The WHOA in 2023: The Restructuring Directive implemented in the Netherlands

The Dutch Act implementing the EU Directive on Insolvency, Restructuring and Second Chance (the Restructuring Directive) enters into force on 1 January 2023 and will amend the current Act on Court Confirmation of a Private Restructuring Plan (the WHOA) to some extent. Below we have set out some of the material changes as a result of the implementation. 

A preventive restructuring framework and second chance

The Restructuring Directive requires, among others, Member States to provide debtors with access to a preventive restructuring framework that enables them to restructure, with a view to preventing insolvency and ensuring their viability, where there is a likelihood of insolvency (but importantly where the debtor is not yet insolvent as defined by national law).

The WHOA entered into force on 1 January 2021 in the Netherlands and provides for a private and public restructuring process. It closely ties in with the preventive restructuring framework as laid down in the Restructuring Directive. In short, the purpose of the WHOA is to improve the ability to reorganise a company outside formal insolvency proceedings through the possibility of offering a plan to creditors and/or shareholders. The plan can bind the creditors and/or shareholders even if they have not agreed to the plan, provided that a certain majority agrees to the plan and the court finds that certain conditions have been met (the "confirmation").

The existing Debt Restructuring Natural Persons Act already provides for the second chance system as required by the Restructuring Directive. Thereby, important parts of the Restructuring Directive have already been incorporated into Dutch law. 

The WHOA in practice: a useful restructuring tool

The WHOA already proved itself to be an effective tool for the restructuring of a business, not only with a view to continuation but also to a controlled winding-up of a business. Rapidly after the introduction of the WHOA, a respectable amount of case law on key issues started developing. Mostly small to medium-sized enterprises have used the WHOA, and there has been a limited number of larger situations (please refer to our previous blogs on WHOA cases here and here). 

By now, more than 260 WHOA processes have been initiated, leading to approximately 140 court decisions of which at least 20 courts confirmed plans. There is case law on, amongst others, the application of the stay, the proper information provision, the liquidation and reorganisation value, class composition, the best interest of creditors test, third party guarantees, the priority rule, and the impact on security.

Case law indicates that WHOA processes do not always lead to court confirmed restructuring plans, and that also in practice the WHOA threat may still result in a consensual solution. This seems to confirm that the WHOA is a useful restructuring tool, by way of incentive to reach consensus, as intended by the legislator.

Changes

A separate legislative act, the Act for the Implementation of the Restructuring Directive (the Implementation Act), implements the remaining parts of the Directive into Dutch law. The Implementation Act also amends the WHOA in certain aspects in order for it to fully comply with the Directive. The Implementation Act, and therefore the amendments to the WHOA, will be effective as of 1 January 2023.

As a result of the Implementation Act, the scope of the current WHOA is being narrowed down by determining that a plan cannot affect:

• Claims regarding the payment of premiums to pension funds. In accordance with the ruling of the Dutch Supreme Court, it has been clarified that such claims fall under the definition of ‘rights of employees arising from employment contracts with the debtor’, which were already excluded from the WHOA, and can therefore not be amended by a plan;
• Vested or future pension benefits (owed by employees or others, eg partners);
• Security rights arising from financial collateral arrangements and set-off clauses pursuant to Section 7:51 Dutch Civil Code;
• Collateral security rights of participants in payment and settlement systems; 
• Netting arrangements, including close-out netting arrangements as referred to in Regulation (EU) 648/2012 and Directives (EU) 2015/2366 and 2009/110 (EG).

Another change as a result of the Implementation Act is that the position of the debtor (vis-à-vis the restructuring expert) during the WHOA process is being strengthened by providing that:

• The appointment of the restructuring expert by the court requires the debtor’s prior consent if the company is a small or medium-sized enterprise (if the WHOA process was initiated by the appointed of the restructuring expert) (as opposed to consent at the time that the plan is being put to vote);
• As long as the restructuring expert remains appointed, the debtor may not propose a plan in parallel. However, the debtor can prepare a plan and request the restructuring expert to put that plan to vote. The restructuring expert is now required to submit the plan the debtor prepared. Thereby, irrespective of the party applying for the process, the debtor is in any event entitled to submit a restructuring plan for adoption;
• Regardless of whether the restructuring expert was appointed at the request of the debtor or at the request of the creditors or shareholders, the restructuring expert is always obliged to obtain the debtor’s consent before submitting the plan to the court if not all classes have voted in favour of it (if the debtor is a small or medium-sized enterprise);
• If the restructuring expert submits two plans (ie the plan prepared by the debtor and the plan prepared by the restructuring expert), the court will, in principle, first consider the plan that is prepared by the debtor.

In addition, some changes concern clarifications rather than substantial amendments to the current WHOA. It is now, for example, explicitly provided that a cooling-off period cannot only be requested if it is necessary in order to continue the debtor’s business during the preparations or negotiations of a plan, but also in order to affect a controlled winding-up of the business. Further, emergency funding (including related security) during the WHOA process is also protected against actions based on fraudulent preference if it is necessary for the preparations of a plan (not only to continue the debtor’s business).

For further details of the WHOA, please refer to our updated WHOA briefing.