WHOA: PREVENTIVE RESTRUCTURING IN THE NETHERLANDS
Before the WHOA entered into force, the company’s creditors and shareholders had to unanimously agree to the arrangement. One refusing creditor or shareholder could obstruct a promising restructuring effort, followed by the inevitable bankruptcy of the company. Since the introduction of the WHOA, the management board or an appointed restructuring-expert can submit the arrangement to the court for ratification, even if not all creditors and shareholders have agreed to it. After the ratification even the creditors or shareholders who did not vote or voted against the arrangement are bound by it. The arrangement can be prepared in a public or private procedure. The public scheme of arrangement is published in the Insolvency Register and in the Staatscourant, the Dutch Official Gazette. The private scheme is not made public. Both schemes provide for the possibility of a moratorium, or ‘cooling-off period’, for the duration of up to eight months, during which the company is protected from creditors' claims whilst the arrangement is being prepared.
What can be agreed upon?
In principle, all kinds of changes to the rights of the creditors and shareholders involved can be included in the arrangement. Examples are: a full or partial discharge of debt, a debt-to-equity swap or the restructuring of group guarantees. The only rights that are excluded and may not be changed by the arrangement are the rights of employees arising from employment contracts, such as their wage claims or claims by pension funds for overdue pension premiums (as decided by the Supreme Court on 25 February 2022, ECLI:NL:HR:2022:328 (X / Stichting Pensioenfonds Horeca & Catering).
A good example of a successful scheme of arrangement is the restructuring plan for the football club ADO Den Haag of 25 February 2022. Pursuant to the arrangement the debts of ADO Den Haag were partially discharged and a new financier (Global Football Holdings Group SL) provided the financing that was needed to cover the liquidity gap in exchange for 100% of the shares. Although a small proportion of the creditors voted against the arrangement and a large proportion of the creditors and shareholders did not vote at all, the arrangement could be approved and executed nonetheless.
Cross-border restructuring: recognition within the EU
Compared to the preventive restructuring procedures in other countries, the Dutch scheme of arrangement has advantages. For example, the management board of the company does not need the consent of the shareholders prior to the deposit of the declaration of commencement by which the scheme is initiated, ‘only’ a two-thirds majority per class of creditors or shareholders is required in order to adopt the arrangement, the arrangement can even be approved if only the class of preferential creditors has agreed to the arrangement and the court can also give the permission for the unilateral termination of an agreement.
For cross-border restructuring operations, it is important that the scheme of arrangement and the ratified arrangement are also recognised in other countries. Since 9 January 2022, the public procedure of the WHOA is automatically recognised within the EU on the basis of the Insolvency Regulation, as this procedure is now included in Annex A to that Regulation. Nonetheless, unlike the private procedure, only companies that have their centre of main interest (the so-called COMI) in the Netherlands can start the public scheme of arrangement.
The scope of the Dutch private scheme of arrangement extends beyond this COMI. For this scheme, a company must have its registered office in the Netherlands or be otherwise sufficiently connected with the Dutch jurisdiction. The latter can be the case if a large part of the company's assets are located in the Netherlands, if the liabilities that are to be restructured arise from agreements to which Dutch law applies or if the company is part of a predominantly Dutch group. Whether the private scheme of arrangement will be recognized within the EU on the grounds of the Brussels Ibis Regulation or the Insolvency Regulation is yet unclear.