The Netherlands needs WHOA to restructure companies, especially now
WHOA: a new corporate restructuring regime
As the Covid-19 pandemic forces many businesses to consider options to restructure its capital and funding, the Dutch lawmakers missed an important opportunity to pass a new restructuring law that would greatly benefit affected stakeholders. The next opportunity to pass the law now seems to be in October, too late for some.
Dutch companies facing financial distress thus far had two options: either to file for bankruptcy (liquidation) or to come to a voluntary restructuring with all their creditors. In practise, companies, shareholders and creditors have a strong aversion to the Dutch bankruptcy procedure. The law is outdated and amounts to a near certain liquidation, with commensurately low recovery expectations. The near certain liquidation is because there are no provisions for a restructuring of the capital structure of a firm. While bankruptcy/liquidation is acceptable for businesses in economic and financial distress, it is highly undesirable if it happens to businesses in financial distress but with certifiable economic prospects. In such cases the difference between the expected liquidation value and reorganisation value can be substantially in favour of an orderly restructuring.
In most cases, creditors expect higher recovery values in reorganisation than in liquidation. From a stake-holder point of view, bankruptcy has far-reaching social and economic consequences, as the firm may halt operations. It leads to unnecessary job losses, credit losses, loss of technology and know-how. The Dutch bankruptcy law was due for an overhaul.
Now, lawmakers have prepared a corporate restructuring law, the WHOA (Wet Homologatie Onderhands Akkoord). WHOA is described by some as a faster, more flexible and cost-efficient version of the famous US Chapter 11 and the UK’s Scheme of Arrangements.
The WHOA procedure can be started by the company management, shareholders or any creditor when the company is expected to be insolvent in the future. If prepared properly, the entire procedure can be finished in 3-5 weeks and the board remains in control. Essential to the WHOA is the restructuring expert, who is appointed by the court and eventually decides on the new capital structure. Creditor classes vote by majority to approve a restructuring plan. Other key elements are that:
- Every creditor must receive at least the same value as he would receive in liquidation
- Creditors which are essential to the company (e.g. suppliers) can be paid in full
- The judge’s ruling is final, no appeal possible
- The procedure can either be public or not
- The board can be granted shares as motivation for running the business
- Specific protection for small creditors