesses legal personality because it is a public body on the basis of Article 17 of the Counsel Act, and because the council of representatives possesses regulatory powers in accordance with Article 28 of the same statute; - The Koninklijke notariële beroepsorganisatie [Royal Netherlands association of civil law notaries] possesses legal personality because it is a public body on the basis of Article 56 of the Notaries Act, and because the general meeting possesses regulatory powers in accordance with Article 65 of the same statute. 2.2 Implementation of tasks and exercise of powers The second paragraph of Article 1, Book 2 DCC provides the possibility to confer legal personality on other organization forms. What we are dea ling with in this case is a motley collection of divergent governmental organizations. A random selection: 10. Compare H.D. van Wijk/Willem Konijnenbelt/Ron. M. van Male, Hoofdstukken van bestuursrecht [Topics of administrative law], The Hague, Elsevier 1999, p. 122, C.P.J. Goorden, Rechtsbevoegdheid in het bestuursrecht [Legal authority in administrative law], Zwolle: W.E.J. Tjeenk Willink 1990, p. 27, as well as P. de Haan/Th.G. Drupsteen/R. Fernhout, Bestuursrecht in de sociale rechtstaat. Deel 1. Ontwikkeling, Organisatie, Instrumentarium [Administrative law in the social, law-governed state. Part 1. Development, Organization, Instruments], Deventer: Kluwer 2000, p. 184. 11. See the example of the Sociaal Economische Raad [Social Economic Council] in J.A.F. Peters, o.c., p. 90
PETERS/VRIESENDORP Bedriifsfonds voorde pers[Press fund Article 123, first paragraph, Meda Act; Centraal Fonds voor de volkhuisvesting [Social Housing Guarantee Fund Article 71, first paragraph, Housing Act; entraal Orgaan opvang Asielzoekers [ Central body for the reception of asylum seekers]: Article 2, first paragraph, Central Organ for the Reception of Asylum Seekers Act College wan Toezicht Sociale verzekeringen [Social Security Supervisory Board]: Article 2, second paragraph, Social Security Organization Act; Commissariat voor de Media[Public Broadcasting Commission ] Article 9, first paragraph, Media Act; Dienst voor het cadaster en de openbare registers [Land and Public Registry Agency]: Article 2, first paragraph, Land Registry Organization Act; Rijksdienst voor het Wegverkeer[Department of Road Transport]: Article 4a, Road Traffic act. Instituut voor Toetsontwikkeling [National Institute for Educational Measure ment]: Article 38, first paragraph, Educational Support Structures Act; Koninklijke Bibliotheek [National Library of the Netherlands]: Article 1. 16 Higher Education and Research Act Koninklijke Nederlandse Akademie van Wetenschappen Royal Dutch Academy of Arts and Sciences]: Article 1. 16 Higher Education and Research Act Landelj ke selectie-en opleidingsinstituut politie [National Police Selection and Training Institute] Article 2, second paragraph, National Police Selection and Training Institute Act Luchtverkeersbeveiligingsorganisatie [Air Traffic Control]: Article 22Air Nederlands instituut voor brandweer en rampenbestrijding [Nether Institute for Fire Service and Disaster Management): Article 18a, first paragraph Fire Services Act 1985 Nederlandse Organisatie voor toegepast-wetenschappeliik onderzoek TNO Dutch Organization for Applied Scientific Research]: Article 3, second paragraph, TNO Act; Politieregio[ Police region ]: Article 21, fourth paragraph, Police Act of 1993 Schadefonds geweldsmisdnijven [Criminal Injuries Compensation Fund] Article 2, second paragraph, Crim inalInjuries Compensation Fund Act; Sociale verzekeringsbank [Social Security Bank ] Article 21, second paragraph Social Security Organization Act In govemment activ ities, tasks and powers can be distinguished, although these two are obviously connected By powers' we mean the typically public authority, i.e., the public-law power to unilaterally determ ine the legal relations with another person(a citizen). The legality principle-one of the fundamental principles of our democratic state under the rule of law-entails that such authority must be based on the law. Not only is that authority defined, it is also indicated to which adm inistrative Compare Van Wijk/Konijnenbelt/Van Male, o.c., p 202
PETERS/VRIESENDORP 4 - Bedrijfsfonds voor de pers [Press fund]: Article 123, first paragraph, Media Act; - Centraal Fonds voor de Volkhuisvesting [Social Housing Guarantee Fund]: Article 71, first paragraph, Housing Act; - Centraal Orgaan opvang Asielzoekers [Central body for the reception of asylum seekers]: Article 2, first paragraph, Central Organ for the Reception of Asylum Seekers Act; - College van Toezicht Sociale Verzekeringen [Social Security Supervisory Board]: Article 2, second paragraph, Social Security Organization Act; - Commissariaat voor de Media [Public Broadcasting Commission]: Article 9, first paragraph, Media Act; - Dienst voor het kadaster en de openbare registers [Land and Public Registry Agency]: Article 2, first paragraph, Land Registry Organization Act; - Rijksdienst voor het Wegverkeer [Department of Road Transport]: Article 4a, Road Traffic Act; - Instituut voor Toetsontwikkeling [National Institute for Educational Measurement]: Article 38, first paragraph, Educational Support Structures Act; - Koninklijke Bibliotheek [National Library of the Netherlands]: Article 1.16 Higher Education and Research Act; - Koninklijke Nederlandse Akademie van Wetenschappen [Royal Dutch Academy of Arts and Sciences]: Article 1.16 Higher Education and Research Act; - Landelijke selectie- en opleidingsinstituut politie [National Police Selection and Training Institute] Article 2, second paragraph, National Police Selection and Training Institute Act; - Luchtverkeersbeveiligingsorganisatie [Air Traffic Control]: Article 22 Air Traffic Act; - Nederlands instituut voor