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WHOA – the future of (international) debt restructurings in The Netherlands

04/03/2020

The Act on the confirmation of private plans (Wet homologatie onderhands akkoord or WHOA) was submitted to the Dutch parliament last year and, once adopted, introduces a framework under which tailor-made (financial) restructuring plans can be implemented outside formal insolvency proceedings. The WHOA combines elements of the English Scheme of Arrangements, US Chapter 11 and the EU Restructuring Directive (EU 2019/1023).

This newsflash provides a high level overview of the most important features of the WHOA, which is expected to come into force in January 2021.

The procedure

Under the WHOA a debtor (not being a insurer or bank) may present a restructuring plan to (certain of) its creditors and/or shareholders if it can be reasonably assumed that the debtor will not be able to continue to pay its debts as they fall due in the near future.

In addition, any creditor and/or shareholder or, if established, the debtors’ works council (or other employee representative body) may request the appointment of a restructuring expert to prepare a restructuring plan on behalf of the debtor. A debtor may also itself request the appointment of a restructuring expert to avoid any appearance of a conflict of interests or to increase confidence in the process. The appointment of a restructuring expert rules out a proposal from the debtor to ensure that the parties’ efforts are always concentrated in a single process.

The WHOA allows for the restructuring plan to be proposed in a confidential or public procedure.

The public procedure is available to a debtor having its center of main interests (COMI) in The Netherlands. The procedure is made public by publishing a notice in the insolvency register and the Dutch trade register and the court-approved plan resulting from the public procedure will be (automatically) recognised throughout the EU (excluding Denmark).

For the confidential procedure the Dutch courts will have jurisdiction in cases where any relevant party (debtor, creditor, shareholder or affected third party) is located in The Netherlands. In addition, the Dutch courts may assume jurisdiction if the case otherwise has “sufficient connection” with The Netherlands. This will be the case if, amongst others, the debtor has substantial assets or activities in The Netherlands, a substantial part of the debtor’s group consists of companies domiciled in The Netherlands, or if a substantial part of the debtor’s obligations to be amended under the plan are governed by Dutch law. The court-approved plan resulting from the confidential procedure will not be recognised throughout the EU and will be subject to the recognition principles of the relevant jurisdiction.

Contents of the restructuring plan and supportive measures

The debtor may determine which creditors and/or shareholders will be included in the restructuring plan. However, the rights of employees under employment contracts cannot be amended under the WHOA. 

The restructuring plan may include the following elements:

  • a write-off or deferral of the (payment) obligations of the debtor;
  • an amendment of the rights of (third) parties having recourse against the debtor (such as guarantors or jointly liable parties);
  • a debt-for-equity swap (including, if required, amending the debtor’s articles of association or any applicable shareholders agreement);
  • the termination or amendment of the terms of onerous contracts and any claims for damages resulting therefrom may be included in the plan;
  • a general or individual stay (moratorium) of a maximum of two times four months; and
  • ipso facto and change of control clauses may not be invoked.

Emergency funding provided to the debtor during the process (and any security granted in connection therewith) can be protected against claw-back actions by a bankruptcy trustee in the event the restructuring plan is not implemented successfully and the debtor is subsequently declared bankrupt.

To limit the risk of the court rejecting the restructuring plan at a later stage, the court may be requested by the debtor and the restructuring expert to make binding determinations on any element of the restructuring (such as the voting procedure, the class formation and valuation issues). A court ruling may be requested at any time during the process before the restructuring plan is put to vote. These court determinations are not subject to appeal, but before deciding on any issue the court will hear those parties affected and, if appointed, the restructuring expert or the observer.

A specific measure which can be taken by the court is the appointment of an observer. The task of the observer is to monitor the preparation and negotiation of the restructuring plan, with due regard to the interests of the general body of creditors.

Classes and voting

Parties must be placed in different classes if the rights they have are so different that they are not in a comparable position. This will be the case if, amongst others, in an enforcement against the debtor’s assets the parties have a different ranking under Dutch law.

All creditors and/or shareholders whose rights are affected by the restructuring plan are entitled to vote. If, however, the legal title is split from beneficial ownership of a claim, only the beneficial owner is entitled to vote. The vote takes place in a meeting held physically, electronically or in writing votes.

A class will have accepted the restructuring plan if a two-thirds majority in value of the class’ outstanding claim or capital has voted in favour of the plan. No head count requirement applies.

Court confirmation and safeguards

The debtor or the restructuring expert may submit a request to confirm the restructuring plan to the court if at least one class of creditors has voted in favour of the plan. If the debtor is an SME, the restructuring expert may only seek court confirmation with the consent of the debtor.

General grounds for refusal 

The court must, at its own initiative, refuse confirmation of the restructuring plan if:

  • the debtor is not likely to be able to continue paying his liabilities;
  • the formal or procedural requirements have not been observed;
  • a party should have been admitted to the vote for a different amount, unless that decision could not reasonably have led to a different outcome of the vote;
  • the performance of the plan is not adequately safeguarded;
  • the debtor wishes to obtain new financing to implement the plan, which financing will materially prejudice the interests of the joint creditors;
  • the plan is the result of fraud or deception;
  • the fees and expenses of the restructuring expert or other court-appointed parties are not paid or no security for payment has been provided; or
  • there are other compelling reasons against the confirmation of the plan.

Supplementary grounds for refusal

At the request of one or more creditors or shareholders who rejected the restructuring plan or who were wrongly excluded from the vote, the court may refuse to confirm the plan if a party receives less in value than it would receive in the liquidation of the debtor’s assets in bankruptcy (the “best interest of creditors test”).

At the request of one or more creditors or shareholders who rejected the restructuring plan and who were placed in a class that did not accept the plan or who were wrongly excluded from the vote and should instead have been placed in a class that did not accept the plan, the court must refuse to confirm a plan:

  • the distribution of the value realised deviates to the disadvantage of the class that did not accept the plan from the ranking that applies upon enforcement against the debtor’s assets under Dutch law or any other law, instrument or contractual arrangement binding on the debtor, unless there are reasonable grounds for such deviation and the interests of the relevant parties are not prejudiced by it; or
  • the plan does not give the relevant party a right to opt for a cash payment in the amount that party would have expected to receive in cash in a liquidation of the debtor’s assets in bankruptcy (the “cash-out option”).

The supplementary grounds for refusal are largely inspired by the US Chapter 11 “best interest of creditors test” and the “absolute priority rule”.

“Cram-down”

Following court approval of the restructuring plan, the plan becomes binding on all relevant parties, including any dissenting parties. As a result, the court will have the power to “cram-down” dissenting classes who voted against the restructuring plan, provided that lower ranking classes cannot “cram-up” higher ranking classes.

In summary

The WHOA provides for a fast and efficient restructuring procedure outside of formal insolvency which, in principle, can be completed within a matter of months. The restructuring plan may bind (a selection of) secured, unsecured and preferential creditors as well as shareholders, whilst at the same time adequately protecting the interests of any dissenting party.

The WHOA enables both the debtor as well as other important stakeholders the opportunity to, at an early stage and outside the public domain, avoid an uncontrolled insolvency and preserve the debtor’s value. In addition, the WHOA provides for a high level of deal certainty as a result of, amongst others, the various supportive measures, offers flexibility on the contents of the restructuring plan and has the option to be (automatically) recognised throughout the EU.

With the Dutch courts assuming jurisdiction in a wide variety of cases, the WHOA offers a world class platform for international debt restructurings.

Authors

Etienne Courbois
Counsel
Amsterdam