WHOA, an update: approval of the first Dutch scheme
In this article we will briefly touch upon some of the most interesting rulings that have been published so far.
The first successful WHOA procedure
Only 1.5 months after the coming into force of the WHOA, on 19 February 2021, the first WHOA restructuring plan was confirmed by the district court of North Netherlands. The case concerned a company that provided light shows at events, a business that had been strongly affected by the COVID-19 pandemic. Already in the summer of 2020 the company proposed a voluntary arrangement to its creditors to restructure its debts. However, in the absence of the WHOA and especially the inability to bind a dissenting minority of creditors, this proposal was unsuccessful, the creditors of the company did not agree with the proposed offer and therefore no restructuring of debts could take place.
After the introduction of the WHOA the company proposed a new restructuring plan to its creditors. The plan distinguished the following 3 classes of creditors: (i) all (unsecured) trade creditors, (ii) the Dutch Tax Authority and (iii) a lienholder which under Dutch law has a high preference in an insolvency scenario. In addition new financing was provided by the bank to finance the restructuring plan in return for additional security. After the restructuring plan was proposed the classes of creditors were invited to vote on the plan. In all of the classes that voted, the required 2/3 majority was obtained and therefore all voting classes voted in favour of the plan. The Dutch Tax Authority abstained from voting.
Since at least one ‘in the money’ class voted in favour of the restructuring plan, the debtor requested that the court confirm the plan. After the court assessed whether any grounds for refusal of the plan applied, which was not the case, the restructuring plan was confirmed. Based on the restructuring plan, the lienholder received 100% of its secured claim, the unsecured trade creditors – including the residual unsecured claim of the lienholder – received 16% of their claims and the Dutch Tax Authority received 21% of its claim. This was an interesting outcome since prior to the introduction of the WHOA, the Dutch Tax Authority was usually only willing to agree on an arrangement if they were offered twice the percentage that unsecured creditors received. Unfortunately, since the Dutch Tax Authority did not vote on the restructuring plan in this case, the published ruling does not contain any indications of the Authority’s views and underlying considerations with respect to the restructuring plan.
This case demonstrates that especially during these challenging economic times as a result of the COVID-19 pandemic the WHOA is, if well prepared, a very welcome instrument for the Dutch restructuring practice to enable viable companies to restructure their debts.
The introduction of the restructuring expert
The WHOA introduces two new roles, one of which is the ‘restructuring expert’ (herstructureringsdeskundige). The restructuring expert is a court appointed officer that has close involvement with the conclusion of a debt restructuring plan. From the first court rulings it appears that the appointment of a restructuring expert is a popular option and requested relatively often. The restructuring expert can be appointed upon request of the debtor itself or by any of its creditors, shareholders or its works council (ondernemingsraad), if established. The restructuring expert will largely lead the WHOA procedure, including by preparing the debt restructuring plan and organizing the voting process. After his appointment, the restructuring expert will have virtually all of the rights in relation to the WHOA procedure that would otherwise have remained with the debtor. However, the debtor will still remain in full control of the ordinary course of business throughout the procedure.
In most WHOA procedures we have seen so far, the requests with regard to the appointment of a restructuring expert were successful. However, on 15 March 2021 the district court of The Hague handled a request for the appointment of a restructuring expert and this was declined. The request was made by the debtor who started a WHOA procedure in mid-January 2021. Based on the published ruling and on the type of debts involved, the debtor appeared to be a natural person exercising a small business.
Unfortunately, the case seemed to have been poorly prepared and several requirements with respect to the appointment of a restructuring expert were not complied with, including certain requirements regarding the individual who would be acting as the restructuring expert.
Under the WHOA, the restructuring expert must be in the position to carry out his tasks in an effective, impartial and independent manner and therefore, he cannot have previously been involved with (the business of) the debtor. Moreover, it is required that the party that requests the appointment of a restructuring expert provides at least two and a maximum of three restructuring experts that would be suitable candidates. In this case, only one restructuring expert was put forward and that proposed restructuring expert had already acted on behalf of the debtor in the past as its advisor. Therefore, the court could not approve the request of the debtor.
Other than expected but as the above case demonstrates, the WHOA is also used by smaller companies. However, this ruling also demonstrates that a WHOA procedure needs to be well prepared to be successful.
Cooling-off period
Several other cases that have been published relate to a request for a cooling-off period. This is a key feature of the WHOA, which provides a temporary moratorium. The debtor can request that the court grant such a cooling-off period, initially for four months. An extension for a maximum of an additional four months is possible. The cooling-off period protects the debtor against recourse from third parties, unless such third parties have obtained the approval of the court. During the cooling-off period, the debtor can also request that the court lift any attachments made on the debtor's assets. Finally, the cooling-off period suspends any other request by a party for the suspension of payments (surseance van betaling) or bankruptcy procedure in respect of the debtor. In the rulings published in which a request for a cooling-off period was made, almost all of the requests were approved. In one case the cooling-off period was declined because the requesting parties did not comply with the general requirements for the granting of a cooling-off period.
Conclusion
In summary, following this initial three months, we take the view that the WHOA is an instrument that is worthwhile for companies to investigate in times of financial distress. We expect a lot of WHOA cases and successful restructurings will follow. The first rulings show that the proper preparation of a WHOA procedure is essential for a successful outcome. However, we have also noticed that despite the clear wording of the new legislation, the application of the legislation in practice shows some loopholes which need to be addressed and crystallised by case law. In the meantime, the absence of case law enables us to think creatively in terms of investigating further possibilities under the WHOA.
