The Wet Homologatie Onderhands Akkoord (WHOA) came into effect on 1 January 2021. The WHOA aims to reorganise companies in financial difficulties outside bankruptcy by obliging creditors (and other stakeholders) to cooperate in a private compulsory settlement. In the meantime, both the District Court of The Hague and the District Court of Amsterdam have issued a WHOA ruling in which the WHOA has been declared applicable and the debtor can try to enforce a settlement outside of bankruptcy. The final element of the procedure is homologation (or not) by the court, whereby the settlement binds all creditors (and other stakeholders) involved in the settlement. In this blog Marco Guit discusses the ruling by the Amsterdam District Court. Insolvency law attorney Mariëlle de Wild will soon discuss the decision of the District Court of The Hague in a new blog.
The WHOA seeks to offer companies in a critical condition the opportunity to restructure, without declaring bankruptcy. This is linked to the American Chapter 11 procedure and the English Scheme of arrangement procedure. The idea here is that Dutch law lacks such a regulation, as a result of which, in practice, companies actually by definition lack the ability to reorganise, which also affects the business climate for (large) companies in the Netherlands.
Member States have also been urged by Europe to adopt appropriate restructuring legislation based on Directive 2019/1023. The WHOA was already being drafted before this European guideline was drawn up, but it is largely in line with the guideline. The debtor has great freedom and can choose how the settlement procedure under the WHOA is organised and therefore also to whom (which creditors) the plan is offered. In other words, the plan only applies to the creditors whose rights are changed by the settlement whereby creditors can be grouped into different classes.
An approved (homologated) agreement under the WHOA is in principle binding on the creditors involved and the reorganisation capacity of an applied WHOA is mainly considered, compared to a scenario in which bankruptcy is declared. One of the conditions for admission to the WHOA is when the debtor is in a condition where it is reasonably plausible that he would not be able to continue paying his debts. In fact, this means that the debtor is still able to meet current obligations, but at the same time foresees that there is no realistic perspective to avoid insolvency in the absence of a restructuring. The WHOA is a far-reaching instrument and, based on it, it may even be possible to change long-term agreements under certain conditions. The debtor’s contractor then obtains a claim for damages, which, however, is incorporated in the settlement and thus releases the debtor from the long-term agreement.
As noted above, the debtor is free to divide creditors into different classes, whereby the ratification of the composition (approval) requires that at least one class of creditors has agreed. It may therefore be a consideration to create different classes of creditors that increase the likelihood that at least one class will agree to the settlement. Incidentally, the votes actually cast are taken into account when counting the votes. If there is no vote, the relevant (non-voting) creditors have no influence on the voting result and therefore do not contribute to the (required) two-thirds majority of the total amount of claims in the relevant class of creditors. That is therefore calculated on the basis of the votes cast.
The court can ultimately reject the request for confirmation on general grounds for rejection or additional grounds for rejection, which creditors must invoke. An example of the latter category of grounds for rejection is, among other things, that (dissenting) creditors and shareholders are placed in a significantly worse position on the basis of the composition than in the event of a bankruptcy.
The request was made by a company active in healthcare. It is noteworthy that this company (debtor) is no longer engaged in activities, but still has some income in prospect, so that the request in that sense is not aimed at restructuring a going concern. Where you would expect that an appeal to the WHOA is mainly made by companies that continue to exist after debt restructuring, it is different in this case. The court sees sufficient starting points in the Explanatory Memorandum to the WHOA to also open the WHOA to a company without a chance of survival, in the context of termination of its activities.
A cooling-off period was requested at the same time as the request was submitted. The cooling-off period is intended to prevent individual creditors from recovering from the debtor’s
The assets of a Dutch company reflect the value of all that the company possesses
» Meer over assets assets. With regard to the cooling-off period, the court establishes that parliamentary history does not show that it has been recognised that a cooling-off period may also be necessary when offering a settlement in the context of the winding-up of the business operations, but in view of the intention of the WHOA in a general sense, the court does consider a cooling-off period possible, even if the company is not continued after restructuring. The cooling-off period applies under the WHOA for a maximum period of four months (art. 376 Bankruptcy Act).
On 4 January 2021, the applicant submitted a so-called initial statement, the aim of which is to initiate the WHOA process. As said; the court ruled that the WHOA is also open to the approval of an agreement whereby a company, such as the debtor’s company, no longer has a chance of survival, but is nevertheless settled under the WHOA. According to the court, this is an option if a better result is achieved with a controlled settlement of the business operations by means of a settlement outside bankruptcy than with settlement by means of bankruptcy.
Claims (and other rights) of employees do not fall under the scope of the WHOA and can therefore not be remediated (art. 369 paragraph 4 Bankruptcy Act). In this case, however, the interests of employees are viewed from a comparison with their position in bankruptcy. The court ignores the views of stakeholders that employees would benefit from bankruptcy, because at that moment the wage guarantee scheme comes into effect so that back wages can be paid. The court ruled that almost all employees had terminated their employment in October 2020 and were paid until that date, so that those interests are not materially harmed.
The petition is therefore granted by the court with a cooling-off period of two months, in which the court again explicitly determines that an application for a moratorium, a private declaration or a bankruptcy application submitted by a creditor is suspended during the cooling-off period (follows from Article 376 paragraph 2c Bankruptcy Act).
In addition, the lawyers of AMS already have a lot of experience in offering compulsory settlements in bankruptcy or moratorium and since the implementation of the WHOA, they have also focused on restructuring via a WHOA agreement. At first sight, the WHOA appears to be a very useful tool for achieving a successful reorganisation.
If you have any questions or would like to obtain advice regarding the above, please contact AMS Advocaten.