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The Homologation Private Agreement (“WHOA”) is introducing a regulation in the Netherlands that results in what is also referred to as a ‘compulsory agreement’. The proposed arrangement provides for the possibility to have a private agreement between a company and its creditors and shareholders on the restructuring of recognized by the court approved (homologated). Court approval ensures that all involved creditors and shareholders are attached to the content. So also those of those who voted against the content of the agreement. They can therefore still be held to the content if the agreement meets the requirements to be met below. The scheme will be embedded in the current Bankruptcy Act.
The Netherlands has an ineffective suspension of payments arrangement to enable restructuring. The cabinet has noticed that many companies preferred to settle their financial problems in England or the US. This bill identifies an effective preventive restructuring regime. Directive 2019/1023 was also adopted at European level during the draft, which is a similar system in all Member States. The bill has been modified to comply with this directive. Who is the WHOA for? WHOA is only intended for companies and companies. Natural persons who do not exercise an independent profession or business cannot make use of this. Banks and insurers that are eligible cannot use this scheme either, because they have their own bankruptcy prevention scheme (Section 369 (1) of the Fw). In which situations does a WHOA agreement offer a solution? WHOA is intended for companies that reasonably expect to be insolvent. In other words, the company must not yet be able to meet its current obligations, but foresee that (certain) receivables can no longer be paid within a foreseeable period of, for example, a number of months. The arrangement can then serve to avert a constructed bankruptcy from a company that is financially healthy again after restructuring the authorized person affecting creditors of a company with no chance of surviving the possibility of being better off than in the event of bankruptcy.
Both procedures are possible within the WHOA (Article 369, paragraph 6, Fw). In a public procedure, the agreement will be credited to the central insolvency register and a homologated agreement will apply in all European Member States that are also familiar with this procedure. In a closed procedure, it is not announced that the company is trying to reach an agreement with its creditors and shareholders and it depends on private international law whether the agreement is also recognized elsewhere. However, the closed variant is sufficient for small-scale Dutch procedures, if this option is preferred. In principle, the preference for the variant must be made known to the court prior to / simultaneously with the first request. This can be done by both the debtor and the creditor, depending on who makes the request.
A WHOA procedure can be initiated by both the debtor and the creditors / shareholders. A debtor can start the procedure by directly offering an agreement to the creditors (370 paragraph 1). Before doing so, he can file a statement to that effect with the competent court (370 paragraph 3). This court can then be sued for the various WHOA requests by both the debtor and the creditor. If no agreement is yet available, the debtor can request the court to set up a so-called “cooling-off period” when submitting the aforementioned statement. If this request is granted, the debtor must submit an agreement to the court for approval within 2 months. Creditors can also independently request to explore the possibility of an agreement by submitting a request for the appointment of a restructuring expert (371 paragraph 1). Under the same paragraph, this authority is also vested in the debtor’s works council or staff representation body, as well as in the debtor’s own. The restructuring expert will assume the task of submitting an agreement to all parties when the request is granted. In that case, the debtor can no longer do this himself. He can, however, provide input to the restructuring expert.
It must be stated that employment contracts cannot be affected by the WHOA (Article 369, paragraph 4). A WHOA procedure is therefore not suitable for carrying out a personnel reorganization.
For all other (long-term) agreements – think of an (excessively) expensive lease – the debtor has the option under Article 373 (1) to make proposals to amend / terminate these agreements. If the creditor does not agree with this proposal, the debtor may unilaterally terminate the agreement after approving an agreement and authorizing cancellation of the court. The creditor retains the right to compensation for this cancellation, unless the WHOA agreement changes this (Article 373, paragraph 2).
In turn, preparing or offering an agreement is no reason for the creditor to change, suspend or dissolve an agreement. Art. 373, paragraph 3 stipulates that an appeal has no effect on this, with the idea that a creditor with the conclusion of a WHOA agreement will again have to deal with a financially healthy company.