brandweer en rampenbestrijding [Netherlands Institute for Fire Service and Disaster Management]: Article 18a, first paragraph, Fire Services Act 1985; - Nederlandse Organisatie voor toegepast-wetenschappelijk onderzoek TNO [Dutch Organization for Applied Scientific Research]: Article 3, second paragraph, TNO Act; - Politieregio [Police region]: Article 21, fourth paragraph, Police Act of 1993; - Schadefonds geweldsmisdrijven [Criminal Injuries Compensation Fund]: Article 2, second paragraph, Criminal Injuries Compensation Fund Act; - Sociale verzekeringsbank [Social Security Bank]: Article 21, second paragraph, Social Security Organization Act. In government activities, tasks and powers can be distinguished, although these two are obviously connected. By `powers' we mean the typically public authority, i.e., the public-law power to unilaterally determine the legal relations with another person (a citizen). 12 The legality principle - one of the fundamental principles of our democratic state under the rule of law - entails that such authority must be based on the law. Not only is that authority defined, it is also indicated to which administrative 12. Compare Van Wijk/Konijnenbelt/Van Male, o.c., p. 202
NSOL VENCY OF PUBLIC ENTITIES OTHER THAN THE STATE body the authority is assigned The fact that a public-law power is assigned implies that the task in question belongs to the govemment. If the government had no task to carry out, no assignment of authority would be necessary. However, this line of reasoningcannot be reversed: a task does not imply a public-law power. 3 What must be seen as a public task depends on politico-ideological views. 14 In general, it may be pointed out that tasks are mostly covered by related public-law rules. Cases in point are the provision of drinking water and energy. No matter how private' the purveyors may be-the shares are mostly in govemment hands-the fact that rules are laid down makes it quite clear that we are dealing with an activ ity that the government considers to be among its tasks legal n the light of the preceding dist inction between public-law and private-law entities, it can be established that, in both legal forms, it is possible not only to carry out public tasks but also to exercise public-law powers. It should be noted that in view of their public-law background - public-law legal entities always deal with public tasks, without this necessarily having to imply public authority. A combined example of both organization fom and power to carry out a task is education Undoubtedly, this is a task the govemment has set itself and which involves both public-law legal entities-for example, public universities such as Utrecht University or Leyden University (Article 1. 8, second paragraph, Higher Education and Scientific Research Act)-and private-law legal entities- for example, the Stichting Katholieke Universiteit Brabant [Tilburg Univers ity Foundation. Both posses public-law powers such as the issuing of legally recognized diplomas With respect to public-law powers, a final remark must be made concerning decentralization. In view of their pace in the polity, public bodies possess the autonomy to regulate their own households. This means that, to a certa n extent, they can use their own discretion when acting as regulators and administrators, obviously within the restrictive parameters set at the decentralized level, whether territorially or functionally. > In the framework of this contribution, it is important to note that n this respect these public bodies have an authority to regulate a variety of subjects with matching powers This i a point of criticsm of the so-called publc-task case law in which the administrative judge applies public-law noms to private-lawexecutors of public tasks See, for example, HJ. de Ru, Stat, markt en recht [State, market, and law, Zwolle: W.EJ Tjeenk Willink 1987 See, for example, M C. Buskens/HRB.M. Kummelng/BP. Vermeulen/RJ..M widdershoven, Beginselen nan de depcnatishe rechtsstaat [Princples of the democratic state under the ruleof law, Deventer: W.EJ. Tjeenk Willink 2001, Pp. 284
INSOLVENCY OF PUBLIC ENTITIES OTHER THAN THE STATE 5 body the authority is assigned. The fact that a public-law power is assigned implies that the task in question belongs to the government. If the government had no task to carry out, no assignment of authority would be necessary. However, this line of reasoning cannot be reversed: a task does not imply a public-law power.13 What must be seen as a public task depends on politico-ideological views.14 In general, it may be pointed out that tasks are mostly covered by related public-law rules. Cases in point are the provision of drinking water and energy. No matter how `private' the purveyors may be - the shares are mostly in government hands - the fact that rules are laid down makes it quite clear that we are dealing with an activity that the government considers to be among its tasks. In the light of the preceding distinction between public-law and private-law legal entities, it can be established that, in both legal forms, it is possible not only to carry out public tasks but also to exercise public-law powers. It should be noted that - in view of their public-law background - public-law legal entities always deal with public tasks, without this necessarily having to imply public authority. A combined example of both organization form and power to carry out a task is education. Undoubtedly, this is a task the government has set itself and which involves both public-law legal entities - for example, public universities such as Utrecht University or Leyden University (Article 1.8, second paragraph, Higher Education and Scientific Research Act) - and private-law legal entities - for example, the Stichting Katholieke Universiteit Brabant [Tilburg University Foundation]. Both possess public-law powers such as the issuing of legally recognized diplomas. With respect to public-law powers, a final remark must be made concerning decentralization. In view of their place in the polity, public bodies possess the autonomy to regulate their own households. This means that, to a certain extent, they can use their own discretion when acting as regulators and administrators, obviously within the restrictive parameters set at the decentralized level, whether territorially or functionally.15 In the framework of this contribution, it is important to note that in this respect these public bodies have an `open' authority to regulate a variety of subjects with `matching' powers. 