The coronavirus (covid-19) has an unprecedented impact worldwide, and in the Netherlands as well. In addition to the major measures taken by the Dutch government, debt restructuring at companies is necessary to prevent bankruptcies. Rapid implementation of the Court Approval of a Private Composition (Prevention of Insolvency) Act (WHOA) could help with this.
After a long and thorough preparation process - which also looked at the foreign Scheme of Arrangement and the Chapter 11 procedures - on 5 July 2019, the Dutch Minister for Legal Protection, Sander Dekker, submitted the bill for a Dutch Scheme to the House of Representatives. In short, the introduction of the WHOA provides a restructuring tool for companies to clear their debts through private agreements with their creditors and / or shareholders. The Court can then approve the agreements. This approval ensures that the composition is binding on all creditors and shareholders involved in the composition. This means that creditors and / or shareholders who voted against the agreement are bound as well. The WHOA makes compulsory agreements outside bankruptcy possible.
Many companies that are fundamentally healthy are at risk of going bankrupt because of Covid-19. The WHOA should therefore be introduced sooner rather than later. The WHOA, after all, is aimed primarily at companies that are fundamentally viable, but are likely to become insolvent due to an unexpected debt burden. Companies can make their debt positions manageable again through compulsory agreements, while the WHOA also ensures that creditors will not be receiving less than in a bankruptcy situation. This is good for the economy, while preserving as many jobs as possible.
In these challenging times of Covid-19, it is important to use the WHOA as restructuring tool to avoid unnecessary bankruptcies. That is why, in an open letter, a group of insolvency lawyers recently called on politicians to take responsibility and to implement WHOA swiftly. A number of MP’s are now working on several amendments to the WHOA to prevent abuse of the WHOA. As a result, an amendment to the Bankruptcy Act, which is so desirable in practice, might be delayed.
However, the WHOA is on a list of urgent legislative proposals (with a desired entry into force on 1 July 2020). Let us hope that during this corona crisis with all its negative effects, the introduction of the Dutch Scheme will remain on schedule (or be accelerated even).
This article by Ruud Brunninkhuis was also published on Mr. Online.
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