The Homologation Private Arrangement Act (WHOA) ensures that a company's existing obligations are frozen on date application for WHOA to the court. Repayment obligations to banks, repayment of arrears to the tax authorities (e.g. in connection with covid from October 2022) are then suspended pending debt restructuring.
In this way, a company that is fundamentally healthy but has too much debt obtains time to reach agreements with its creditors. Of course, there are conditions attached to the WHOA (including the contribution of new money). For more in-depth explanations, please refer to the many publications available on the Internet.
Setting up scenarios
Earlier this year, one of our relations was confronted with a letter from one of its clients that it had initiated a WHOA process. Our relationship is a finance company with a substantial loan to this company, but no experience with WHOA, nor with companies in payment difficulties. They asked the Centrum voor Bedrijfsopvolging to develop various scenarios with the goal of minimizing losses as much as possible.
Two senior partners from the BoE (for good reason, we always work in pairs) with relevant experience in restructuring, financing and dealmaking freed themselves up and, under high pressure, completed this assignment. Through hands-on support to the client in its decision making and scenario building.
The WHOA application requires the submission of necessary documents to the court and after analyzing these documents, we were able to develop a number of scenarios:
- Acceptance of proposed debt restructuring
The proposal was to write off the debts by 85%, leaving a residual of 15% that would then be paid from the results in 3 years. Not an attractive prospect. - Rejection of debt restructuring and enforcement of collateral after bankruptcy
A yield of about 30%, but with an end in the foreseeable future. - Restart of company with roll-over of (part of) financing and securities
Proceeds of 40-50% with the possibility of further reduction through a stake in the restart company.
It was clear that a relaunch of the business would lead to the best recovery, but then knowledge and skills had to be mobilized to successfully run a relaunch business.
WHOA course
We found a party that dealt in the same products but in different markets after a quick search in our network. This party was interested in acting together with our relationship in the event of bankruptcy.
We then developed a structure and rigged financing in which both parties could achieve their goals. My relationship was ready to act at the end of the WHOA process.
The WHOA process was ultimately unsuccessful because it is primarily aimed at cleaning up debts on the balance sheet, but on the basis of sound business operations. That was not the case in this case with the result that the WHOA application failed and this party was forced to file for bankruptcy.
The role of the BoE:
- Developing scenarios;
- Formulate a go-live structure;
- Organize financing for the purpose of the relaunch;
- Searching for a go-to starter with relevant experience;
- Standing alongside the client in negotiating with the various parties.
