For the first time, a restructuring plan has been confirmed under the new Court Approved Restructuring Plan Act (Wet Homologatie Onderhands Akkoord, or WHOA). This court confirmation illustrates how a "Dutch Scheme" comes about in practice. In this article our restructuring specialists Jelmer Baukema and Willemijn Bouman briefly discuss the court confirmation.
The WHOA opens the possibility for a debtor or creditor to offer a compulsory restructuring plan to all (other) creditors and the shareholders outside of a possible bankruptcy. This Dutch scheme allows companies that are fundamentally viable to avoid bankruptcy. Court confirmation means that a restructuring plan offered to the creditors and shareholders of a company is approved by the court. If the court confirms the restructuring plan, it is from that moment on binding for all parties involved in the restructuring plan.
The judgment (in Dutch)
The restructuring plan in this case concerns a company that provides light shows at events. In 2019, the company employed 25 people and had a turnover of almost EUR 5 million. As a result of the Corona virus outbreak, the company ceased operations in March 2020. A reorganisation was subsequently carried out in order to cut costs. In addition, in June 2020, the company, which consists of two legal entities, offered its creditors a voluntary plan, i.e. outside of the WHOA. Since a number of creditors voted against, this voluntary plan proved to be unfeasible. The company therefore asked the court to confirm a restructuring plan via a WHOA procedure and therefore to force the unwilling creditors to cooperate.
The restructuring plan
It follows from the judgment that the restructuring plan was offered to the creditors at the end of December. The restructuring plan distinguishes three classes of creditors: class 1, one lienholder, class 2, the Tax Authorities and class 3, the unsecured (trade) creditors. No distinction is made between the two legal entities that comprise the company.
In summary, the proposed restructuring plan includes the following:
(i) A cash contribution:
- The DGA pays off EUR 50,000 on his current account debt to the company;
- The bank provides a financing of EUR 350,000 and receives security for this;
(ii) The early termination of a rental agreement for movable property.
(iii) A (partial) payment to creditors:
- Class 1: the lienholder is paid EUR 139,000, plus 16% of its remaining claim (in Class 2: unsecured (trade) creditors);
- Class 2: the Tax Authorities are paid 21% of their claim against final discharge; and
- Class 3: the unsecured creditors are paid 16% of their claim against final discharge. The lessor under the rental agreement to be terminated, shares as an unsecured creditor for the cash value of that contract.
It follows from the judgment that the debtors had opened a website where relevant information regarding the restructuring plan was made available. This included the draft restructuring plan, valuations and information about the procedure for voting on the restructuring plan. All creditors were given the opportunity to vote in favor of or against the restructuring plan via the website or by email or post. The vote took place over a period of 11 days. It is noteworthy that after the voting closed, votes in favor of the restructuring plan were still received from creditors, including the Tax Authorities.
In the end, all classes agreed to the restructuring plan offered. It follows from the judgment that in Class 3 a limited number of unsecured creditors voted against the restructuring plan.
The court's judgment
One or two restructuringplans
In this case, the court first deals with the question whether or not each legal entity of this company should have offered a separate restructuring plan. Although the two legal entities together form a group of companies, a restructuring plan can only provide for the alteration of creditors' rights towards legal entities that form a group together with the debtor, if the requirements set out in the WHOA have been met. This means, among other things, that there must be joint and several liability of the debtors. The court notes that in this case, there is only joint and several liability with respect to the debts to one creditor, the Tax Authorities, and not with respect to the other creditors.
It follows from the judgement that the debtors had intended to have each legal entity offer its own restructuring plan to its creditors, but that these restructuring plans were combined and presented to the creditors and the court as a single restructuring plan. According to the court, offering such a combined restructuring plan for confirmation is not possible under the WHOA.
In this case, the court gives the debtors a helping hand and does not attach any consequences to the fact that not two separate restructuring plans were offered. According to the court, it must have been clear to all creditors that there were in fact two restructuring plans. In its decision, the court also took into account, among others, that it must have been clear to all parties involved that it concerns a restructuring of all outstanding debts of both debtors and that in so far as the separate assets have not been respected all classes of creditors have agreed to the restructuring plan. The court also takes into account that this is the first request for court confirmation under the new law and that the law may not be entirely clear on this point.
Assessment of the grounds for refusal
The court then assesses whether one or more of the general grounds for refusal of confirmation as stated in the law apply in this case. These grounds mainly relate to the question of whether the decision-making process has been proper. It follows from the judgment that the debtors had made some mistakes. For example, certain information provided seemed incomplete and sometimes contradictory. However, after receiving further explanations from the debtors regarding the observed shortcomings, the court concludes that there are no general grounds for refusal. In this respect, too, the court seems to be lenient with the request for confirmation.
Since one dissenting unsecured creditor has submitted a written defence and has requested that the request for confirmation be rejected, the district court also checks whether there are any special grounds for refusal. At the request of one or more creditors or shareholders with voting rights who have not themselves consented to the restructuring plan or who have wrongfully been excluded from the vote, the court may reject a request for confirmation of a restructuring plan if it summarily appears that such creditors or shareholders would be worse off under the restructuring plan than they would be in case of a liquidation in bankruptcy of the debtor's assets. In this case, however, the debtors have sufficiently demonstrated that the creditors are better off under the restructuring plan than they would be in case of a liquidation in bankruptcy of the debtors' assets. For this reason, the defenses put forward by the relevant creditor cannot lead to the rejection of the confirmation.
Confirmation of the restructuring plan
As none of the general or special grounds for refusal of the request for confirmation apply and there are no other grounds to reject the request for confirmation, the court approves the restructuring plan. This also means that the court allows the unilateral termination of the rental agreement. The company however has not determined a notice period. The court therefore determines itself that the notice period applicable between the parties applies, on the understanding that a period of three months from the confirmation of the restructuring plan is sufficient in any case.
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