Legislative Update: New Dutch Restructuring Law Enacted
On October 6, 2020, the Dutch Senate approved long-anticipated restructuring legislation allowing for court confirmation of extrajudicial restructuring plans (Wet Homologatie Onderhands Akkoord, or "WHOA").
The legislation combines features of the U.S. chapter 11 procedure and the English Scheme of Arrangement. With its broad range of jurisdiction and flexibility, the "Dutch Scheme" should prove to be an effective addition to the restructuring toolbox for both Dutch and non-Dutch entities and for groups of companies, with the possibility of automatic recognition throughout the European Union. The new proceeding can be used to restructure both Dutch companies with a "center of main interest" in the Netherlands as well as non-Dutch companies with a sufficient nexus with the Netherlands (e.g., by means of significant group activities in the country). It is considered a last-resort pre-insolvency restructuring tool with limited court supervision.
Previously, Dutch law did not provide a mechanism for imposing a restructuring plan on dissenting creditors outside of formal insolvency proceedings. As a result, a restructuring plan required the consent of all creditors and shareholders whose rights were affected by the plan. This made restructurings outside of formal insolvency proceedings very difficult and provided stakeholders with ample opportunity to monetize on nuisance value.
With the enactment of the Dutch Scheme, the Dutch legislature's intent is to allow debtors to propose restructuring plans to their creditors and shareholders outside of formal insolvency proceedings, with the prospect of the debtor being preserved on a going-concern basis. The Dutch Scheme is also intended to (partially) implement the EU-wide initiative to promote "debtor-in-possession" restructuring, as recently formalized in the EU Harmonisation Directive (EU 2019/1023), which requires EU Member States to include such proceedings in the their national legislation.
Key features of the Dutch Scheme include:
- Restructuring Plan: Debtors or a court-appointed restructuring expert will be permitted to propose a restructuring plan for approval by creditors (secured, preferential, and unsecured) and shareholders.
- Voting Threshold: Stakeholders may be split into voting classes divided on the basis of the similarity of their rights vis-à-vis the debtor. The restructuring plan must be approved by a two-thirds majority of each voting class, with the possibility of requesting a cross-class "cram down" under certain circumstances.
- Debtor-in-Possession Proceeding: The debtor remains in control of the company's affairs throughout a Dutch Scheme proceeding.
- Stay of Individual Enforcement Actions: Debtors will be permitted to apply for a stay of individual enforcement actions (including bankruptcy petitions) for a period of four months (extendable to a total of eight months in certain cases).
- Broad Basis for Jurisdiction and Group Restructurings: Subject to certain qualifying criteria, the Dutch courts will have jurisdiction to confirm restructuring plans for both Dutch and non-Dutch companies, allowing for cross-border group restructurings to be centralized in the Netherlands.
- Trade Creditor Protections: Dissenting trade creditors of small enterprises can prevent the adoption of a restructuring plan if they do not receive a distribution under the plan equal to at least 20% of their claims.
- Treatment of Secured Creditors: A secured creditor's claim will be bifurcated into a secured claim, to the extent of the value of any collateral, and an unsecured claim for the deficiency, and the secured and unsecured claims must be classified separately in a plan for voting purposes. Secured financial creditors are excepted from the obligation to offer dissenting creditors that are part of a dissenting class a cash distribution under the plan that is equal to the amount that they would have received in a bankruptcy scenario. Instead, it is sufficient to offer such a secured financial creditor any distribution other than stock.