13. This is a point of criticism of the so-called `public-task case law' in which the administrative judge applies public-law norms to private-law executors of public tasks. 14. See, for example, H.J. de Ru, Staat, markt en recht [State, market, and law], Zwolle: W.E.J. Tjeenk Willink 1987. 15. See, for example, M.C. Buskens/H.R.B.M. Kummeling/B.P. Vermeulen/R.J.G.M. Widdershoven, Beginselen van de democratische rechtsstaat [Principles of the democratic state under the rule of law], Deventer: W.E.J. Tjeenk Willink 2001, pp. 284 ff
PETERS/VRIESENDORP 2.3 Exclusively public activities andor performance of other commercial activities Privatization and liberalization have led to shifting boundaries between the govemment sector and the private domain. One of the consequences of this is that public tasks are also implemented by private-law organization foms. But the reverse is also true: as a result of liberalization, activ ities engaged in by govemment bodies have tumed mto marketactivities. An example: through the creation of a market with several players, the activ ities of the -originally monopolist- Koninklijk Nederlands Meteorologisch Instituut [Royal Dutch Meteorological Institute] ha ve become market activ ities. As long as the activ ities of an organization are unequivocal -either exclusively govemmental or exclusively market-oriented, the boundary between government'and'manket' is shifting but can still be drawn with respect to the organizations themselves. A problem, however, is that in practice it does not work that way. Private enterprises have taken over government activities, but combine them with clear market activities. On the other hand, govemment organizations ar entering into the market in competition with third parties. In this way, revenues are generated in a time when govemment policy is one of retrenchment. But policy-makers have also consciously aimed in the same direction because a competing government' is said to work more cost-effectively and to be more client-oriented. An example is the Landelijk selectie- en opleiding instituut politie INational Police Selection and Training Institute], which also provides courses and trainings for priva te com panies. The consequences of these developmen twofold: com petition arises between the govemment and the private sector, and the can lead to unfair competition, and on the other hand, there is the risk of govemment money being employed for the sidelines. To keep these consequences under control, legislative action is now being undertaken. The Framework Act on Autonomous Administrative Authorities 7 contains a provision that the various activities engaged in by private-law legal entities must be administered and accounted for separately. In viewof the shifting boundary, the question arises why this is not prescribed in this act with regard to public-law legal entities also. 8 It may be rehted to a highly controversal bill"Regulations concerning market activities of governmental organizations and conceming companies which ha ve a special position as prescribed by the govemment", or Market and Govemment Act, for short. In this act, the rules of entry and the rules of conduct are stipulated for govemmental organizations and state companies together with companies with specal rights. As a result, it is a bill that is strongly inspired by competition law As regards this problem, these legislative projects show an interesting distinction between a public part' in the accounts and a private part. Yet, the This eample i taken from Kamersnkken[ Parlamentary document]1, 2001/02, 2805 P 17 Kamerstukken[ Parlamentary documents]11, 2000M01, 27426, nos 1-3. See JA. F. Peters, The Framework Act Independent Administrative Bodies: A First Introduction, Tiidschriff Privatisering 20005 l02,28050,Nos.1-2
PETERS/VRIESENDORP 6 2.3 Exclusively public activities and/or performance of other commercial activities Privatization and liberalization have led to shifting boundaries between the government sector and the private domain. One of the consequences of this is that public tasks are also implemented by private-law organization forms. But the reverse is also true: as a result of liberalization, activities engaged in by government bodies have turned into market activities. An example: through the creation of a market with several players, the activities of the - originally monopolist - Koninklijk Nederlands Meteorologisch Instituut [Royal Dutch Meteorological Institute] have become market activities. As long as the activities of an organization are unequivocal - either exclusively governmental or exclusively market-oriented -, the boundary between `government' and `market' is shifting but can still be drawn with respect to the organizations themselves. A problem, however, is that in practice it does not work that way. Private enterprises have taken over government activities, but combine them with clear market activities. On the other hand, government organizations are entering into the market in competition with third parties. In this way, revenues are generated in a time when government policy