Dutch restructuring tool WHOA, a step-by-step explanation

The Act on Court Confirmation of Private Restructuring Plans (Wet Homologatie Onderhands Akkoord, WHOA) came into effect on 1 January 2021. The so-called Time-out Arrangement (TOA) will help entrepreneurs to make use of the WHOA and remove any bottlenecks that entrepreneurs encounter in doing so. In order to limit the far-reaching consequences of the corona crisis for entrepreneurs, it is important to provide a soft landing to companies that (temporarily) have to discontinue their operations because they have been hit hard by the corona crisis. The WHOA can help with this. The WHOA aims at preventing bankruptcies, but can also be used when winding down a company. The WHOA is also meant as an incentive (in Dutch: stok achter de deur). Facilitating amicable processes strengthens the reorganization capacity of companies.

The letter to Parliament of 21 January 2021, which explained the substantial expansion of the economic support and recovery package, stated that a credit facility would be created for entrepreneurs who wish to make use of the WHOA in the context of the TOA. The TOA credit is a new credit instrument granting subordinated capital and that will thus contribute to the buffer capital for SMEs. Credit applications are reviewed by an independent lender. The details of the TOA credit are still being revised. The cabinet will release EUR 200 million for this purpose. We will report further on this as soon as more information is available.

The WHOA is an important tool for companies to avoid bankruptcy by means of a private composition or debt restructuring. The act aims at creating a legal basis for a compulsory composition outside bankruptcy and its approval by the court. The composition is intended as a preventive restructuring procedure for entrepreneurs who still can meet their current obligations, but who at the same time foresee that without debt restructuring they have no realistic prospects of averting future insolvency. The law also aims at preventing creditors from unreasonably refusing to cooperate and from enforcing full payment of their claims. Creditors or shareholders who have not agreed to the composition can still be bound by the composition. That is why it is also referred to as a "compulsory composition".

Below we will explain, step-by-step, how debtors should offer a composition as referred to in the WHOA.

STEP 1
The WHOA is a complicated and technical act. Therefore, it is always best to first ask a professional for advice, for example one of the lawyers of BUREN’s Restructuring and Insolvency department. This professional can assess whether the WHOA is a suitable restructuring tool for your company and whether the conditions to offer a composition under the WHOA are met. In addition, a lawyer can help you prepare the composition and initiate the process. The lawyer can also ask the court, on your behalf, to appoint a restructuring expert. This restructuring expert can prepare the composition, taking account of the interests of the joint creditors, and set the procedure in motion.

STEP 2
As soon as the preparation of the composition has started, a notice must be filed with the Registry of the court (free of charge) stating that the preparation has started.

STEP 3
Subsequently, consultation should take place with the capital providers, usually creditors and shareholders. Any agreements reached must be recorded in a draft composition. The creditors and shareholders must be divided into different classes based on their legal status and the agreements you wish to make with each of them. The composition must also contain all the information required by the voting creditors and shareholders to form an informed opinion on the composition before the vote takes place.

STEP 4
The composition must then be submitted to the voting creditors and shareholders for a reasonable period of time, which shall in any case not be less than eight days, before the vote takes place, or they shall be informed how they take due note of it, so that they can form an informed opinion.

The WHOA provides for two procedures in which the composition can be effected: (1) private composition proceedings and (2) public composition proceedings. In any event, it must be clear which composition procedure is chosen when the court is involved in the attempt to reach a composition for the first time. Once a choice has been made, the composition must take place entirely within that procedure.

STEP 5
After this, the voting will take place. You can determine the way in which the creditors and shareholders will vote, i.e. at a physical meeting or by an electronic means of communication, or in writing. The creditors and shareholders vote by class.

A class of creditors has consented to the composition, if the decision to consent has been made by a group of creditors who together represent at least two-thirds of the total amount of claims of the creditors who have voted within that class. A class of shareholders has consented to the composition, if the decision to consent has been made by a group of shareholders who together represent at least two-thirds of the total amount of subscribed capital belonging to the shareholders who have voted within that class.

STEP 6
After the vote, a report must be drawn up containing the outcome of the vote as soon as possible and at the latest within seven days. This report must be shared with creditors and shareholders. If the court is asked to approve the composition (see step 7), the report must also be filed with the Registry of the court. The report will be available for inspection by the voting creditors and shareholders free of charge until the court has decided on the request.

STEP 7
If at least one class of creditors has agreed to the composition, the court can be requested in writing to approve the composition. The court shall consider the request within a period between eight and fourteen days after the request for approval has been submitted and the report has been filed for inspection at the Registry of the court.

Up to the day of the hearing, all voting creditors and shareholders can submit a written request for rejection of the request for approval.

STEP 8
The court will take a decision as soon as possible after the hearing. The court reviews the request against grounds for approval of the composition. If the composition is approved by the court, the creditors who did not vote or did not consent, will still be bound by the composition. You cannot appeal against the court's decision.

Other procedural matters can be found in the relevant rules of procedure (Het Landelijk procesreglement WHOA zaken rechtbanken).

IN CONCLUSION
The WHOA provides various preconditions, provisions and protective provisions for both debtors and creditors. Not all have been included in the steps above. For example, the court can be requested to take interim measures. The WHOA scheme obviously covers more subjects than outlined here. In our next alerts and newsletters we will give you further information.

Good advice and guidance from BUREN contributes to a successful composition outside a bankruptcy. Please do not hesitate to contact us