Rescue operations and sale and transfer of pledged shares – lessons learned from the most recent NCC judgment

Last month, the Netherlands Commercial Court (NCC) published its latest judgment. It is related to the IHC Group which is a group of companies active in the development and construction of vessels. The judgment is part of a rescue operation of the IHC Group.

The shares of one of the Dutch subsidiaries IHC Merwede Holding B.V. (IHC Merwede) were pledged to Glas Trust Corporation Limited (Glas). In its most recent judgment the NCC granted permission for the sale and transfer of these pledged shares. We will tell you more about the legal background of this in the below.

The IHC Group is a global operator which produces ships and equipment and delivers services to the dredging and offshore industry. IHC Merwede, the shares of which entity were pledged, is the operational top holding of the IHC Group. The shareholder of IHC Merwede is an entity called IHC B.V. which is a shareholder vehicle owned by four shareholders.

As part of a major financial restructuring in August 2019, the shareholder of IHC Merwede pledged the shares in IHC Merwede in favour of Glas. The shareholder, under this guarantee, guaranteed punctual performance of the obligations under the facilities agreements of certain companies of the IHC Group.

After the aforementioned restructuring, the IHC Group experienced further setbacks. In that context, IHC Merwede requested additional funding from its direct shareholder and indirect shareholders in December 2019. Such additional funding was not provided.

Therefore, the management board of IHC Merwede concluded that the only future for the IHC Group would be solution which included the following three central elements:

  1. A new strategic investor would need to commit itself to the IHC Group to restore trust.
  2. This investor would need to make a significant equity contribution.
  3. The current lenders of the IHC Group would need to agree to a substantial write-off of their outstanding loans.

During the M&A process, a group of industry partners affiliated with major customers of the IHC Group in the Benelux (Industry Consortium) showed serious interest in investing in the IHC Group which investment ultimately was a rescue operation. Meanwhile, IHC Merwede, certain of its subsidiaries as well as its shareholder were in default under the finance documentation.

On 30 April 2020, the current lenders of the IHC Group and Industry Consortium, with the support of Atradius DSB, the Dutch government and IHC Merwede reached an agreement in respect of the rescue operation for the IHC Group. As part of this agreement, the shares in either IHC B.V. (the shareholder) or IHC Merwede (the operational top holding) are to be transferred to Stichting Continuïteit, a foundation ensuring and monitoring the continuity of the IHC Group. Once such transfer to the Stichting Continuiteit would take place, the Dutch government, the Industry Consortium, the current lenders of the IHC Group and Atradius DSB would make funding and other financial support available to the IHC Group.

No agreement was reached on the transfer of the shares in IHC B.V. (the shareholder). The easier way was to reach an agreement with respect to the sale and transfer of shares of IHC Merwede. However, these shares were pledged, so a sale and transfer required cooperation of the pledgee, Glas.

At the beginning of May, the pledgee, Glas, reached an agreement with Stichting Continuïteit on the sale and transfer of all shares in the capital of IHC Merwede.

Pursuant to Dutch corporate law, a pledgee or pledgor may request the court (to be precise: the provisional relief judge of the District Court) to order that foreclosure of a pledge may be effectuated  in a manner that deviates from the general rule which states that the pledged asset must be sold by means of a public auction. This means that upon such an order and on the basis thereof, shares in a Dutch limited liability company (B.V., besloten vennootschap) may be sold and transferred in a private transaction.

In this context, the pledgee, Glas, requested the NCC to order that the shares in the capital of IHC Merwede, by way of enforcement of the share pledge, must be sold and transferred by to Stichting Continuïteit privately (i.e.: under the terms and conditions of the share purchase agreement dated 4 May 2020). The request to the NCC was filed on 4 May 2020.

As an indication of the effectiveness of the NCC, we would like to emphasize that while the request was filed on 4 May 2020, the NCC granted such permission on 13 May 2020, followed by a teleconference hearing on 12 May 2020. The full judgment followed on 26 May 2020 which means that, taking several Dutch public holidays into account, the entire procedure was finalized within 14 days from the initial filing of the request.

The NCC ruled as follows: There is no dispute that the IHC Group is in default under the financing arrangements and that Glas has the right to enforce the pledge. Based on case law, the NCC (and any Dutch court) has to examine whether, at the time the application was made, the requested alternative to a public auction would realise the maximum possible value.

In that context, the NCC considered that according to the sale and purchase agreement dated 4 May 2020 the consideration for the shares is EUR 1 in cash plus a write-off of debt resulting in a reduction of EUR 195 million of liabilities under the facilities agreements.

In its assessment the NCC further involved that:

  1. it is likely that a private sale would result in a better price than a public auction, taking into account the structure and the complexity of the IHC Group and the need for additional financing of the group,
  2. there are no indications that any private sale, other than the proposed sale, would realise more value than the write-off related to the rescue operation, and
  3. a large number of potential investors across the world has been reached out to and only the Industry Consortium showed serious interest in investing in the IHC Group.

The NCC concluded that the proposed private sale will deliver maximum value for the shares in IHC Merwede. Based on that, it granted permission for the shares in IHC Merwede to be sold and transferred by Glas to Stichting Continuïteit under the terms and conditions of the SPA dated 4 May 2020.

Please do not hesitate to contact one of our M&A or banking and finance specialists if you have any questions or require our assistance.

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