The Netherlands' long-awaited new restructuring law, featuring elements of the UK Scheme of Arrangements and US Chapter 11 procedure, has been finally approved by the Dutch Senate and will enter into force in the very near future. The Act on Court confirmation of extrajudicial restructuring plans (WHOA) is a major milestone which supports business continuity and recovery.
A detailed description of the WHOA and the opportunities it offers in debt restructuring is provided in this booklet. For the full text and explanatory memoranda (in English and Dutch) please visit our special website www.debrauw.com/whoa.
Voting and court confirmation
The WHOA allows a debtor, one or more of its creditors or shareholders, or an employees' representative to offer an extrajudicial restructuring plan. The plan may include all or some of the company's debt or share capital. Creditors and shareholders can be placed in different classes under the restructuring plan. If at least one in-the-money class, or the class in which the value breaks, approves the plan, it may be submitted for court confirmation.
Approval requires a favourable vote of two-thirds of the value of the votes cast in a certain class. The threshold is therefore lower than under the UK Scheme of Arrangement and US Chapter 11, and even UK's new Part 26A Plan (the expanded Scheme of Arrangement, which requires 75%). The restructuring plan may include a cross-class cram-down and group company obligations, even if the group companies are not Dutch. Similar to Chapter 11 and unlike the English restructuring tools, the WHOA can also be used to terminate onerous contracts (except for employment contracts). If certain requirements are met, the restructuring plan can subsequently be confirmed by the court, making it binding on all affected parties.
Best possible support
The WHOA has been designed to provide the best possible support for a restructuring. It provides for a debtor-in-possession (DIP) procedure and excludes DIP-financing from claw-back provisions. The court may order a stay that halts all execution of claims and security, legal proceedings and insolvency petitions against the debtor. Also, the WHOA contains short statutory periods as of voting day, and does not allow any appeal against a court decision. On the flip side, the WHOA contains safeguards for the interests of the affected parties, especially SMEs. A court order can be requested on any procedural or substantial matter. An expert pool of judges will be formed to deal with all WHOA issues. In addition, a type of absolute priority rule will apply (with a minor reasonableness exception), the court will put the restructuring plan to the best-interest-of-creditors-test, and small creditors will always have a cash-out option. Finally, the court may order protective provisions, such as appointing an observer to monitor the forming of the restructuring plan on behalf of the joint creditors.
Advantages over similar schemes
Although the WHOA and, especially, the UK Part 26A Plan are quite similar, the WHOA has an advantage when it comes to the restructuring of a multinational group of companies. Not only does the WHOA provide a platform for the restructuring of group liabilities through a single procedure (regardless of the guarantors' home jurisdiction), the court-confirmed restructuring plan will be automatically recognised within the EU under the European Insolvency Regulation recast. This applies to the "public version". The WHOA is also available as an undisclosed procedure that is exempt from any publication requirement. These proceedings will not be automatically recognised under the EIR recast, but are likely to be recognised under (as applicable) the UNCITRAL Model Law and possibly under the Recast Brussels Regulation, the Lugano Convention; international treaties or private international law.
Finally, what sets the WHOA apart as the tool of choice for cross-border group restructurings – as compared with much-used schemes like the UK Scheme and the new Part 26A Plan – is that a group of companies may combine the public version and the undisclosed version.
All this means that the WHOA is a state-of-the-art law that allows for global restructurings with the flexibility of a UK Scheme of Arrangement, combined with the moratorium and certainty of the US Chapter 11, but at a much lower cost and within a short time frame. The main advantage of the WHOA over the UK Part 26A Plan is the option to include all liabilities of the various group members, to terminate onerous contracts and to negotiate and implement the restructuring behind closed doors – preventing loss of value due to negative publicity.
We would be happy to discuss further how the WHOA and the restructuring framework in the Netherlands might impact your organisation or any pending matter. For this or any other restructuring question, please reach out to your main contact at De Brauw or to our core group of restructuring experts.