In yet another major restructuring in the Netherlands, the Dutch Court confirmed a restructuring plan under the Dutch Act on Court Confirmation of a Private Restructuring Plan (WHOA). The public restructuring of the Steinhoff Group (Steinhoff) was approved by the Amsterdam Court on 21 June 2023, only seven days after the confirmation hearing.
The Steinhoff restructuring is one of the largest WHOA restructurings in terms of financial debt with over EUR 10.4 billion worth of debt facilities. While the majority of WHOA cases to date have been private procedures, the Steinhoff case was a disclosed procedure with a public confirmation hearing before three insolvency judges. The court rejected objections from the holdout shareholder in relation to valuation and its position being “in the money”. During the process, the court also appointed two observers to protect the interests of creditors and shareholders but rejected a request to appoint a restructuring expert.
A substantiated written judgment is expected mid-July.
The below describes some of the interesting elements of the case.
Steinhoff is a South-African based retail conglomerate with over 90,000 employees with business activities in nearly 50 different countries. Steinhoff International Holdings N.V. (SIHNV) is a Dutch holding company of the Steinhoff Group incorporated in the Netherlands and listed in Germany and South-Africa. Following the discovery of accounting irregularities in 2017, Steinhoff went through a long period of financial distress with legal proceedings brought in various jurisdictions. To stabilize its financial position, various efforts to financially restructure Steinhoff’s external debt and to globally settle litigious liabilities were initiated between 2018 and 2022. This resulted in, among others, English law company voluntary arrangements, a South African law scheme of arrangement and a Dutch suspension of payments to implement a settlement.
SIHNV faced repayment difficulties as a result of upcoming maturities: it was unable to pay out on certain of Steinhoff’s’ debt facilities and guarantees, which were set to mature on 30 June 2023 so SIHNV proposed a consensual restructuring transaction to extend the maturity dates. In exchange, SIHNV’s financial creditors would receive 80% of the equity in a new Dutch Topco entity; SIHNV’s shareholders would have received the remaining 20%. The plan was rejected by SIHNV’s shareholders.
In its attempt to avoid bankruptcy, SIHNV ultimately proposed a restructuring plan in substantially the form as the consensual restructuring by way of a WHOA process. SIHNV argued that if the restructuring plan failed, bankruptcy or enforcement scenarios could be expected without any distribution for the shareholders, nor could shareholders be expected to receive any value in case of a going concern continuation of the business.
The restructuring plan
In short, the restructuring plan provided for the following:
- A maturity extension of three to five years of the debt facilities (amounting to approximately €10.4 billion), as well as extended maturity of the payment obligations of SIHNV towards certain creditors under the debt facilities (for an amount of approximately €9.1 billion) (the contingent payment undertakings (CPUs)).
- SIHNV would transfer all its assets and liabilities to the new Dutch Topco entity (New Topco). New Topco’s shares would be transferred from existing shareholders to five special purpose Dutch trust foundations (stichtingen).
- New Topco would issue contingent value rights (CVRs) that give entitlement to a distribution of any (future) remaining value in Steinhoff Group repayment of all external debts. 20% of the CVRs to be issued to shareholders and 80% to be issued to affected CPU creditors. Initially, 100% of CVRs were to be allocated to creditors but this was modified to gain support for the restructuring amongst shareholders.
After completion of the restructuring, the new Dutch trust foundations have the option to dissolve the (then) empty SIHNV, after which SIHNV’s stock exchange listings in South-Africa and Germany will terminate.
Class composition, voting and shareholder objections
Creditors were divided into three classes: 1) affected CPU creditors, 2) secured intra-group creditors and 3) unsecured intra-group creditors. In addition, there was one shareholder class. All creditors who voted, voted in favour of the plan; the shareholders voted against.
In particular, the German SdK Schutzgemeinschaft der Kapitalanleger E.V. (“SdK”) opposed the restructuring. SdK is one of the largest German (small) securities owners associations. SdK submitted its own valuation report, stating that the shareholders would in fact be “in the money” both in a liquidation and in a going concern continuation of the company after the restructuring. SdK also argued that SIHNV had not made sufficient information to verify SIHNV’s valuation available. In addition, SdK argued that the distribution of 80% of the ‘upside’ of the restructuring plan to the affected CPU creditors was not in accordance with the ‘waterfall’ ranking, thereby violating the absolute priority rule. It also stated that classes were improperly formed, by putting secured and unsecured claims of the affected CPU creditors in the same class.
SdK’s objections were rejected by the court.
At SIHNV’s request, two observers (observatoren) were appointed by the court at an early stage in the WHOA process to monitor the preparation of the plan. Under the WHOA, an observer shares their views on a restructuring plan before the court decides on the confirmation. Here, the observers concluded that there were no grounds to reject SIHNV’s proposal. The observers concluded that they had no reason to doubt the accuracy of the valuation process and reports as performed on behalf of SIHNV.
After the appointment of the observers, SdK requested the court to appoint a restructuring expert (herstructureringsdeskundige) who could perform a valuation of Steinhoff. If appointed, the restructuring expert could prepare and propose an alternative restructuring plan. The court rejected SdK’s request because it would cause too much delay in the plan procedure, which was already quite advanced at the time of the request and the plan was already widely supported. The court also made it clear that a restructuring expert could not be appointed with a view to settle valuation disputes. The court concluded that the creditors would not benefit from an appointment of a restructuring expert.
It is not possible to have a restructuring expert and an observer at the same time. The WHOA requires that if a request to appoint a restructuring expert is granted by the court after the court has already appointed an observer, the court must revoke the observer’s appointment.
English consent request
Because the CPUs were governed by English law, it was necessary to ensure that the extension of the maturity date and other amendments under the CPUs would also be effective under English law. Therefore, they were being implemented through of an out-of-court consent request as part of the restructuring. The consent request was approved by a majority of the creditors, with the vote on the consent request also being considered a vote on the restructuring plan.
A final interesting development is that SIHNV initiated a public WHOA proceeding. This means that the proceeding is given publicity by means of a notice in the Central Insolvency Register, the Dutch Trade Register or the official Government Gazette (contrary to the private WHOA process). Public requests are handled in public court hearings. It also means that the confirmation ruling will, in principle, automatically be recognised and enforceable throughout the EU (except for Denmark). This may set an example for foreign debtors with only holding companies in the Netherlands to use the WHOA.
As part of a long-standing engagement, Freshfields advised the Newco 3 sub-group of the wider Steinhoff group in connection with the WHOA plan. This separately managed sub-group owes the substantial majority of the debt within the Steinhoff group and is the indirect shareholder in significant operating groups including Pepco, Mattress Firm, and Greenlit. The WHOA plan authorised by the Dutch court allowed the completion of a maturity transformation transaction in respect of the Newco 3 sub-group’s debt, and accordingly Freshfields worked closely with other relevant counsel throughout.
The Freshfields team in London was led by Tom Wallis, Simon Johnson, Richard Tett and Edward Cole, with the support of Alex Thomson and Luke Hannigan in particular, and the team in Amsterdam was led by Michael Broeders and Huub Boekhorst.