is one of retrenchment. But policy-makers have also consciously aimed in the same direction because a `competing government' is said to work more cost-effectively and to be more client-oriented. An example is the Landelijk selectie- en opleidingsinstituut politie [National Police Selection and Training Institute], which also provides courses and trainings for private companies.16 The consequences of these developments are twofold: competition arises between the government and the private sector, and the government becomes ever more `infected' by market activities. On the one hand, this can lead to unfair competition, and on the other hand, there is the risk of government money being employed for the `sidelines'. To keep these consequences under control, legislative action is now being undertaken. The Framework Act on Autonomous Administrative Authorities17 contains a provision that the various activities engaged in by private-law legal entities must be administered and accounted for separately. In view of the shifting boundary, the question arises why this is not prescribed in this act with regard to public-law legal entities also.18 It may be related to a highly controversial bill "Regulations concerning market activities of governmental organizations and concerning companies which have a special position as prescribed by the government", or Market and Government Act, for short.19 In this act, the rules of entry and the rules of conduct are stipulated for governmental organizations and state companies together with companies with special rights. As a result, it is a bill that is strongly inspired by competition law. As regards this problem, these legislative projects show an interesting distinction between a `public part' in the accounts and a `private part'. Yet, the 16. This example is taken from Kamerstukken [Parliamentary documents]II, 2001/02, 28 050, no. 3, p. 13. 17. Kamerstukken[Parliamentary documents]II, 2000/01, 27 426, nos. 1-3. 18. See J.A.F. Peters, The Framework Act Independent Administrative Bodies: A First Introduction, Tijdschrift Privatisering 2000/5. 19. Kamerstukken II 2001/02, 28 050, Nos. 1-2
NSOL VENCY OF PUBLIC ENTITIES OTHER THAN THE STATE question should be raised how clear this distinction will be in practice. Furthermore they are still separate parts in the accounts of one and the same property. Holding on to this distinction in the framework of a bankruptcy -the public part would remain unaffected by the bankruptcy -would mean a violation of the principles of property law and insolvency law 3 Government activities and the risk of bankruptcy respective of the legal form (public andor private legal entities), a government body with duties and competence pertaining to public law can get into financal difficulties. In this respect, it is important that, in principle, every debtor is obliged, to the full extent of his assets, to pay his own debts(Article 3: 276 DCC); no exceptions are made for governments. However, it should be borne in mind that a debtor is meant to be a separate legal entity, with its own rights and obligations. Public bodies or other entities without its/their own legal personality, which belong to a certain (wider) legal entity, have the same rights and obligations. This means that if an dependent(public-law or private-law) legal entity with govemmental duties can be identified as such its cred itors will have recourse to its assets 3.1 Tackling financial difficulties If a govemment entity gets into financal difficulties, with expenses exceeding revenues, there are roughly two possibilities to respond: an attempt can be made either to increase revenues and/or to decrease expenses. If this is successful, a situation of bankruptcy is a voided and bankruptcy law does not play a role. Therefore, we will not take this situation into account below. What happens, however, if neither A special situation in this respect concems the municipality as a legal entity governed by public law. Every Dutch municipality annually receives a payment from the national Gemeentefonds [Municipalities Fund]. This fund is for the most im portant part funded by a percentage of the State's tax revenues, which is deter ined annually. The payment a municipality receives from the State is deter ined accord ing to objective standards. In adm inistrative practice, it has tumed out that, even if there is a ba lanced system of distributive standards, this does not automatica lly mean it meets the individual requirements of municipalities. Therefore in the Financiele-Verthoudingswet [Financial Relations Act], a subjective way to balance the books has been included in Article 12. If the general financial means of a municipality has been exceeded considerably and structurally, the municipality can apply for a supplementary payment on the grounds of Article 12 of the Financal Relations Act. Such a supplementary payment is mostly subject to various regulations(such as increase of own income and restriction of expenses), so that a municipality will to a certa in extent be a dministered by the Ministry of the Interior 3.2 Concursus creditorum If the attempt to steer a different financal course comes too late or fails, a new situation arises If the legal entity's assets are insufficient to pay all its creditors and