Pursuant to Article 376, paragraph 1, the debtor can submit a statement (Article 370, paragraph 3) to the court after filing a petition for a cooling-off period of up to 4 months (to be extended to 8 months). During this cooling-off period:
– No third-party recovery of the debtor’s assets, unless he is not aware of the (preparation of the) agreement and the cooling-off period;
– Can the court lift an earlier attachment on request;
– Treatment of a bankruptcy procedure or request for a moratorium is suspended.
The plan can be applied to all creditors and shareholders of the company. An agreement that is limited to a part – that is, to one or more groups (classes) of creditors and shareholders – is also possible. A practical example is an agreement that focuses exclusively on debts to financiers with a security right and leaves the claims of unsecured trade creditors untouched.
A (proposal for an) agreement can contain changes in the rights of creditors (Article 370, paragraph 1). This could include a full or partial cancellation of an outstanding debt or a deferment of payment obligations, so that there is more time to settle the debt. What is special about a WHOA agreement is that it can also make changes to the legal position of creditors with preference and security.
The debtor can also make proposals regarding the modification or termination of current agreements.
Briefly stated, an agreement under Articles 374 and 375 must include the following subjects and information:
– The debtor’s personal details;
– A classification of the creditors and shareholders and the reasons why this classification was chosen;
– The consequences of the proposal for creditors and shareholders;
– What financial improvement is expected if an agreement is reached;
– The way in which further information about the agreement can be obtained;
– The procedure surrounding the vote on the agreement, including a voting date;
– If applicable, the manner in which the works council or personnel representation is or will be involved in the agreement.
These subjects must be supported by a substantiated statement of income and expenses, a list of creditors, a classification, all further information about the debtor’s financial position and a description of the financial problems, their causes and the solutions already attempted.
Creditors and shareholders may, if substantiated, be divided into different classes by the debtor. This is allowed as soon as there are such different rights that creditors and shareholders are not in a comparable position. Different classes of preference creditors, creditors with retention of title, creditors with a lien and / or unsecured creditors should be considered. The debtor is also free to further subdivide one category of creditors into different classes. It may also include that a different offer is made to different classes, provided that the agreement does not become unreasonable.
At the initiative of the House of Representatives, another change was made during the handling of the WHOA that strengthens the position of SMEs as a creditor. Companies that qualify as a “small business” (less than 50 employees) are entitled to a payment of at least 20% of their claim. If they receive less than 20%, the judge can, at the request of this small company (s), according to the added art. 384 paragraph 4 do not proceed to homologation. This requires that the small company vote against the agreement. The creditor can fall below this minimum payment by showing which compelling reason requires payment of less than 20% to this group of creditors (375 paragraph 2 under f). He will have to provide sufficient evidence for this, for example that a reorganization is not possible with a payment of 20%. It is up to the judge to test the correctness of this statement by the creditor.
8 days before a possible vote on the composition, the debtor must have submitted a final proposal to the creditors and shareholders (art. 381 paragraph 2). This can also take more than 8 days in complex cases, so that there is enough time to properly read the agreement. The debtor decides how to vote. In principle, this is free of form and may be done in writing, digitally or at a meeting.
Voting takes place within the classes of creditors and shareholders just mentioned. Each class has its own mood. The financial interest and the vote of the creditor or shareholders who – despite being given the opportunity to do so – did not participate in the vote, are not counted for the final result (381 paragraph 7).
To agree to a creditors class agreement requires the agreement to be supported by a group of creditors who together represent at least two thirds of the total amount of claims belonging to creditors within the class. In this case, this class of creditors is deemed to have agreed to the composition.
Under certain circumstances, an agreement can, as stated, be binding on all creditors, even if this (class) has not agreed to this. A first condition is that the possibility of voting has been there. A second condition is that the agreement is fair in the opinion of the court.
