Unilateral termination of current agreements under the WHOA (“the Dutch Scheme”)

The Act on the court approval of private restructuring plans (Wet Homologatie Onderhands Akkoord or WHOA) makes it easier for a company in financial distress to sit down with its creditors and shareholders at the negotiating table in order to agree upon a reduction of its debt burden. The WHOA, also known as the “Dutch Scheme”, provides various tools for effective restructuring, such as the unilateral termination of current agreements.

One of these tools is the unilateral termination of current agreements, as set forth in Section 373(1) Bankruptcy Act. This instrument can be used to ease the financial burden of current agreements such as a lease agreement. In order to do so, the debtor will have to follow two steps.

First, the debtor must try to come to an agreement with the counterparty, by proposing an amendment or the termination of the agreement. For example, if the rent burden is (too) heavy, the debtor could propose a rent reduction. In case the parties cannot come to a joint agreement and the counterparty rejects the debtor's proposal, the debtor can proceed to the second step: filing a request for permission to unilaterally terminate the (lease) agreement with the court. The debtor submits this request at the same time as the request for ratification of the restructuring plan. If the court ratifies the restructuring plan, it can also grant the permission to unilaterally terminate the current (lease) agreement.

In the event of a unilateral termination, the other party is entitled to compensation for the damage it suffers as a result of that termination. This future claim for damages can be included by the debtor or the restructuring expert in the restructuring plan and can be part of the restructuring. In that case, the counterparty becomes a creditor with the right to vote on the restructuring plan. Additionally, the counterparty will have the right to request the court to reject the ratification of the restructuring plan (and therefore, indirectly, the request for permission to unilateral terminate the current agreement).

The WHOA has now been in force for over two years. So far, only 3 decisions of the court have been published online in which the court has granted the permission for unilateral termination. In 3 other cases, the court rejected the request for permission, together with the request for ratification of the restructuring plan.