INSOLVENCY OF PUBLIC ENTITIES OTHER THAN THE STATE 7 question should be raised how clear this distinction will be in practice. Furthermore, they are still separate parts in the accounts of one and the same property. Holding on to this distinction in the framework of a bankruptcy - the public part would remain unaffected by the bankruptcy - would mean a violation of the principles of property law and insolvency law. 3 Government activities and the risk of bankruptcy Irrespective of the legal form (public and/or private legal entities), a government body with duties and competence pertaining to public law can get into financial difficulties. In this respect, it is important that, in principle, every debtor is obliged, to the full extent of his assets, to pay his own debts (Article 3:276 DCC); no exceptions are made for governments. However, it should be borne in mind that `a debtor' is meant to be a separate legal entity, with its own rights and obligations. Public bodies or other entities without its/their own legal personality, which belong to a certain (wider) legal entity, have the same rights and obligations. This means that if an independent (public-law or private-law) legal entity with governmental duties can be identified as such, its creditors will have recourse to its assets. 3.1 Tackling financial difficulties If a government entity gets into financial difficulties, with expenses exceeding revenues, there are roughly two possibilities to respond: an attempt can be made either to increase revenues and/or to decrease expenses. If this is successful, a situation of bankruptcy is avoided and bankruptcy law does not play a role. Therefore, we will not take this situation into account below. What happens, however, if neither of the two possibilities occur? A special situation in this respect concerns the municipality as a legal entity governed by public law. Every Dutch municipality annually receives a payment from the national Gemeentefonds [Municipalities Fund]. This fund is for the most important part funded by a percentage of the State's tax revenues, which is determined annually. The payment a municipality receives from the State is determined according to objective standards. In administrative practice, it has turned out that, even if there is a balanced system of distributive standards, this does not automatically mean it meets the individual requirements of municipalities. Therefore, in the Financiële-Verhoudingswet [Financial Relations Act], a subjective way to balance the books has been included in Article 12. If the general financial means of a municipality has been exceeded considerably and structurally, the municipality can apply for a supplementa ry payment on the grounds of Article 12 of the Financial Relations Act. Such a supplementary payment is mostly subject to various regulations (such as increase of own income and restriction of expenses), so that a municipality will to a certain extent be a dministered by the Ministry of the Interior. 3.2 Concursus creditorum If the attempt to steer a different financial course comes too late or fails, a new situation arises. If the legal entity's assets are insufficient to pay all its creditors and
PETERS/VRIESENDORP concursus creditorum occurs (i.e, there are competing creditors), additiona measures have to be taken. In this context. however. it should be noted that insolvency -the fact that a debtor's liabilit ies exceed its assets-in itself does not decide the question of whether or not a bankruptcy must be declared. What counts in the Netherlands is a liquidity test: if a debtor can no longer meet its current, due debts, the court may dechre it-either at the request of a creditor or at its own request20-to be in a state of bankruptcy. This criterion is based on Arts. I and 6 Bankruptcy Ac which refer to the debtor who Ais in a state of having ceased to pay its debts. This is a situation of insolvency within the substantive meaning of the aw. Although this implies an investigation by an impartial judge, in practice, it is a limited examination, with the judge restricting himself to briefly checking whether the substantive requirements for declaring a bankruptcy have been met. 3.3 The purpose ofthe bankruptcy The aim of the bankruptcy is to arrive at an orderly winding-up of the concursus creditorum with regard to the insufficient estate. To this end, the court appoints an dependent curator(bankruptcy trustee, usually a specialized lawyer), who, under the supervision of a rechter-commissaris(bankruptcy judge )also appointed by the court, takes care of the administration and winding-up of the bankrupt estate. The starting-point in the division is equality of the cred itors(pari passul-principle), in the sense that, in principle, every creditor must be paid in proportion to his claim. In practice, however, such-competing-creditors will rarely receive any payment on their claim. If anything is left at all after the secured creditors(financiers with rights of pledge and mortgage; purveyors with title retention) have been paid, then deduction of all the bankruptcy costs, the preferential creditors, such as the inter revenue, socal premiums, and staff pensions and salaries, are paid first and leftovers are paid to the unsecured creditors The above applies to all debtors. Although one may in the first place think of private entities that, on the basis of legal rules, are declared to be in a state of bankruptcy, we note that the aw does not make an exception forpublic legal entities This means that a court must apply the same criteria when it happens to be confronted with a bankruptcy petition conceming a public legal entity as a defaulting debtor. If this entity is in a situation in which it has ceased to pay its debts, the court as to declare it bankrupt Consequences of the bankruptcy Ifa legal entity is declared to be in a state of bankruptcy, a bankruptcy trustee-under the supervision of a bankruptcy judge- will deal with the administration and winding-up of the bankrupt estate. The question arises how this intervention relates the public character of the bankrupt legal entity. It is unclear, for example, to what extent the bankruptcy trustee can deal with adm inistrative disputes that might have financal consequences forthe estate(for example, subsidy disputes); whether he can Pursuant to Art. I Bankruptcy Act it I among the Publi Prosecutor's options to provoke a bankruptcy order for reasons ofpublic interest, but in practice this hardly occurs
