More clarity on the Dutch Scheme/WHOA: here’s what you need to know

The Act on the Confirmation of Private Plans (the Dutch Scheme or WHOA, its Dutch acronym) has been in place for more than two years now. This legislation is designed as much as possible as a framework. Therefore, there is a lot of flexibility for restructuring plans, while the court’s involvement is in principle limited until court confirmation is requested. To still obtain deal certainty, the entrepreneur or the restructuring expert can, before the restructuring plan is put to vote, request the court to make binding determinations on issues that are important in the context of realising a restructuring plan. Before the restructuring plan is put to vote, the debtor can request the court to make a ruling on issues of importance in the context of the restructuring plan. This ruling by the court on this basis is binding with regard to creditors and shareholders whose interests are directly affected by the ruling, provided they have been given the opportunity by the court to share their views.

Recently, the Amsterdam District Court clarified a number of points which are important in Dutch Scheme proceedings. In this contribution, we will elaborate on this ruling.

For more information on the Dutch Scheme, such as a roadmap and the most frequently asked questions on the Dutch Scheme trajectory, please refer to our Dutch Scheme/WHOA desk.

Claims and policy of the Dutch Employee Insurance Agency
In this matter the debtor invoked the Temporary emergency bridging measure for sustained employment (Tijdelijke Noodmaatregel Overbrugging voor Werkbehoud, NOW) before the effective date (in this case, the date on which the commencement statements were filed commencing the Dutch Scheme proceedings). The advances received by the debtor have not all been inalized. The debtor takes the position that the Dutch Employee Insurance Agency (Uitvoeringsinstituut werknemersverzekeringen, UWV) should be allowed to vote for the estimated net claim for the NOW-periods that have not yet been finalised. The UWV disagrees and wishes to be included in the vote for the full amount of subsidies provided and not yet determined. Furthermore, the UWV has made policy known that implies that if a debtor chooses to include a claim from one or more NOW-periods in its restructuring plan there will be a permanent end to this subsidy relationship.

The court is not going along with the viewpoint of the UWV. The court considers that the UWV should be allowed to vote for the estimated net claim for NOW periods that have not yet been determined. Furthermore, according to the court, there is no legislative basis for the UWV's policy allowing it to terminate the subsidy agreement altogether and recover all NOW deposits for periods that have not yet been determined once these claims are involved in a WHOA process. The WHOA is a substance-based arrangement. As long as the debtor fulfils the specified terms then the UWV will have to make a decision on this.

We understand that the UWV has since adjusted its policy accordingly.

Bank guarantee and recourse claim bank
The court also addressed the matter of bank guarantees provided to landlords as security for rental claims on behalf of and for the account of the debtor. The debtor in this case takes the position that any amounts paid out by the bank under these bank guarantees fall under the recourse prohibition of the Dutch Scheme. This means that the bank may not subsequently recover from the debtor.

With a counter-guarantee, the bank ensures that it will receive (repayment) if the bank guarantee is drawn by the creditor. The moment the bank has to pay out to the creditor based on the bank guarantee, this allows the bank to reverse to the debtor and recover from the debtor based on the counter-guarantee.

However, the Dutch Scheme states that after confirmation of the restructuring plan, recovery from the debtor is not possible. Should this restriction not have been made, the effect of the restructuring will be nullified. This is because the bank (or other third parties on a counter-guarantee basis) will reverse to the debtor, meaning that the debtor will still have to pay the debt. This does anything but contribute to the purpose of the restructuring.

In this case, the court considered that the legal text is broadly formulated, which means that, for amounts it pays out under a bank guarantee, the bank can indeed not take recourse against a debtor whose debts have been restructured in a confirmed restructuring plan, insofar as the bank guarantee was paid out after the confirmation of such restructuring plan and served as security for claims modified in the plan.

This obviously has major implications for guarantee practice. It should be noted, however, that the previous situation is different if the bank (or other third party) as guarantor makes payment to the creditor prior to the approval of the arrangement. In this case, the claim of the guarantor against the debtor can in fact be included in the agreement. There is then no longer a double claim that is included in the composition, as the creditor has already been paid and will not appear with his claim in the composition.

This ruling is likely to lead to changes in the terms of bank guarantees at banks. It is imaginable that claims of creditors included in Dutch Schemes will be excluded from the bank guarantee.

In fact, we understand that the Dutch Scheme trajectories where this aspect was involved have since been completed where all relevant capital providers have voted in favour of the restructuring plan. Therefore, there was no longer any interest in homologation of the agreements. The restructuring plans were therefore not confirmed by the court. This meant that the bank involved in these agreements ultimately got off scot-free.

Pledgeability of subsidy under the Reimbursement Fixed Costs
Finally, the debtor's question is addressed which concerns the pledgeability of subsidies under the Reimbursement Fixed Costs (Tegemoetkoming Vaste Lasten, TVL).

The court stated that the TVL support on the Reimbursement Fixed Costs was created by the government to enable companies in sectors hit hardest by the COVID pandemic to use financial assistance in the form of subsidy to continue to meet their fixed expenses and keep the business running (similar to the NOW regulation). In a ruling on 30 March 2022, a Dutch district court ruled that NOW subsidy, by its nature, is not transferable and cannot be subject to a pledge. The court considered that it saw strong similarities between the NOW scheme and the TVL scheme and therefore held that transferring a company's claim right to TVL subsidy to a financier was not compatible with the objective of the scheme. The court therefore concludes that the nature of the claim precludes pledgeability. In short, the TVL subsidy is by its nature non-transferable and cannot be subject to a pledge.

Conclusion
This decision addresses a number of relevant issues for practitioners. The decision thus provides clarity and guidance on these topics for future restructuring plans to be put to vote under the Dutch Scheme.

Good advice and assistance from BUREN contribute to a successful agreement to restructure outside bankruptcy. Please feel free to contact us.