Since the Dutch Act on Court Confirmation of a Private Restructuring Plan (“WHOA” or “Dutch Scheme”) entered into force on 1 January 2021, Dutch Courts have rendered over 200 judgments.
On 9 March 2023, (one of) the largest Dutch Schemes so far was successfully completed: the restructuring of Royal IHC and its subsidiaries (as announced in IHC’s press release). In this case, the Rotterdam Court made several important decisions enhancing the effectiveness and legal certainty surrounding the WHOA, including regarding:
- amendments of undrawn commitments;
- overriding all-lender consent requirements for a disposal;
- the approval of a specific transaction; and
- certainty around jurisdiction.
In addition, it was the first time since the introduction of the Dutch Scheme that the cram-down option was used within a syndicate of lenders to secure IHC’s financial restructuring and an M&A transaction.
IHC faced severe financial difficulties. To cope with these, IHC decided to sell its wholly owned subsidiary IQIP (a successful and fast-growing spinoff that is active in the offshore industry as foundation and installation specialist) and use part of the proceeds to largely repay its lenders and improve its balance sheet. The IQIP sale required all-lender approval under IHC’s finance documentation.
Additionally, the restructuring involved the continuation of part of the existing committed undrawn guarantee and credit lines at the level of IHC.
Six out of nine lenders in the syndicate supported the restructuring (the “Consenting Lenders”), on the condition that all nine lenders continued to provide financing to IHC going forward. However, three lenders did not support the restructuring and were not willing to be part of IHC’s financing going forward (the “Non-consenting Lenders”).
The restructuring plan was sanctioned by the Rotterdam Court on 9 March 2023. A substantiated judgment is expected to follow shortly.
The below sets out the key novel aspects of the restructuring.
The IQIP sale – consent right
Previously, in another landmark case which is informally known as the “Gym-case”, the Amsterdam Court had decided that amending a credit agreement is possible under the Dutch Scheme. There, the Court reasoned that a modification of maturity dates and/or interest payment obligations and/or covenants was possible as part of a restructuring plan.
With its judgment in IHC, the Rotterdam Court effectively takes this case law one step further, by also permitting the amendment of (all) lenders’ consent rights in credit documentation.
The IQIP sale – protection against future challenge actions
Since 1 January 2023, the Dutch scheme provides for the possibility to explicitly request the Court to approve a transaction, provided that such transaction is reasonable and immediately necessary for the restructuring plan and does not unfairly prejudice the interests of creditors.
If these requirements are met and the Court approves the transaction, as was the case here for the disposal by IHC of IQIP, such transaction cannot be challenged later on the ground that it prejudiced the creditors or constitutes fraudulent preference, even if the debtor (in this case, IHC as seller) would subsequently enter into insolvency proceedings and the legal requirement for such challenge action would have otherwise been met.
Amendment of undrawn commitments
As a result of the sanctioning of the restructuring plan, both the Consenting and the Non-consenting Lenders remain obliged to provide financing under the committed undrawn commitments on the terms of the post-restructuring credit agreement.
By allowing amendments to undrawn commitments through a restructuring plan, the effectiveness of the Dutch Scheme is greatly increased, in particular for companies that are dependent on the continuation of existing guarantee lines, such as IHC. Also in this respect the judgment builds on the “Gym-case”, by further expanding the possibilities to amend credit agreements. Moreover, the decision of the Rotterdam Court aligns with the UK Scheme of Arrangement (see Premier Oil-case).
Jurisdiction for foreign entities
The IHC restructuring was implemented in private proceedings that do not fall under the scope of the EU Insolvency Regulation (contrary to the public proceedings).
As a result, jurisdiction of the Dutch Court is not solely based on the debtor’s centre of main interests (COMI), but instead on the more flexible criterion “sufficient connection to the Dutch legal sphere”. Here, the Dutch Courts were comfortable to take jurisdiction over four English companies in the IHC group.
The Rotterdam Court that dealt with this matter consisted of three specialized WHOA-judges.
Despite having to decide on many novelties, the Court was able to issue a decision within two weeks after the hearing, taking into account the financial position IHC found itself in. To be able to do so, the Court first issued only the decision itself on 9 March 2023, without any substantiation, and will issue the reasoned judgment later.
Voting, classes and the absolute priority rule
The claims of the lenders under the various facilities, were divided into seven different voting classes, based on the waterfall provisions in the intercreditor agreement and what the lenders were being offered under the plan.
In each class they were represented, the Consenting Lenders all voted in favour of the plan. Out of the group of Non-consenting Lenders, two abstained from voting and one vote against the plan.
As a result, in each class the Consenting Lenders met the requisite majority of 66⅔ (value test, no head count). Consequently, the plan did not involve a cross class cram down and, as a result, the Non-consenting Lenders were not entitled to invoke the absolute priority rule, as this is a class right that is only available to creditors that are part of class that voted against the plan.
No creditor worse-off
The Non-consenting Lender that voted against the plan was nevertheless still able to rely on the “no creditor worse-off test” (also known as “best interest of creditors test”), especially considering that the liquidation value of IHC was such that the lenders’ claims would also have been satisfied in full in case of liquidation.
However, also under the restructuring plan the lenders are fully satisfied and are thus not worse-off, considering that the lenders:
- were largely repaid as a result of the IQIP sale.
- were also covered by guarantees issued by the purchaser of IQIP and the Dutch State, which greatly reduced the lenders’ credit risk on IHC; and
- received an interest rate and compensation that was considered to be in line with “market” (as evidenced by the Consenting Lenders supporting the restructuring).
We will have to await the Rotterdam Court’s reasoned judgment to see whether this was indeed the Court’s reasoning on this test.
Stay and appointment of the observer
Upon opening the WHOA-process, IHC requested the Court to issue a stay, protecting the company inter alia against enforcement actions and bankruptcy requests during the WHOA-process. The Court allowed the stay and subsequently clarified that the stay will not affect the set-off provisions and functioning of cash management agreements, derivates agreements, financial collateral agreements and other finance arrangements that allow the company to continue to function in the ordinary course.
In mid-January the Court also appointed a so-called observer, on the application of one of the Non-consenting Lenders. An observer is a Court appointed official, typically a lawyer, who monitors the composition of the restructuring plan in the interest of the creditors as a whole. Despite the appointment of an observer, the Dutch Scheme proceedings remain debtor-in-possession proceedings, as the role of the observer is limited to observing the restructuring process and reporting to the Court.
In this case, the observer advised the Court that he had not found any reasons as to why the restructuring plan could not be sanctioned.
Freshfields advised the acquirer of IQIP on the IHC restructuring that also more widely supported the restructuring transaction by providing certain financial guarantees.
Alongside Michael Broeders as lead partner, the core restructuring team comprised of counsel Tim Elkerbout and associates Bas Kramer, Huub Boekhorst and Juliette Willems. The restructuring team worked closely with our M&A team led by Alexander Doorman with amongst others principal associate Marius Weyers and associates Lasse de Vooght and Tijn Mandema as key members.
Please feel free to reach out directly to us, should you have any questions on this restructuring, the “Gym”-case or the Dutch scheme in general.
it was the first time since the introduction of the Dutch Scheme that the cram-down option was used within a syndicate of lenders to secure IHC’s financial restructuring and an M&A transaction