The Act providing for court confirmation of a private restructuring plan (Wet homologatie onderhands akkoord (WHOA)) entered into force on 1 January 2021. It introduces a fast and efficient pre-insolvency procedure to restructure a company’s business through a scheme between the company and its creditors and/or shareholders, with the possibility of a court-approved cross-class cram down. (For further details of the WHOA, please see our previous summary briefing (PDF) and blog post).
At the time of writing, three court orders regarding the restructuring plan proceedings had been published:
- on 15 January 2021 by The District Court of The Hague;
- on 18 January 2021 by the District Court of Amsterdam; and
- on 20 January 2021 by the District Court of North-Netherlands.
A fourth court order by a different District Court is expected to be published in the coming days.
In all three cases the debtor initiated the restructuring plan proceeding by submitting a declaration to that effect to the court. Additionally, in all cases the debtors chose the undisclosed version of the restructuring plan proceeding.
In undisclosed restructuring plan proceedings, the preparations for a plan are not made public. All court requests are considered in the judge’s chambers and the procedure is not published in the EU or Dutch insolvency registers.
Consequently, the undisclosed procedure will also not be automatically recognised under the European Insolvency Regulation (EIR). This is unlike the public procedure, which will be publicly announced in the insolvency and trade registers, and will be automatically recognised under the EIR.
In two cases the debtor requested the court to order a stay. Under the WHOA, there is no automatic stay, but the debtor can request the court to allow a stay for a maximum of four months, with the possibility of an extension up to a maximum of eight months in total.
When granted, the stay – in short – prevents all or certain specific parties from claiming or taking recourse against the debtor’s assets and the debtor remains entitled to use its goods and to collect claims.
In the Amsterdam Court case, the debtor initiated the plan proceeding with the aim of winding down the business operations in a controlled manner. This means that the plan the debtor will eventually offer to its creditors will not focus on the continuity of the company but rather on the termination of the activities and liquidation outside a formal insolvency.
The debtor stated that it needs breathing space to prepare, offer and execute the plan, and therefore the stay is necessary. The court assessed that – according to the explanatory notes to the WHOA – the WHOA proceeding is available not just to companies that seek to offer a plan in order to make the company financially healthy again and to continue its business. It can also be used for the controlled termination and wind down of a business, under the condition that this leads to a better result than it would upon a liquidation in insolvency.
This was initially not an option under the draft legislative proposal for the WHOA. It was however included after the last consultation round in 2017 to meet calls from respondents to improve the WHOA. It means that a stay can also be granted if it is necessary to prevent creditors from obstructing or delaying the process that is aimed at the discontinuation of the business.
Additionally, the court assessed that the stay in this case will not materially prejudice the interests of the joint creditors affected by the stay, because they have an interest in the liquidation outside insolvency. The court therefore granted the stay for a period of two months instead of the four months requested by the debtor).
In the Court of The Hague case, the debtor requested the court to order a stay to prepare for a plan that would enable (the viable parts of) its business to continue and prevent a formal insolvency. It also requested to lift attachments that were imposed on its inventory.
The debtor expected to attract (new) financing under the plan, which would result in better positions for the creditors compared to insolvency. Therefore, according to the debtor, the creditors should be prevented from requesting a bankruptcy filing or from taking recourse during the preparations.
The court granted the requested stay, which the court said was necessary to enable the debtor’s business to continue during the preparations for and negotiations on the plan, and that the joint creditors are better off in a situation where a plan is reached than in insolvency. The court also granted the request to lift attachments.
Restructuring expert and observer
In the Court of North-Netherlands case, the debtors requested the court to appoint a restructuring expert. Under the WHOA, the debtor (or its creditors, shareholders or works council) can request the court to appoint such an expert, who prepares and starts the process that could lead to the confirmation of the restructuring.
If the request to appoint a restructuring expert is done by the debtor itself, the court will in principle grant the request if it can reasonably be assumed that the debtor will not be able to continue paying its debts when they fall due. Details of the circumstances of this case have not been published for confidentiality reasons, but the court found that the debtor’s circumstances suggested it was sufficiently unable to continue paying its debts.
According to the WHOA, the restructuring expert should exercise its duty in an effective, impartial and independent manner. It should know about insolvency law and corporate finances, and have experience with debt restructurings. In line with the rules of procedure for WHOA court cases, the debtors proposed two potential restructuring experts (X and Y). Taking into account the circumstances of the case, the interested parties, the proposed reorganisation plan as well as the declaration of Y that he is entirely independent from the debtors, the group the company belongs to, the director, shareholders and other interested parties of the company, the court appointed Y as the restructuring expert.
According to the WHOA, the court has the power to appoint an observer who monitors the plan process and represents the interests of the joint creditors if the debtor initiated the plan procedure. In the Court of Amsterdam case, there was no restructuring expert involved and the court found it appropriate to appoint an observer to monitor the plan process, due to a dispute concerning the constitution of the committee of the foundation.
The referred cases can be found here: