The “WHOA” – a forced scheme of arrangements under Dutch law – is coming soon!
Last summer the Court Approval of Private Composition Bill (“Wetsvoorstel Homologatie Onderhands Akkoord”, in short WHOA,) was submitted to the Second Chamber. The WHOA envisages to offer a flexible arrangement for a compulsory composition (a scheme of arrangments) with the creditors without the debtor having to enter into insolvency proceedings in which it would forfeit complete control and disposition of its
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Flexible debt restructuring scheme / scheme of arrangements
The WHOA envisages to provide a regulation for a wide range of undertakings that have a need for compulsory structuring by means of a compulsory composition. If the composition offered is reasonable (that is to say that the creditors/capital providers/shareholders gain from it, or as the case may be do not suffer from it), at least one class of creditors or capital providers agrees to the composition and it is plausible that the undertaking is in a situation in which it could reasonably be expected to fail, the court can approve the composition submitted, that is to say declare it binding on all parties involved.
For the compulsory debt restructuring scheme to be as flexible as possible, the WHOA provides for the possibility to appoint a so-called restructuring expert. Such appointment is not required at all times. In certain complicated situations, a restructuring expert may be the independent party who can offer the debtor’s creditors and shareholders (capital providers) a composition. The WHOA also stipulates that a creditor, shareholder or the Works Council itself requests the court to appoint such a restructuring expert (who shall then investigate whether it is possible to make an offer). The restructuring expert may also be introduced at the time the offer is made by or on behalf of the debtor. However, this is not compulsory. Therefore, in the case of simple undertakings, with no more than one type of ordinary creditors, a basic offer will suffice. Such an offer usually entails that a certain percentage of the debts is paid, or that the debts are paid up to a certain fixed amount.
Major changes in the liquidation practice?
The WHOA therefore contains everything needed to play a pivotal role in the restructuring practice through insolvency proceedings. In the Netherlands, liquidation is now still considered to be the last resort – partly because of the risks for directors and the risk of liability, and other risks of damage – but through restructuring proceedings (either prepared or by means of a request for appointment of a restructuring expert) a tailored debt restructuring can be effected without the undertaking discontinuing and without the far-reaching consequences of a liquidation.
Employment contracts excepted
One of the important consequences of a liquidation is that the trustee in bankruptcy can at all times terminate the employment contracts with the employees (with an authorisation of the delegated judge, which is always granted in actual practice). Thus a liquidation is often regarded as a means to force the dismissal of redundant staff. To avoid abuse of the WHOA it has explicitly been stipulated that the WHOA will not apply to employment contracts.
Composition proceedings optionally public or behind closed doors
A composition within the meaning of the WHOA may be prepared and submitted in public composition proceedings or behind closed doors, at the discretion of the debtor. In public composition proceedings, there will be a court hearing and the submission of the composition will be registered in the Central Insolvency Register, which can be inspected by all. The advantage is in that case that the WHOA will apply as insolvency proceedings within the meaning of the European regulation on Insolvency Proceedings, as a result of which all European member states will have to acknowledge a court-approved composition arrived at under the WHOA without any further formalities. In composition proceedings behind closed doors, acknowledgement will depend on international private law applicable in the country where acknowledgement is requested. Therefore, most complex restructuring proceedings are expected to be set up as public composition proceedings.
Advice for the preparation of a compulsory composition or the appointment of a restructuring expert
The AMS lawyers have extensive experience in insolvency law, both as trustees in bankruptcy, as administrators of suspension of payments, and as consultants for undertakings in financial difficulties, or, as the case may be, for creditors involved with a debtor in financial difficulties. The composition proceedings in the WHOA leave room for a flexible or hybrid composition, in which the consultant has great influence on the content during preparation. In the light of the above it is also likely that lawyers and trustees of AMS Advocaten will be proposed as restructuring experts within the meaning of the WHOA, as the role of the restructuring expert will be to review the correctness and feasibility of the composition submitted, and where possible to supervise its execution (for which the WHOA also provides by means of the possibility to appoint a person with a supervisory role for the execution only).
Compulsory composition in case of liquidation/suspension of payments
Moreover, the AMS lawyers are very experienced in offering compulsory compositions in the event of liquidation or suspension of payments, a possibility that has been provided for by the Bankruptcy Act for many years. Although a composition is rather rare, it may still be an interesting tool – especially as long as the WHOA is not yet effective – for achieving a restructuring of the existing debts while continuing an undertaking.
For an advice on a compulsory composition in case of a liquidation or suspension of payments, AMS Advocaten is the right firm for you.