Whether an agreement is fair depends on several factors:
– There must be a situation for which the WHAO is suitable (discussed in “In which situations does the WHOA offer a solution?”);
– At least one category of creditors must support the composition with the required 2/3 majority;
– In any case, creditors and shareholders should not lose out if an agreement is reached, which means that:
o No worse position than in bankruptcy;
o The value that is retained by averting bankruptcy is fairly distributed among the creditors in order of precedence;
o Creditors who would have received a cash payment in bankruptcy now also have the option of receiving this cash payment.
An individual creditor who has not consented to the plan has the option of objecting to homologation if he can demonstrate that his position will significantly deteriorate on the basis of the plan than in the event of bankruptcy. The fact that a division is deviated to the detriment of an opposing class (relative to their ranking) may also lead the court to reject homologation.
Based on art. 379 jo. 380 paragraph 1, the court may appoint an observer, who will take into account the interests of the creditors if the debtor tries to reach an agreement. He supervises, as it were, the efforts made by a debtor to bring about an agreement. If an agreement is not in the offing, the observer must report this to the court. The observer has no further powers; the debtor retains full control over his own assets.
If a restructuring expert has been appointed ex officio or at the request of one of the interested parties, any appointment of an observer will automatically lapse. The observer can – but not necessarily – be appointed a restructuring expert.
At the request of the debtor or at the request of the creditor, the restructuring expert can investigate the possibilities for a WHOA agreement and make a proposal to the creditors and shareholders. The expert also has all powers within the WHOA procedure that would also accrue to the debtor himself.
The salary of a restructuring expert is determined by the court and must in principle be paid by the debtor (371 paragraph 10). They only bear the costs when a majority of creditors submit a request for designation.
The role of the judge in WHOA proceedings is relatively limited, unless parties turn to him to request a decision. In addition to a final homologation decision, the judge can also decide on certain aspects at an earlier stage on request (378 paragraph 1). With this, certainty can be obtained at an early stage whether an agreement has a chance of success.
Jurisdiction of the court partly depends on which procedure is chosen. If the procedure has been decided, the power is determined on the basis of art. 3 Rv, which states that the Dutch court has jurisdiction if the applicant has residence or residence in the Netherlands or the request is otherwise sufficiently connected to the Dutch legal sphere. The latter is the case if the debtor is financially linked to the Netherlands, for example through (many) contracts under Dutch law, (substantial) Dutch assets or a center of the debtor’s main interests in the Netherlands.
An open procedure will examine whether the center of the debtor’s main interests is located in the Netherlands.
The judge in the place of residence of the applicant or one of the applicants is relatively competent.
Assistance by a lawyer is mandatory for the various requests that the WHOA knows. Think about:
– a request for authorization to perform legal acts necessary to obtain financing (Article 42a);
– a request for appointment of a restructuring expert (Article 371, paragraph 2);
– a request to proclaim a cooling-off period (Article 376, paragraph 1);
– a request for an interim judicial opinion (Article 378, paragraph 1);
– a request to make provisions or to make further provisions to safeguard the interests of creditors or shareholders (Article 379, paragraph 1),
– a request for approval of an agreement (Article 384).
This has yet to be determined by final Royal Decree. At the time of writing, the Senate also has to rule on the law, but no major bumps are expected there. It is therefore expected that the law will enter into force this summer with great urgency.
DayOne is ready for entry into force and is happy to assist or advise you further. For questions or comments, don’t hesitate to contact our lawyers team!
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“We need to organise our work better ánd smarter” says Martine Meijburg. Meijburg founded Second Degree in 2013; the first LinkedIn marketing agency (worldwide). A success, as the agency became one of the fastest growing companies in the Netherlands (Silver FD Gazellen Award in 2016), servicing clients such as Philips, KLM and Microsoft.
Martine is an author, public speaker and was listed in The Next Women 100 in 2016, 2017 and 2018 and the Adformatie100 in 2017. She shares with us her experiences as an entrepreneur and member of The Next Women.
She got into the world of recruitment because she showed talent for it and acted on that: at TNW we love playing out your strengths. Now, with her own company and being a mother of two, Dayanara Vonk Ilaria reflects on her journey: “Leadership really is learning how you can influence yourself.”