The new Dutch restructuring tool, referred to as "WHOA" or the Dutch scheme, entered into force on 1 January 2021. We previously reported on the first three court orders handed down in WHOA cases. Since then, the courts have reviewed WHOA applications approximately 100 times, which demonstrates the appetite for this new restructuring instrument. We have carefully selected the three most relevant lessons that can be learned from the published court decisions. The new law appears to live up to its potential and is being used in a creative and pragmatic way by debtors and courts alike - making the WHOA the effective and expedient restructuring tool envisaged before being enacted.
The first thing worth noting is how expediently courts decide on requests for a cooling-off period: on average, within a week after the hearing. The entire court process – from filing the request to the decision – takes about three to four weeks. In addition, courts are likely to grant cooling-off requests: over 80% so far. The main reason for denying a cooling-off period appears to be the debtor's inability to show that this would be in the interest of the joint creditors.
Another important lesson learned is that a cooling-off period may be used beyond continuing the debtor's business during the restructuring process. It may also facilitate the liquidation of a non-viable debtor, provided that creditors benefit from this way of winding-down the business compared to a wind-down in a regular bankruptcy procedure. A bill has been submitted to codify this option.
The plan expert
In the past year, 75% of requests to appoint a plan expert were granted. Similar to the cooling-off period, the most frequent reason for denying a plan expert request was the debtors' inability to convince the court that a WHOA would provide creditors with additional financial benefit? compared to a bankruptcy procedure.
As expected, courts also attach great importance to a plan expert's independence and fitness. If a court finds that the proposed plan experts lacking, it will refuse the appointment. Debtors should keep this in mind when discussing their case with candidates before the court hears the request. Contact with and involvement of candidates before their appointment should be limited to what is strictly necessary for the candidates to assess the volume of work and the appropriate fees.
Special court powers
The WHOA has introduced a wide range of special powers for the courts. Courts may take any measure and make any provision that they deem necessary to safeguard the interest of the relevant creditors or shareholders. Courts may do this at the request of the debtor or of the plan expert, or on their own initiative. So far, courts have not exercised this power but they have heard several requests filed by debtors and plan experts.
The most common request was seeking approval for the creditor classification under the draft restructuring plan. Previously, we reported on a Rotterdam District Court ruling that, under certain circumstances, allowed the unequal treatment of ordinary creditors for the benefit of DIP financing. Since then, the District Court of The Hague was asked to rule on the unequal treatment of a debtor's principal finance provider as compared with other creditors. The debtor argued that the bank provided essential financing and was lenient on repayment. Furthermore, the debtor had been unable to find another bank willing to replace the principal bank, making the latter's participation indispensable for the restructuring's chances of success. Finally, the debtor argued that without its finance provider's participation, creditors would be worse off. The court approved the proposed unequal treatment primarily on the basis of that last argument. The decision highlights the bargaining power an essential supplier may have, and underlines the importance of working out different scenarios to strengthen unequal treatment arguments.
Apart from creditor classification, courts have ruled on issues such as liquidation value, restructuring value, the intended amendment of shareholder rights, and the proposed voting procedure. Courts have also restricted a shareholder in the exercise of its voting rights, lifted several attachments, and ordered debtors to provide them with a progress report in a few months' time – all to facilitate an ongoing restructuring. Although often met by opposition, courts seem prepared to be creative in order to facilitate restructurings and create deal certainty, provided that the debtor is absolutely candid and transparent in its disclosure to affected parties and the court.