Dutch Supreme Court provides clarity on aspects of the WHOA in Royal IHC judgment

On 25 October 2024, the Dutch Supreme Court ruled in a ground-breaking judgment in Royal IHC that a WHOA plan may change creditors’ and shareholders’ rights but cannot impose more onerous obligations. More specifically, the lenders cannot be compelled to provide new financing or to accept new terms and still provide new funds under previously committed credit facilities (i.e., undrawn commitments). In not allowing the plan to impose new obligations, the judgment brings the WHOA in line with other jurisdictions. 

In the same judgment, the Dutch Supreme Court confirms that the WHOA offers the possibility to change the order of priority among creditors in a subsequent distribution of the debtor’s assets (both contractually and in rem), provided it meets the requirements for sanctioning. This allows for the introduction of super senior financing as part of the restructuring plan, which was previously uncertain. 

Background

The case that led to the decision by the Dutch Supreme Court was the judgment of the Rotterdam District Court of 9 March 2023 in relation to the restructuring of Royal IHC and its subsidiaries. Please refer to our previous blog on the Royal IHC restructuring. 

A key element in the restructuring plan of Royal IHC was that the plan included non-consensual amendments to commitments under the senior facility agreement, in particular with respect to revolving credit facilities and bank guarantee facilities. 

In its judgment the Rotterdam District Court ruled that, in principle, the WHOA may be used to force creditors to continue financing a company’s working capital under existing credit facilities. The following circumstances should be taken into account: (i) the extent to which the financing obligations materially change; and (ii) the extent to which the amendments to the facilities agreement can be considered ‘changes to the creditor’s rights’ within the scope of the WHOA. The Rotterdam District Court considered that the amendments to the financing structure under the IHC restructuring plan are not so far-reaching as to fundamentally alter the obligations of the lenders. 

Cassation in the general interest of the law

It is not possible to appeal against a court judgment confirming (or rejecting) a WHOA plan. 

However, the law provides for the possibility for the Procurator General at the Dutch Supreme Court to file a claim in cassation in the general interest of the law against a WHOA judgment without affecting the outcome in the case. In this case, the Procurator General sought to obtain clarity about (i) the possibility of amending commitments and imposing on a lender an obligation to continue providing to the debtor financing under a facilities agreement and (ii) the possibility to amend the ranking of creditors. 

The Dutch Supreme Court’s judgement is therefore solely intended to provide clear guidance for the WHOA going forward and does not impact the parties in the Royal IHC case.

No obligation to provide new financing or to continue existing credit under amended terms

The amendments of the facility agreement under the Royal IHC restructuring plan included a limitation of the secured lenders consent rights, a modification of loan maturity dates and a contractual change of enforcement priority. According to the Dutch Supreme Court, the amendments resulted in the lenders having to provide funding on the basis of undrawn commitments and on different terms than they had agreed in the facility agreement, in particular because the plan would override the consent right of the lenders for the sale of Royal IHC’s subsidiary IQIP and Royal IHC’s facility agreement was already draw-stopped. 

This judgment of the Dutch Supreme Court brings the WHOA in line with other jurisdictions. Importantly, amending existing creditor rights continues to be possible. Also consensually amending the terms of the new financing (e.g. majority lender) continues to be possible under the WHOA.

Possibility to change ranking 

Finally, the Dutch Supreme Court confirms the possibility to change the order of priority among creditors under a WHOA plan, provided it meets the requirements for sanctioning. 

Contrary to the considerations of the Rotterdam District Court, the possibility to change the order of priority among creditors does not only apply to a change in the contractual ranking, but also in rem (i.e. priming). This confirmation by the Dutch Supreme Court allows for super senior financing and thereby enhances the ability to provide financing to facilitate the implementation of the restructuring plan, once the plan is confirmed. 

Our involvement 

In the Royal IHC case, a Freshfields team led by Michael Broeders, advised the acquirer of a subsidiary of IHC in the restructuring, that also more widely supported the restructuring transaction.

Please feel free to reach out directly to us, should you have any questions on the Supreme Court decision, the Royal IHC restructuring or the WHOA in general.