WHOA - Dutch Scheme
The Act on Court confirmation of extrajudicial restructuring plans bill (WHOA) has now been in force for more than two years. At the time, this amended the Bankruptcy Act to make it easier for companies in a state of imminent insolvency to restructure.
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The main difference that the WHOA brings with it compared to the original possibilities in the Bankruptcy Act to offer a composition is that once 2/3rds of the creditors vote in favour (in cash), the rest can be drawn into the composition.
Below is a brief overview of the steps to be followed to achieve a successful private arrangement under the WHOA.
Start of WHOA proceedings for avoided bankruptcy
When a debtor is in a state where it is reasonably likely that he will not be able to continue paying his debts, there are two paths to take to initiate public or closed WHOA proceedings.
First, the debtor can initiate WHOA proceedings on his own initiative.
Further, a creditor, shareholder, works council or employee representation could also initiate WHOA proceedings by having a restructuring expert appointed by the court.
Cooling-off period for more time to reach agreement
To give the debtor time to prepare an agreement without individual recourse actions hindering this, the debtor can request the restructuring expert or the court for a cooling-off period. This lasts four months in principle and can be extended once to a maximum of eight months.
Negotiating the WHOA agreement
Once the (draft) composition is ready, it should be offered to (part of) the creditors and shareholders. Indeed, a choice can be made to exclude certain creditors from the composition.
In the composition, the creditors or shareholders must be divided into classes. These classes consist of creditors or shareholders with a similar position in terms of rights, such as preferential and unsecured creditors.
Presentation of final WHOA agreement and shareholder vote
At least eight days before creditors and shareholders vote by class, the agreement will be offered to them. The results will then be announced within a week of the vote.
Homologation request
The accord is adopted by a class once 2/3rds of the creditors (in cash) have voted in favour.
If no class has agreed to the arrangement, the arrangement is not eligible for homologation (approval). In the event that at least one class has agreed to the arrangement, homologation by the court is possible. The judge can then homologate the composition at the request of the creditors and shareholders. This petition must be filed by a lawyer. The hearing takes place at least eight and no more than 14 days after the petition is filed.
Until the hearing, the (dissenting) creditors and shareholders have the opportunity to request that the homologation be rejected. The law stipulates a number of general and additional grounds for rejection, which the court must test against. If the judge rules that there are no grounds for rejection, the court will ratify the agreement.
If the judge rules that there are grounds for rejection, he will reject the request for homologation. If the debtor has submitted the composition for homologation without having made use of a restructuring expert, the debtor cannot submit a new composition for the next three years. If a restructuring expert was appointed, in principle, a new composition can be offered.
Prior to putting the agreement to a vote, the court can be asked to rule on the essential elements of the agreement. This can reduce the risks of rejection.
Cross class cram down
The homologation of the agreement makes the agreement binding on the debtor and all creditors and shareholders with voting rights. This means that the agreement can also be binding on creditors or shareholders who voted against it.
Even in case a class voted against, this class can still be bound by the agreement. This is also called a cross-class cram down. This is possible under certain conditions, such as that at least one class that is in the money (that would have received something in a bankruptcy) has agreed to the settlement. So the debtor should think carefully about this when dividing the creditors into classes.
