On the brink of bankruptcy? The WHOA may be your way out
- Annelies den Breejen
- The basis
- 8 Jun 2023
- Edited 22 Mar 2023
- 6 min
- In trouble
- Rules and laws
A binding debt restructuring agreement to save your company, even though not all your creditors agree. That is the core of the WHOA (translated: the Court Approval of a Private Composition (Prevention of Insolvency) Act). This law has been in effect since 1 January 2021.
The helps otherwise viable businesses, that threaten to go bankrupt due to a high debt burden. Restructuring their debts can help these businesses stay afloat. Businesses that are no longer viable can also benefit from the WHOA, as it allows them to stop their business without going bankrupt. The entrepreneur in debt (the debtor) can initiate the WHOA process themselves.
Video: On the brink of bankruptcy? The WHOA may be your way out
Dirk Spoormans, lawyer with the firm MannaertsAppels Advocaten shares his vision on how the law will help entrepreneurs. He has extensive experience as curator and administrator, and is familiar with financial company restructuring. The Netherlands Chamber of Commerce KVK consultant and legal advisor Sergej Schuurman explains the workings of the new law for entrepreneurs.
This is how the WHOA works
Until 1 January 2021, a debt restructuring agreement could only be reached when all creditors and shareholders agreed. One unwilling creditor or shareholder can lead to bankruptcy. Since 1 January 2021, the WHOA applies. The agreement is this law’s core business.
The debtor confers with the creditors, and draws up a concept agreement. This concept debt restructuring agreement is put to the vote. Then, the court confirms the debt restructuring agreement. This confirmation by the court is called homologation. The court can homologate a debt restructuring agreement, even if not all the creditors or shareholders agree. This is also called a compulsory settlement, because the creditors and shareholders have to act upon the agreement; even if this means that they have to settle for a partial repayment, a complete acquittal of debts, or a payment extension. During the WHOA process, the entrepreneur in debt can continue to run their business, and stays in control of its day-to-day operations.
Rules for the WHOA process
The contents and design of the agreement have to meet certain standards. One of the requirements of the new law is that the entrepreneur classifies the creditors. Think of creditors with different rankings, for instance the Tax Administration and mortgage lenders or property owners. The WHOA makes it possible for entrepreneurs and creditors to design the debt restructuring agreement themselves, Spoormans explains: “For instance, it is up to you to decide if you want to offer the agreement to all creditors, or to one or several classes, or to exclude certain classes of creditors.” Bear in mind, however, that the creditors you do not approach to participate in the agreement retain their right to full payment of the debts you ow them.
The second part of the law is that a majority of one of the classes of creditors has to agree to the proposal. There must be a majority of creditors, representing two-thirds of all debts within that class, in favour.
Next up is the confirmation by the court. If the court does confirm the agreement, the nay-sayers (those creditors who voted against the agreement) must uphold it. Even if they have to settle for less than the full amount they were entitled to. Spoormans emphasises that the law also makes provision for smaller self-employed creditors. “The WHOA stipulates that small SMEs, with fewer than 50 employees, must be repaid at least 20% of the outstanding debt. This protects the smaller SMEs.” The WHOA also affects existing agreements, like rental agreements. With the court’s permission, the tenant can end the agreement unilaterally if the landlord does not agree to an offer of changes or termination. “For many businesses, the office space rental agreement proves a bottleneck in times of financial difficulty. The WHOA creates a possibility to avoid that”, says Spoormans.
Main requirements for WHOA
- The company is unable to pay off its debts, now and in the foreseeable future.
- The aim of an agreement must be:
- avoiding the imminent bankruptcy of an enterprise that will be financially sound after restructuring;
- wrapping up an enterprise that is no longer viable, with an agreement that achieves a better result for the creditors than a bankruptcy would.
- The agreement must be well-thought out and tenable.
- The decision-making process and the contents of the agreement must meet certain legal requirements.
- An important condition is that the agreement must be reasonable. This means, for example, that the agreement must not affect the position of the creditors and shareholders adversely.
- Staff employment conditions must remain unchanged.
