On 6 October 2020, the Dutch Senate adopted the bill for the Court Approval of a Private Composition (Prevention of Insolvency) Act [in Dutch: Wet Homologatie Onderhands Akkoord, or “WHOA”]. This act enshrines in law the possibility for distressed enterprises to enter into a tailor-made debt restructuring arrangement with its creditors and shareholders. This arrangement can then be confirmed by the court (in Dutch: homologatie). Once confirmed, the arrangement is binding on all creditors and shareholders that are party to it. Provided certain requirements set out in the act are met, creditors and shareholders that oppose the arrangement are bound by it as well.
The WHOA is primarily intended for enterprises whose survival is threatened by heavy debt burdens but whose business is a viable going concern. The purpose of the act is to strengthen the reorganising capabilities of these enterprises. Until now, Dutch law did not provide for binding restructuring plans with the debtor in possession, unlike the United States with its Chapter 11 process and the scheme of arrangement used in the UK.
Struggling Dutch companies do have the option of agreeing a private debt restructuring arrangement with their debtors and shareholders, but confirmation is subject to unanimous approval. That gives each creditor an incentive to withhold approval, enabling them to jockey for a better position. As a consequence, it is quite hard and often impossible to reach a private arrangement. The new act provides a solution to this conundrum.
Under the WHOA, an enterprise can opt to give unilateral notice of termination of current contracts if its contracting party will not consent to a proposal for voluntary amendment or termination. A further option available is for the arrangement to include an entire group of entities. The WHOA procedure can be speedy as well, with court confirmation expected to be given within three to five weeks.
Having been adopted by the Senate, the act is likely to enter into force soon, in any event no later than 1 January 2021 and, noting the current state of the economy, very likely much sooner than that.
AKD's Restructuring Team:
“On paper, the WHOA looks like a solid piece of legislation, now let's await its implementation. Only then will any loopholes or adverse side-effects become manifest. Restructuring specialists have been anticipating on its implementation for a while now, so it is quite conceivable we'll see a flood of WHOA applications soon after the law takes effect. This expectation is reinforced by the low number of insolvencies over the past few months and the second COVID-19 wave hitting the economy. Internationally, the WHOA will definitely attract interest due to its option to restructure group debts and the many multinational holding companies based in the Netherlands. A unique selling point of the procedure is its speed. Relocating their HQs to the Netherlands in times of crisis could be an interesting option for multinational corporations.”
For more information, please contact our Restructuring team.
On 6 October 2020, the Dutch Senate adopted the bill for the Court Approval of a Private Composition (Prevention of Insolvency) Act [in Dutch: Wet Homologatie Onderhands Akkoord, or “WHOA”]. This act enshrines in law the possibility for distressed enterprises to enter into a tailor-made debt restructuring arrangement with its creditors and shareholders. This arrangement can then be confirmed by the court (in Dutch: homologatie). Once confirmed, the arrangement is binding on all creditors and shareholders that are party to it. Provided certain requirements set out in the act are met, creditors and shareholders that oppose the arrangement are bound by it as well.
The WHOA is primarily intended for enterprises whose survival is threatened by heavy debt burdens but whose business is a viable going concern. The purpose of the act is to strengthen the reorganising capabilities of these enterprises. Until now, Dutch law did not provide for binding restructuring plans with the debtor in possession, unlike the United States with its Chapter 11 process and the scheme of arrangement used in the UK.
Struggling Dutch companies do have the option of agreeing a private debt restructuring arrangement with their debtors and shareholders, but confirmation is subject to unanimous approval. That gives each creditor an incentive to withhold approval, enabling them to jockey for a better position. As a consequence, it is quite hard and often impossible to reach a private arrangement. The new act provides a solution to this conundrum.
Under the WHOA, an enterprise can opt to give unilateral notice of termination of current contracts if its contracting party will not consent to a proposal for voluntary amendment or termination. A further option available is for the arrangement to include an entire group of entities. The WHOA procedure can be speedy as well, with court confirmation expected to be given within three to five weeks.
Having been adopted by the Senate, the act is likely to enter into force soon, in any event no later than 1 January 2021 and, noting the current state of the economy, very likely much sooner than that.
AKD's Restructuring Team:
“On paper, the WHOA looks like a solid piece of legislation, now let's await its implementation. Only then will any loopholes or adverse side-effects become manifest. Restructuring specialists have been anticipating on its implementation for a while now, so it is quite conceivable we'll see a flood of WHOA applications soon after the law takes effect. This expectation is reinforced by the low number of insolvencies over the past few months and the second COVID-19 wave hitting the economy. Internationally, the WHOA will definitely attract interest due to its option to restructure group debts and the many multinational holding companies based in the Netherlands. A unique selling point of the procedure is its speed. Relocating their HQs to the Netherlands in times of crisis could be an interesting option for multinational corporations.”
For more information, please contact our Restructuring team.