PETERS/VRIESENDORP 8 concursus creditorum occurs (i.e., there are competing creditors), additional measures have to be taken. In this context, however, it should be noted that insolvency - the fact that a debtor's liabilities exceed its assets - in itself does not decide the question of whether or not a bankruptcy must be declared. What counts in the Netherlands is a liquidity test: if a debtor can no longer meet its current, due debts, the court may declare it - either at the request of a creditor or at its own request20 - to be in a state of bankruptcy. This criterion is based on Arts. 1 and 6 Bankruptcy Act, which refer to the debtor who Ais in a state of having ceased to pay its debts. This is a situation of insolvency within the substantive meaning of the law. Although this implies an investigation by an impartial judge, in practice, it is a limited examination, with the judge restricting himself to briefly checking whether the substantive requirements for declaring a bankruptcy have been met. 3.3 The purpose of the bankruptcy The aim of the bankruptcy is to arrive at an orderly winding-up of the concursus creditorum with regard to the insufficient estate. To this end, the court appoints an independent curator (bankruptcy trustee, usually a specialized lawyer), who, under the supervision of a rechter-commissaris (bankruptcy judge) also appointed by the court, takes care of the administration and winding-up of the bankrupt estate. The starting-point in the division is equality of the creditors (pari passu-principle), in the sense that, in principle, every creditor must be paid in proportion to his claim. In practice, however, such - competing - creditors will rarely receive any payment on their claim. If anything is left at all after the secured creditors (financiers with rights of pledge and mortgage; purveyors with title retention) have been paid, then, after deduction of all the bankruptcy costs, the preferential creditors, such as the internal revenue, social premiums, and staff pensions and salaries, are paid first and any leftovers are paid to the unsecured creditors. The above applies to all debtors. Although one may in the first place think of private entities that, on the basis of legal rules, are declared to be in a state of bankruptcy, we note that the law does not make an exception for public legal entities. This means that a court must apply the same criteria when it happens to be confronted with a bankruptcy petition concerning a public legal entity as a defaulting debtor. If this entity is in a situation in which it has ceased to pay its debts, the court has to declare it bankrupt. 4 Consequences of the bankruptcy If a legal entity is declared to be in a state of bankruptcy, a bankruptcy trustee - under the supervision of a bankruptcy judge - will deal with the administration and winding-up of the bankrupt estate. The question arises how this intervention relates to the public character of the bankrupt legal entity. It is unclear, for example, to what extent the bankruptcy trustee can deal with administrative disputes that might have financial consequences for the estate (for example, subsidy disputes); whether he can 20. Pursuant to Art. 1 Bankruptcy Act, it is among the Public Prosecutor's options to provoke a bankruptcy order for reasons of public interest, but in practice this hardly occurs
NSOL VENCY OF PUBLIC ENTITIES OTHER THAN THE STATE hold bodies and persons lia ble by analogy with the prov isions of Art. 2: 138/248 DCC with respect to improper management, and whether he can take criminal action or institute legal proceedings against higher or otherwise supervisory bodies (ultimately, the state, the Kingdom of the Netherlands). Let us take a closer look at the influence on the powers and tasks that have been assigned to public legalentities 4.1 Powers assigned to pu Traditionally, the concept of subject has been considered differently between private law and adm inistrative law. In private aw, it is the legal entity that counts; in dm inistrative law, it is the adm inistrative body, as the entity carry ing the authorit The distinction is ev ident in the central govermment and in decentra lized vemments: the legal entities are the State, the province, the municipality, and the water control authority; the administrative bodies are persons or boards that function within these and have been assigned powers, such as a minister, the Queens commissioner, the Provincial Council, the mayor, the municipal council, and the ha irman of a water control council. The distinction is smaller. however than is generally assumed. Also in typically public-law situations, powers are assigned to public-law legal entities. In mass-meda legislation, for example, powers are assigned to the Public Broadcasting Comm ission, which is a legal entity govemed by public law. And in the case of legal entities governed by private lw, the powers are directly assigned to the legal entity 21 What all the variants have in common is that a public-law com petence cannot be seen as an asset orproperty right that, in the event of a bankruptcy, will be exercised by the bankruptcy trustee. But the exercise of the public-law competence is, of course, influenced by the operation of the bankruptcy, if only because, for the xercise of powers, financial means are necessary which fall under the bankruptcy This raises the question to what extent the exercise of public-law powers is still pportune. If the adm inistrative process is halted because of the lack of sufficient funds, this can be most damaging and undesirable. Consequently, it might be a reason for withdrawing the public-law power and for subsequently assigning it to another adm