For all companies
The WHOA is part of the Bankruptcy Act (Faillissementswet or Fw) and applies to all companies. In Spoormans’ estimation, sole proprietors and self-employed professionals without staff (zzp’ers) will also make use of the new law more often. “It is true that sole proprietors and zzp’ers can also make use of the Natural persons debt restructuring Act or WSNP, but that means having to follow an administrator’s instructions for 3 years – that’s not something they generally enjoy doing.” Plus, you can only make use of the WSNP if you end your business.
The advantage of the WHOA is that it offers entrepreneurs a more practical and faster solution, with the same result as the WSNP. But there is also a downside, says Spoormans: “The costs involved in the WHOA process, for instance accountants’ fees and legal costs, can run to a few thousand euros. That is a lot of money and may deter the small self-employed entrepreneur.”
WHOA is one of the options
If bankruptcy threatens, there are several options. Debt restructuring, either voluntary or statutory (the WSNP), or bankruptcy. The WHOA is added to those options. As Schuurman states, many businesses want to avoid bankruptcy: “Once the court pronounces bankruptcy, the curator takes over your business. The curator has one priority, and that is making sure the creditors are paid. The process may take years, and can end with you still in debt at the end of it.”
Spoormans thinks the new law is a very welcome addition to today’s daily practice. “It offers entrepreneurs in difficulties a solution other than bankruptcy. And the WHOA is faster and more efficient than the existing alternatives.”
Preparing and concluding the agreement yourself
The entrepreneur can prepare and offer an agreement to their creditors and shareholders themselves. When preparing the agreement, the entrepreneur lodges a declaration with the court clerk to the effect that he or she is starting a WHOA process. When the request for homologation is offered to the court, a lawyer’s services are required.
Generally speaking, a legal or financial advisor can support the entrepreneur for the entire duration of the WHOA process. The debtor can also ask the court to appoint a restructuring expert to offer the agreement in their stead. This is an option if the debtor wants to avoid any semblance of a conflict of interests. Or if the debtor feels it will increase faith in the process, and with that the agreement’s chances of success.
Creditors, shareholders or a works council (ondernemingsraad or OR) or other staff representation can also take the initiative and put the WHOA process in motion. They can ask the court to appoint a restructuring expert. This expert can then prepare an agreement and offer it to the creditors and shareholders involved.
You can submit your agreement for homologation to the court. Prepare your agreement carefully:
- Consult with your bank, landlord, suppliers, and shareholders.
- Come to arrangements on, for example:
- payment extensions
- debt acquittal
- transferring debts to shares in the company.
- Put these arrangements down in black and white in a concept agreement. Do not forget to rank the creditors and shareholders in different categories. Do this based on their legal position and the different arrangements you want to make with them.
- Submit the concept agreement to your creditors and shareholders. Make sure they can reflect upon the proposal for at least 8 days before it is put to the vote.
- Organise a vote for the creditors and shareholders involved in the agreement.
- Make a report within 7 days of voting, noting amongst other things the result of the vote. Share this report with the creditors and shareholders involved.
Read what the requirements are and what you can do straightaway in the article Avoid bankruptcy with the WHOA.
If a creditor applies for your bankruptcy before you are ready to submit your agreement to court, inform the court immediately that:
- your payment delay is a consequence of the outbreak of the COVID-19 virus;
- you are working on the preparation of an agreement, and that
- you want to make use of the WHOA, and are preparing to submit your homologation request to the court.
Time-Out Arrangement to support the WHOA
The WHOA will be extended with additional services, such as advice, coaching, referrals and supporting tools. They are part of the WHOA support package TOA or Time-Out Arrangement. The ministry of Economic Affairs and Climate Policy (EZK) and other stakeholders are currently working on this toolkit.
Try the MKB Diagnosetool (SMB Diagnosis Tool, in Dutch) to check how your business is performing and make informed choices for your next step. In 10 minutes, this KVK tool will help you gain insight into, among other things, the value of your company, your financial health, and your online visibility. The tool is suitable for both sole proprietorships and SMBs.