On 26 May 2020, the Dutch Lower House adopted the long-awaited legislative proposal regarding the Dutch scheme (Wet Homologatie Onderhandsakkoord (WHOA)).
This is an important step towards the entry into force of the proposal. The Senate still needs to approve, but this can usually be done much quicker and less debate is expected.
The Senate will discuss the procedure of the treatment on 2 June 2020. Once the Senate has voted and it becomes clear when the WHOA comes into force, we will post a new update.
In late March, the Dutch government attempted to fast track the WHOA by emphasising, in a letter (PDF) to the Lower House, that delay would be very undesirable for 'financial and organisational' reasons and that the 'support' the WHOA will provide for companies in financial distress is very much needed now.
The WHOA introduces a fast and efficient debtor-in-possession (DIP) procedure to restructure a company’s business through a scheme between the company and its creditors or shareholders. It is considered a last-resort, pre-insolvency restructuring tool, designed as a framework procedure with limited involvement of the court. The procedure features elements of a US Chapter 11 plan of reorganisation and the UK scheme of arrangement.
Below, we set out some of the key points:
- Who can use it: the proceeding applies to Dutch companies (the 'centre of main interest' test), but can also be used to restructure non-Dutch companies provided there is sufficient nexus with the Netherlands (eg significant group activities in the country).
- It furthers restructuring efforts: the proceeding provides for protection of certain restructuring efforts by the company, including DIP financing protection and insolvency trigger-clauses remaining inoperative upon commencement of the proceeding.
- Who is bound: the debtor can determine which creditors (unsecured and/or secured) and/or shareholders to include in the restructuring. Cross-class cram-down is possible, as well as including equity in the restructuring and setting it aside, and issuing new equity, in each case without shareholder consent.
- The impact is already felt right now: given that the proceeding may enter into force very soon, the new regime is already impacting companies looking to restructure, distressed (debt) investments decisions and transaction structuring. This is because there will be new restructuring options and therefore, negotiation powers of financial stakeholders may be shifting and impact their legal position (and may in particular affect blocking powers).
For further details of the legislative proposal, please see our article (PDF) that was also published in the American Bankruptcy Institute Journal.
In December 2019, the WHOA was amended slightly to include mandatory legal representation, the ability to file competing plans, the court being able to over-rule hold-out by a director/major shareholder in SME scenarios.
On 11 May 2020, more material amendments to the proposal were approved:
- Secured creditors will be placed in a 'secured creditors' class for the amount of their secured claim (ie the value of the collateral in case of bankruptcy). With respect to their excess claim they will be placed in a separate class.
- Small suppliers that have an unsecured claim based on supplier contracts or a wrongful act will receive at least 20 per cent on their claim, unless there are compelling reasons to pay out less. Only the small suppliers voting against the plan in a class also voting against the plan can object to the confirmation of a plan where they receive less than 20 per cent.
- The right (of a creditor voting against the plan in a class also voting against the plan) to receive a cash-out on their claim at 'liquidation value' has been removed.
These amendments are included in the adopted proposal. The proposal (without amendments) as well as the separate amendments can be found here (in Dutch).