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2024-04-doc4 Evaluation of the Dutch WHOA legislation

RESTRUE, is the name of the Report 2023 on Restructuring proceedings and bankruptcies in Poland. It was published mid April 2024 and prepared by the law firm of Filipiac Babicz. I was invited to write a few words about the Dutch WHOA legislation. My text follows here:

In 2023, the evaluation of the WHOA legislation was most anticipated in the Netherlands. The WHOA came into effect on January 1, 2023. The aim of the WHOA is, in short, to prevent that companies that are viable in their own right, either through over-indebtedness or over-indebtedness structural debts would go bankrupt. This is done through homologation (the ‘H’ in WHOA), so the approval or ratification by the court of a private agreement (the ‘OA’) between a debtor and (part of) his creditors and/or shareholders in the change of their rights and that can also bind creditors and shareholders do not agree with that. The legislation (the ‘W’ in ‘WHOA) would be evaluated after three years. That time had come on December 18, 2023.

The evaluation report on the Dutch WHOA restructuring tool shows that it generally works as intended by its legislators. Overseen by a team of eight academics at Leiden University and the University of Groningen, the survey finds that the WHOA (sometimes called the “Dutch scheme”) generally achieves its core objective of strengthening viable businesses’ ability to restructure. To a lesser extent it also finds that the WHOA helps companies settle with creditors voluntarily by providing clear frameworks for negotiations and a legal trajectory if they fail. A mark was also given to the statutory instruments, including the option to request and extend a cooling off period and the option to ask the court to rule early on so-called “aspect requests” or issues that might affect confirmation (‘homologation’) of the WHOA-plan. They operate, the researchers conclude, adequately. The lack of an appeal process for WHOA proceedings does not create ‘insurmountable obstacles’.

For practitioners it is noteworthy that “aspect requests” can only be made either at the court’s initiative or by the debtor (‘debtor-in-possession’) or a court-appointed restructuring expert. Since 2021, this is a new character introduced by the WHOA. He/she has to arrange for the concluding of a restructuring plan, which may include mediating the negotiations for, and helping to draw up, the restructuring plan. The evaluation report recommends that the right to make aspect requests should also be given to court-appointed observers. Also, this is a new character. He/she is appointed at the request of creditors or shareholders, instead of a restructuring expert, to make sure the proceedings are carried out in their interests. Extending these requests to observers would help prevent creditors and shareholders from raising objections for the first time during the confirmation hearing, which can unintentionally lead to rejection of a plan.

The evaluation report is also critical. The WHOA is not functioning as intended in its use by small and medium sized enterprises (SMEs). Smaller businesses in particular lack awareness of the WHOA process or consider it inaccessible to them due to the high cost of hiring consultants or lawyers and the amount of court fees. Two measures to make the WHOA more cost effective for SMEs are suggested: (i) by reducing the size of the company valuation, and (ii) the quantity of other information that needs to be submitted. It is also necessary to increase awareness of the WHOA with the general public. Overall, however, the WHOA is substantially less expensive than equivalent proceedings in other jurisdictions, especially the US Chapter 11 and the English restructuring plan, the reporters conclude.

Naturally, the report results in other recommendations for improving the WHOA legislation. Now that the Dutch cabinet has been out of office (‘demissionair’) for about six months and there is little prospect of a new composition of the government, these improvements may take some time.