Wet Homologatie Onderhands Akkoord (WHOA)

Dutch Scheme

The Dutch Scheme or WHOA (Act on the approval of a private composition for the prevention of bankruptcy, in  Dutch: de Wet Homologatie Onderhands Akkoord) offers companies, and parties that have an interest in those companies, the possibility to alleviate the debt burden of the company and/or to terminate unfavourable agreements prematurely within a very short period of time. The Dutch Scheme is similar to other debt restructuring mechanisms, such as the US Chapter 11 and the UK Scheme of arrangement.

The Dutch Scheme allows a debtor to conclude a composition, i.e., a voluntary arrangement with creditors and shareholders so that a suspension of payments and a bankruptcy can be prevented, and to petition the court to impose the composition on creditors and shareholders who have not agreed thereto. 

Objective of the Dutch Scheme

Before the Dutch Schme came into force, creditors and shareholders could only be compelled to agree to a composition in the event of a suspension of payments or bankruptcy. Apart from that – with a few exceptions – it was nearly impossible to impose a composition on creditors who did not consented thereto. This had an adverse effect on companies that, in principle, were still viable but have many debts. Because creditors and shareholders could easily prevent the conclusion of a composition, they had a strong negotiating position. This applied, in particular, to preferential creditors and creditors holding security interests. This is why it was difficult to reach agreement outside of a bankruptcy. The Dutch Scheme prevents unnecessary bankruptcies and thus preserves value for all parties involved.

The procedure 

The Dutch Scheme procedure can be conducted in public or in private. By opting for a private procedure, negative publicity can be avoided, which in turn will prevent unnecessary costs or procedures. A choice must be made between the two options before the court is involved in the Dutch Scheme procedure.

Both the debtor and a restructuring expert can offer a composition. The initiative for offering a composition will usually be taken by the debtor. The creditors, shareholders and the debtor itself may petition the court to appoint a restructuring expert. In the first phase, the court will primarily assess whether a debtor is insolvent, i.e. cannot reasonably continue to pay its debts.

While the composition is being drawn up, a cooling-off period may be petitioned. The processing of an application for a suspension of payments or a bankruptcy petition is suspended during the cooling-off period. Furthermore, the debtor, the restructuring expert and creditors may make various petitions to the court in order to protect their interests. For example, the court may be asked to make additional provisions, such as appointing an observer (a supervisor), and the court can review and approve new financing.

The substance of the composition is determined by the debtor or the restructuring expert. In general, debt restructuring will take place through partial payment, debt adjustment or a debt-for-equity swap. The composition must be offered to different classes of creditors that hold equal positions. This includes, for example, creditors with a right of pledge or a mortgage right, unsecured creditors and shareholders. After creditors and/or shareholders have been assigned to the 'compulsory classes', these classes can then be subdivided so that different creditors can receive different offers.

Each class votes on the composition. If at least one class votes in favour of the composition with a 2/3 majority, the composition may be submitted to the court for approval. The composition can also be oriented towards a specific class of creditors, without changing the rights and obligations of creditors outside that class. In that case, the composition will be put to a vote for that class only.

The debtor or restructuring expert then submits an application for court approval of the composition. In such cases, the applicant may ask the court to unilaterally amend or terminate an agreement. Any claims for compensation following the termination of an agreement may be included in the composition.

The court assesses whether the application for court approval of a composition meets a number of requirements. The application for court approval of a composition will in any event be rejected if:

  • the decision-making process was defective because, for example, the creditors were not properly informed or divided into classes;
  • a class of creditors that voted against the composition is worse off than it would have been in the event of a winding-up as part of a bankruptcy;
  • the reorganisation value was not fairly distributed, without any reasonable grounds for exception;
  • the creditors that qualify as SMEs do not receive at least 20% of their claim;
  • a class of creditors that voted against the composition was not given the opportunity to opt for a cash amount, unless the class consists of creditors holding security rights.

If the court approves the composition, it is then binding on all creditors and shareholders that were included in the composition. The entire procedure can be completed within a few weeks. What is more, the court's decision is not open to appeal.

Wieringa Advocaten

Amsterdam law firm Wieringa Advocaten has a team specialised in the Dutch Scheme and insolvency law.

Key contacts: Joost van der Grinten, Stephan van de Kant or Joram Verstoep