Gert-Jan Boon (PhD Leiden University) presents the latest news:
WHOA: Dutch Parliament adopts new pre-insolvency restructuring proceeding
Gert-Jan Boon (Leiden University)
Parliamentary discussions on the Wet Homologatie Onderhands Akkoord (Act on the Confirmation of Extrajudicial Restructuring Plans, WHOA) concluded today with its adoption. The legislative process that started some seven years ago has taken an important step forward. This is a brief update to indicate the state of play following today’s vote:
1 – WHOA: adopted by Parliament, now it put forward to the Senate
The bill was presented in July 2019, following several years of preparation and consultation. Introductions and translations to the WHOA have appeared already at various other places (see for instance here or here). On 26 May 2020, the Dutch Parliament adopted the WHOA. A week before, Parliament adopted already several amendments to the bill. The legislative process will continue now as the bill will be put forward for discussion and a vote by the Senate.
2 – The amendments to the WHOA that have been adopted, include:
1 Security holders receive no more than the liquidation value (amendment to Article 374)
Holders of security rights can receive in a plan no more than the liquidation value in bankruptcy. The idea is that the reorganization value should be attributed to all parties involved in the plan. It should promote a consensual solution among all parties. Should a secured creditor also have an unsecured claim, then it can benefit from the surplus only through this claim.
2 Ordinary SME creditors receive at least 20% (for trade and tort claims) (amendment to Articles 374, 375, and 384(4))
Ordinary SME creditors should, unless there are compelling grounds (zwaarwegende gronden), receive at least 20% in cash or a right of that value of their original claim. This applies only for claims of SME creditors based on trading with the debtor or for tort claims.
It also involves that such creditors must be grouped in a separate class(es) to vote on the restructuring plan. The debtor (or when appointed, the herstructureringsdeskundige (restructuring expert)) must report in the proposed plan when this group of creditors is offered less than 20% and what the compelling grounds are for doing so.
If this 20%-rule is infringed (meaning: the SME creditors receive less than 20%), these dissenting creditors if they are in a dissenting class (double requirement) may raise this as a ground to request the court to reject confirmation of the restructuring plan. The court will reject the confirmation, unless there is a compelling ground for providing the creditor with less than 20%. What this ground is really about is far from clear in my opinion. The text leaves much discretion to the courts. The commentary to the amendment states merely that the judge will consider whether paying at least 20% was indeed not an option.
[NB1: There is more detail to this new rule (i.e. not applicable to GroupCo’s claims, ordinary (subordinated) loans of a shareholder, unsecured subordinated claims of financiers, bondholders), the above info aims to give a quick update.
NB2: interesting from a comparative law perspective: the amendment was inspired on Austrian law where a similar but general rule applies for offering a ‘Sanierungsplan’ in Konkurs, also a 20% threshold.]
3 Cash-out payment for dissenting secured creditors (amendment to Article 384(4))
Previously, it was proposed that all dissenting creditors in a dissenting class could request that the plan would be rejected if they did not have the right to ask for a cash-out payment for the liquidation value of their claim. This amendment makes this ground (and therefore the right for cash-out payment) not available for secured creditors. When they are offered shares/certificates under the plan, they should generally be granted an alternative option of payment under the plan (for instance an extension of the loan).
An evaluation of the WHOA will be conducted within three years after its entry into force.
3 – Rejected amendments
Interesting are also the amendments that were rejected by Parliament. This includes the amendments aiming to:
1 Limit the possibilities to deviate from the APR in favour of existing shareholders,
2 Introduce a generic rule that shareholders lose security rights obtained for their shareholder loans.
In the parliamentary discussion on the WHOA earlier in May 2020, the issue of (amending the) ranking was raised several times, in particular, regarding the position of secured creditors and shareholder loans. The Minister of Justice agreed to look into this and will present results of a study by the end of the year. At the same time a further proposal for modernizing the Dutch Bankruptcy Act is expected. Any reforms on the ranking of creditors would impact both the ranking in bankruptcy and (when adopted) in the WHOA.
For now, it is good news that the WHOA is making progress. The Dutch efforts to introduce such a proceeding have taken place already for a long time. Previous discussions and proposals date back from at least the 18th century (see Mennens 2020). Therefore, this adoption by Parliament marks a major step for Dutch insolvency law.