inistrative body, so that the adm inistrative process can effectively continue. Just as the assignment of public-law powers should be based on the law, so Its withdra wal should be have a statutory basis. A case in point is the Organisatiewet Sociale verzekeringen [Socal Security Organization Act]1997. On the basis of Art. 38 of this act, the national institute for social security has been assigned the task to implement various social security laws, a task which entails public-law powers. On the basis of Art. 39, that power can be handed over to an implementation agency This implementation a gency, however, must be recognized by the minister(Art. 59), a recognition that, in accordance with Art. 61 of the Social Security Organization Act 1997, is withdrawn as soon as the implementation agency is declared to be in a state f bankruptcy A special situation exists with respect to the intemal organization of public bodies as decentra lized building blocks of the Dutch polity, the provinces and See J.A.F. Peters, Rechtspersonen als bestwmrsonmen poor openbaar ondenwys Legal entities as administrative foms in publi education], School en wet [ School and law 2000, no. I
INSOLVENCY OF PUBLIC ENTITIES OTHER THAN THE STATE 9 hold bodies and persons liable by analogy with the provisions of Art. 2:138/248 DCC with respect to improper management; and whether he can take criminal action or institute legal proceedings against `higher' or otherwise supervisory bodies (ultimately, the state, the Kingdom of the Netherlands). Let us take a closer look at the influence on the powers and tasks that have been assigned to public legal entities. 4.1 Powers assigned to public entities and bankruptcy Traditionally, the concept of `subject' has been considered differently between private law and administrative law. In private law, it is the legal entity that counts; in administrative law, it is the administrative body, as the entity carrying the authority. The distinction is evident in the central government and in decentralized governments: the legal entities are the State, the province, the municipality, and the water control authority; the administrative bodies are persons or boards that function within these and have been assigned powers, such as a minister, the Queen's commissioner, the Provincial Council, the mayor, the municipal council, and the chairman of a water control council. The distinction is smaller, however, than is generally assumed. Also in typically public-law situations, powers are assigned to public-law legal entities. In mass-media legislation, for example, powers are assigned to the Public Broadcasting Commission, which is a legal entity governed by public law. And in the case of legal entities governed by private law, the powers are directly assigned to the legal entity.21 What all the variants have in common is that a public-law competence cannot be seen as an asset orproperty right that, in the event of a bankruptcy, will be exercised by the bankruptcy trustee. But the exercise of the public-law competence is, of course, influenced by the operation of the bankruptcy, if only because, for the exercise of powers, financial means are necessary which fall under the bankruptcy. This raises the question to what extent the exercise of public-law powers is still opportune. If the administrative process is halted because of the lack of sufficient funds, this can be most damaging and undesirable. Consequently, it might be a reason for withdrawing the public-law power and for subsequently assigning it to another administrative body, so that the administrative process can effectively continue. Just as the assignment of public-law powers should be based on the law, so its withdrawal should be have a statutory basis. A case in point is the Organisatiewet Sociale Verzekeringen [Social Security Organization Act] 1997. On the basis of Art. 38 of this act, the national institute for social security has been assigned the task to implement various social security laws, a task which entails public-law powers. On the basis of Art. 39, that power can be handed over to an implementation agency. This implementation agency, however, must be recognized by the minister (Art. 59), a recognition that, in accordance with Art. 61 of the Social Security Organization Act 1997, is withdrawn as soon as the implementation agency is declared to be in a state of bankruptcy. A special situation exists with respect to the internal organization of public bodies as decentralized building blocks of the Dutch polity, the provinces and 21. See J.A.F. Peters, Rechtspersonen als bestuursvormen voor openbaar onderwijs[Legal entities as administrative forms in public education], School en wet [School and law] 2000, no. 1
PETERS/VRIESENDORP nicipalities. It would have incalculable and insurmountable consequences if a province or a municipality were to be unable to perform its administrative duties. At Issue in such a case Is not a single specific administrative power that, after withdrawal, could be assigned to some other body, but the functioning of an entire adm inistrative layer of public administration. What is then at stake are crucial soca values like public order and safety, hygiene and health care. The same goes for bublic-law legal entities with such special primary national tasks as a police district The underly ing social complexity constitutes an obstacle to a bankruptcy of the legal entity. For such differentation, however there is little room in bankruptcy aw. This means that a solution must be found in public law. It is conceivable that a lega provision excludes the application of bankruptcy aw, but preventing a bankruptcy situation is to be preferred, since this provides a better safeguard for the performance of public duties. One may think of public-law safety nets, of which the above