Entrepreneurial Holland is clamoring for the introduction of WHOA. The WHOA can prevent a lot of bankruptcies and can be implemented quietly. A large and influential group of insolvency lawyers has asked the government to introduce WHOA by July 1, 2020.
WHOA is the abbreviation of Wet Homologatie Onderhands Akkoord (WHOA).
The WHOA makes it possible for companies in dire straits to restructure debts by concluding a private agreement with creditors and shareholders. The court can approve (homologate) this agreement. The homologation means that the agreement is binding on all creditors and shareholders.
The WHOA thus makes it possible to force even those creditors who have not agreed to the agreement to agree anyway. It is therefore also called a forced composition. The purpose of the WHOA is to achieve an overall restructuring of a company and its creditors outside of official insolvency proceedings. The procedure can be fairly smooth and at its fastest within about 4-5 weeks.
Who is the WHOA intended for?
For businesses that have accumulated too much debt over time, but demonstrably had profitable operations and thus have a positive cash flow. For businesses in this situation, voluntary debt restructuring or suspension of payments is the only means of averting possible bankruptcy. In principle, the eligibility criterion for restructuring under the WHOA is imminent bankruptcy.
The WHOA agreement can be offered to all creditors and shareholders, as well as to certain creditors. This is at the discretion of the company. Preferential creditors (tax authorities and UWV) and separatists (bank) can also be involved in the WHOA agreement; this is an important difference from the moratorium.
For example, a company can choose to offer an agreement to lenders only if, for example, financing expenses are the reason for the impending bankruptcy. The WHOA additionally offers the possibility to also restructure ongoing agreements by amending or terminating them such as, for example, a lease agreement. A reorganization of the workforce falls outside the WHOA.
Classification of creditors
If one class of creditors agrees, the plan can be submitted for homologation.
Before filing the financial restructuring plan, WHOA, creditors (and possibly shareholders) are divided into classes. The class ranking is based on the various claims creditors have the company. The ranking, which would apply in case of bankruptcy, is hereby leading in determining the class classification. In the agreement, a proposal is made for each class based on the rights of the creditors.
Creditors with the same or similar rights will therefore be placed in the same class. This is, for example, a class for preferential creditors (such as the tax authorities), a class for pledge and mortgage holders (such as the bank), a class for unsecured creditors (such as suppliers) and/or a class for shareholders (in SMEs this is usually the entrepreneur, so they will leave themselves out of it and not make a class for shareholders).
Amount represented
A class votes in favor of the agreement if those in favor represent at least 2/3 of the outstanding debt in that class. So it is not a question of a majority vote in number, but the amount they represent.
If one class votes in favor, the agreement is basically passed and is binding on all classes, including the dissenting classes. With the agreement of one class, the company can then ask the court to homologate the plan.
The WHOA aims to strengthen the reorganizing ability of businesses without involving drastic insolvency measures. The WHOA is thus applied by going concern companies. What is important here is that the company continues to operate as usual. The entrepreneur therefore retains the disposal and management of his assets during WHOA proceedings.
Conditions agreement to stop
If one or more classes have voted against it, creditors from the dissenting class can object. This can be done based on the following objections, among others:
- The dissenting class receives a lower benefit than it would receive in bankruptcy;
- The dissenting class receives a different distribution than it would receive in bankruptcy, such as cash. In fact, every creditor is entitled to a cash distribution if they would receive it in bankruptcy.
Shareholders may be surprised by WHOA application
The provision that the WHOA can also be applied to shareholders makes the position of shareholders uncertain. This is all the more true because the filing of a WHOA restructuring does not require the consent of the General Meeting of Shareholders. In SMEs, this will not be such a big deal because the director is often also the DGA.
The WHOA offers opportunities for entrepreneurs to avoid bankruptcy and reach an agreement in relative peace and quiet, thus keeping control of the company and ensuring continuity.
