18 January 2022

New debt restructuring scheme in Netherlands now automatically recognised EU wide

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Waas3

A recent amendment of the European Insolvency Regulation recast (EIR recast) means that the public version of the "WHOA", also known as the Dutch scheme, falls in the regulation's scope as of 9 January 2022. This is relevant for cross-border restructurings, most notably because the effect of a public Dutch scheme will be automatically recognised in the EU (except for Denmark and Ireland, which are not parties to the amendment). Given that the Dutch scheme provides great flexibility in the design of the restructuring plan and offers various tools to reach a consensual deal with a qualifying majority of creditors, automatic recognition will make the public version a powerful cross-border restructuring tool. The Dutch scheme's private version remains outside of the EIR recast's scope, but might be recognised based on other treaties or domestic private international law.

Background

On 1 January 2021, the Dutch Act on Court Confirmation of Extrajudicial Restructuring Plans (WHOA) entered into force. The WHOA, or Dutch scheme, has significantly expanded debtors' ability - in a Dutch legal context - to restructure and address their liabilities without a formal insolvency process. Similar to well-known informal restructuring processes in the US and the UK, the WHOA allows a debtor to offer a restructuring plan to all or some of its creditors or shareholders. If certain requirements are met, the plan can be confirmed by the court, making it binding on all affected parties.

The restructuring plan may include a cross-class cram-down and compromise group company obligations (even if the group companies are non-Dutch). As a unique feature outside bankruptcy in Europe, the WHOA also provides for termination of onerous contracts. It supports the swift creation of a restructuring plan through a debtor-in-possession (DIP) procedure, including a court-ordered stay (moratorium) with global effect; protection of DIP financing; and short statutory periods that apply as of the voting day.

Public and private version

The Dutch scheme provides additional options to a wide range of debtors and situations, as it is available in two distinct versions: public and private. The public scheme is apparent from a public register, whereas the private version remains undisclosed and hearings are held in chambers. Both versions provide the same restructuring tool kit. In the past year, that tool kit has been used by many debtors in the Netherlands, with the specialised WHOA judiciary giving clear guidance on many topics.

EU-wide recognition

As of 9 January 2022, the public Dutch scheme has an extra benefit that is most welcome in cross-border restructurings. On that date, the amended annex to the EIR recast, which lists all EU insolvency proceedings falling within the regulation's scope, became effective. The public version of the WHOA has been added to the annex and has therefore been brought into the scope of the EIR recast. This means that any decision and legal effect following from a public Dutch scheme, opened in conformity with the EIR recast, is automatically recognised and enforceable throughout the EU. This includes court orders regarding the appointment of plan experts, classification of creditors, a stay (moratorium), and, most importantly, a Dutch court-sanctioned restructuring plan with cross‑class cram-down of dissenting minority creditors and shareholders.

The recent placement on the EIR recast's annex allows multi-jurisdictional corporate groups that include at least one debtor with its centre of main interest in the Netherlands or otherwise have sufficient nexus to the Netherlands, to use the public Dutch scheme's tools in relation to its EU-based debt. But probably the most eye-catching feature is that the public and private versions of the Dutch scheme may be combined by an internationally operating group of companies (provided they have sufficient connection to the Dutch jurisdiction). This allows the debtor and its willing creditors to negotiate and plan their cross-border restructuring in a single process and at a single forum.