Answer ... (a) Debtor
The debtor can initiate a WHOA procedure. The debtor can thus prepare the plan, unless a restructuring expert is appointed. After the appointment of a restructuring expert, the restructuring expert will take over the preparation of the plan (but not the management of the business or the assets; the WHOA is therefore qualified as a debtor-in-possession procedure). Even after the appointment of a restructuring expert, the debtor may offer its envisaged plan to the restructuring expert with a request to make it his or her own and allow the creditors to vote on the plan. It is also possible that both the plan proposed by the debtor and the plan proposed by the restructuring expert may be brought to a vote.
The debtor initiates a suspension of payments, in which case it is only allowed to control its assets together with the administrator.
(b) Directors of the debtor
During a WHOA, the debtor remains in possession. Therefore, the directors of the debtor remain in control and continue to manage the company and represent it in legal matters. If no restructuring expert is appointed, the directors will prepare and negotiate the plan. Directors must be more careful during a WHOA when entering into new liabilities and making payments to certain creditors, because of the enhanced directors’ liability risks.
During a suspension of payments, the debtor is no longer completely in control. The directors can only continue to manage the company and represent it in legal matters together and with the approval of the insolvency administrator.
(c) Shareholders of the debtor
The rights of shareholders can be restructured through a WHOA plan and shareholders must then vote on the plan. Shareholders cannot be forced to provide new money; they may act in their own interests. Some shareholder rights from the articles of association can be set aside by the court during a WHOA – for example, new shares can be issued and shareholders can be diluted against their will, due to a debt-for-equity swap. Except in small and medium-sized enterprises (SMEs), shareholders have no right to give prior shareholder approval of the plan, which may not be withheld on unreasonable grounds. For SMEs, different rules may apply.
In a suspension of payments, shareholders do not have a specific role.
(d) Secured creditors
The rights of secured creditors can be restructured in a WHOA. If a plan restructures creditors that are ‘in the money’, one of the requirements for a court to approve the plan is that at least one of the consenting classes is in the money. A secured creditor is usually in the money for the secured part of the debt. Tax authorities are usually also in the money. Secured creditors can therefore play an important role in negotiations of the plan. Secured creditors can be in two classes if the expected proceeds of the collateral are less than the secured claim. The claim will then be split in two classes accordingly (bifurcation).
A suspension of payments has no effect on secured debts. Secured creditors can act as if there is no suspension of payment. They can start or continue with the execution of their security rights. It is not possible to bind secured or preferential creditors to the plan.
(e) Unsecured creditors
In WHOA proceedings, unsecured creditors that are SME creditors are in principle entitled to at least 20% of their claim (either in cash payment or in financial instruments), unless there are substantial grounds as to why this requirement cannot be met. The court will decide whether the grounds are substantial.
A suspension of payments plan can only restructure the rights of unsecured creditors or the unsecured claims of secured creditors. A plan cannot cram down secured claims without consent of the secured creditor. The threshold for the approval is that creditors representing at least half of the total amount of the claims vote in favour of the plan.
(f) Employees
A WHOA has no effect on the rights of employees. Employees, however, can initiate a WHOA through the works council (assuming that the debtor has a works council).
In a suspension of payments procedure, it is possible to terminate employment contracts with a notice period of six weeks. The payment of the wages for those six weeks are an estate debt. These wages must be paid and cannot be restructured with the plan. Moreover, overdue wages are usually preferred claims and therefore are not bound by the suspension of payments proceedings. After termination of an employment contract, the transition compensation payment which is normally required need not be paid in a suspension of payments procedure.
(g) Pension creditors
Pension fund liabilities cannot be restructured in a WHOA plan. The contribution that a company must pay to a pension fund is seen as a claim of the employees, and the WHOA cannot restructure rights and claims of employees.
(h) Insolvency officeholder (if any)
In a WHOA, the following insolvency officeholders may – separately but not jointly – be appointed by the court:
- a restructuring expert, whose task is to compose the plan and offer it to the creditors; or
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an observer, whose task is to:
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- observe the manner in which the debtor composes the plan; and
- determine whether the rights and interests of the creditors are sufficiently safeguarded by the plan.
Either an observer or a restructuring expert is appointed; they are not appointed simultaneously. The officeholders can be appointed on the request of:
- the debtor;
- a creditor;
- a shareholder; or
- the works council.
Appointment is not mandatory. However, if no officeholder is appointed and not all classes consent to the plan and the debtor asks the court to confirm the plan, the court will appoint an observer and ask for his or her opinion before ruling on a cross-class cramdown.
In a suspension of payments, an administrator is appointed immediately after the (provisional) declaration of a suspension of payments is granted. The task of the administrator is to offer a debt restructuring plan jointly with the debtor and take into account the rights and interests of the joint creditors. A debtor is no longer allowed to enter into new liabilities without the consent and cooperation of the administrator. The administrator is overseen by a supervisory judge who can give advice and can declare a stay.
(i) The court
WHOA cases are handled by a nationwide pool of specialised judges. The court in a specific WHOA procedure is comprised of three specialised judges from this small pool, of whom at least one is from the respective local court. It is possible that the court may rule (only) on confirmation of the plan – that is, at the end of the WHOA procedure. However, in many WHOA procedures, the court plays a bigger role. Long before the confirmation stage, the debtor can request early rulings on potential deal-breakers of the plan, such as:
- the recognition and classification of claims;
- whether a creditor is a secured creditor and for which part the claim is secured;
- whether the valuation of the liquidation or reorganisation scenario is correct; and
- many more issues that might arise when composing the plan.
These rulings enable deal certainty and may resolve legal uncertainties around the plan at an early stage. Also, the court may:
- appoint an observer or restructuring expert; or
- declare a stay.
In a suspension of payments, the court declares the suspension of payments and appoints an administrator. There is also a supervisory judge who supervises the administrator and provides advice when necessary. The administrator must keep the supervisory judge informed on a regular basis. The supervisory judge can also:
- declare a stay;
- approve or decline recognition of claims; and
- ultimately confirm the plan.