The available options to successfully restructure financially distressed, but viable, businesses in the Netherlands are about to improve substantially. Currently, outside formal insolvency proceedings a (financial) restructuring of a business is only possible on a consensual basis with the support of all parties to the restructuring, meaning that every minor hold out creditor, or even equity holders, could frustrate the process. Moreover, Dutch insolvency proceedings such as the suspension of payments proceedings (surséance van betaling) have proven ineffective to restructure distressed companies with secured debt. Therefore, currently restructuring of financially distressed companies is often dealt with through bankruptcy, which approach has its own downsides and is often detrimental to the value of the company and to its stakeholders. This, however, is about to change.
The Dutch government is in the process of introducing an Act on the confirmation of private restructuring plans (the Wet homologatie onderhands akkoord (WHOA)) to restructure a debtor’s (financial) obligations outside bankruptcy. Inspired by the United States Chapter 11 procedure and the English Scheme of Arrangement and with considerable attention to European bankruptcy law developments, including the recently adopted Preventive Restructuring Framework Directive, the WHOA builds upon the most favourable provisions and developments in global restructuring law and will likely be of interest to many global restructuring professionals.
The WHOA has been prepared in close consultation with legal practitioners and with considerable attention to European and global bankruptcy law developments, in particular the recently adopted Preventive Restructuring Framework Directive. Therefore, the WHOA builds upon the most favorable provisions and developments in global restructuring law and we think it will be of interest to many global restructuring professionals and distressed debt investors.
The WHOA introduces the possibility to offer a restructuring plan to prevent the debtor going insolvent or to accommodate a controlled liquidation and distribution of the (insolvent) debtor’s assets to its creditors. A restructuring plan under the WHOA can not only be proposed by a debtor but, interestingly, it can also be initiated by the creditors and shareholders and a works council (if established) of a debtor.
They may request the competent court to appoint a ‘restructuring expert’ if it is reasonably likely that the debtor will not be able to continue paying his liabilities. The court appointed specialist will then prepare a restructuring plan on behalf of the debtor. The debtor itself may also apply for the appointment of a restructuring expert, e.g. if the debtor deems itself incapable of preparing a restructuring plan.
The WHOA provides for a wide range of options to restructure a debtor’s financial obligations. These include, for example, deferring or partially releasing payment obligations, amending the terms of debt instruments or offering debt for equity swaps. Under the WHOA the debtor could also amend the terms of onerous contracts, for example lease or long-term supply agreements.
A restructuring plan can apply to all creditors and shareholders of a company, or it can be limited to a certain category of creditors, e.g. secured creditors. Except for the rights of employees, the restructuring plan may lead to an amendment of the rights of any creditor or shareholder, including preferential and secured creditors, guarantors and co-debtors. As a result, the WHOA provides proper options for group restructurings.
Once approved and confirmed by the relevant percentage of creditors and the court, the restructuring plan will be binding on all creditors and shareholders involved in the restructuring plan. Subject to certain safeguards, creditors and shareholders who have voted against the restructuring plan can be (cross-class) crammed down and thus also become bound by the restructuring plan.
To enhance the prospects of a successful restructuring the WHOA provides for a temporary moratorium, safe harbors for DIP financing and the option for the debtor to seek guidance or a decision from the court concerning certain procedural matters at an early stage. Restructurings under the WHOA are swift and informal procedures, with limited court involvement only to the extent requested during the process and for the approval of the plan.
The WHOA can provide for restructurings that stretch beyond Dutch borders. One of the most interesting features of the WHOA is that it will provide debtors with an option, at the beginning of the process, to choose whether or not the restructuring plan will fall under the scope of the European Insolvency Regulation or to remain purely domestic in scope, but possibly subject to recognition in other jurisdictions on the basis of their own private international laws.
Click here for the publication of the legislation.