and often-mentioned Art. 12 of the Financial Relations Act constitutes a good example 4.2 Public tasks and the operation of the bankruptcy As far as a legal entity is engaged in the implementation of commercal tasks, the bankruptcy trustee can wind up the bankrupt estate as if the legal entity managed an ordinary' commercial enterprise: there is no room for specal treatment. If, however, typically public tasks like schooling, and primary provisions like water, energy, and carried out as much as possible without hindrance. As a first option, many of these public tasks can be taken over by others. If one waste disposal company is declared bankrupt, we can hire another, irrespective of its status as a private-law legal entity a public-law legal entity. But this is not always possible. The execution of some public tasks can depend on technological conditions that do not obtain elsewhere. An example is the production of drinking water(a network with pumps and purification installations). Again, the legal exclusion of bankruptcy rules could be an option here In the US, for example, this took place with respect to the railways. Another option for the bankruptcy trustee is to include an obligation to continue to deliver. a case in oint is the supply of drinking water. the Water Supply Act contains an order to the proprietor of the water supply company to deliver(Art. 4, Water Supply Act) Needless to say, such an obligation to deliver becomes illusory when the bankruptcy trustee simply lacks the necessary means. In such cases, therefore, supplementary means will have to be made availa ble 4.3 Public interests and a bankruptcy a bankruptcy that does not take the continuity of public tasks intoaccount can lead to unacceptable erosion of the execution of public tasks, and must therefore be rejected This is because the effects of a bankruptcy can run counter to the public interests involved in a government activity. The bankruptcy of a police district, therefore, is rdly conceivable, but that of, for example, TNO [the Dutch Organization for Applied Scientific Research] is possible. The question arises whether the bankruptcy rules can offer a solut ion to dilemmas of this kind. if this is not the case. the obyious choice is to start from the government activ ity and, on that basis, to stipulate in
PETERS/VRIESENDORP 10 municipalities. It would have incalculable and insurmountable consequences if a province or a municipality were to be unable to perform its administrative duties. At issue in such a case is not a single specific administrative power that, after withdrawal, could be assigned to some other body, but the functioning of an entire administrative layer of public administration. What is then at stake are crucial social values like public order and safety, hygiene and health care. The same goes for public-law legal entities with such special primary national tasks as a police district. The underlying social complexity constitutes an obstacle to a bankruptcy of the legal entity. For such differentiation, however there is little room in bankruptcy law. This means that a solution must be found in public law. It is conceivable that a legal provision excludes the application of bankruptcy law, but preventing a bankruptcy situation is to be preferred, since this provides a better safeguard for the performance of public duties. One may think of public-law safety nets, of which the above and often-mentioned Art. 12 of the Financial Relations Act constitutes a good example. 4.2 Public tasks and the operation of the bankruptcy As far as a legal entity is engaged in the implementation of commercial tasks, the bankruptcy trustee can wind up the bankrupt estate as if the legal entity managed an `ordinary' commercial enterprise: there is no room for special treatment. If, however, typically public tasks like schooling, and primary provisions like water, energy, and waste disposal are concerned, it is of great importance that these continue to be carried out as much as possible without hindrance. As a first option, many of these public tasks can be taken over by others. If one waste disposal company is declared bankrupt, we can hire another, irrespective of its status as a private-law legal entity or a public-law legal entity. But this is not always possible. The execution of some public tasks can depend on technological conditions that do not obtain elsewhere. An example is the production of drinking water (a network with pumps and purification installations). Again, the legal exclusion of bankruptcy rules could be an option here. In the US, for example, this took place with respect to the railways. Another option for the bankruptcy trustee is to include an obligation to continue to deliver. A case in point is the supply of drinking water: the Water Supply Act contains an order to the proprietor of the water supply company to deliver (Art. 4, Water Supply Act). Needless to say, such an obligation to deliver becomes illusory when the bankruptcy trustee simply lacks the necessary means. In such cases, therefore, supplementary means will have to be made available. 4.3 Public interests and a bankruptcy A bankruptcy that does not take the continuity of public tasks into account can lead to unacceptable erosion of the execution of public tasks, and must therefore be rejected. This is because the effects of a bankruptcy can run counter to the public interests involved in a government activity. The bankruptcy of a police district, therefore, is hardly conceivable, but that of, for example, TNO [the Dutch Organization for Applied Scientific Research] is possible. The question arises whether the bankruptcy rules can offer a solution to dilemmas of this kind. If this is not the case, the obvious choice is to start from the government activity and, on that basis, to stipulate in
