On Jan. 1, 2021, the Homologation Private Arrangement Act (WHOA) went into effect. The law makes it easier for companies to reach an agreement with creditors and shareholders on debt restructuring. Such an agreement can be supervised by a restructuring expert to be appointed by the court.
The legislator has taken as its starting point that the WHOA – being a procedure aimed at preserving value and continuity and by which a company can be saved through restructuring – takes precedence over a bankruptcy aimed at liquidation. The same principle can be found in the Natural Persons Debt Rescheduling Act (WSNP): because bankruptcy of a natural person must be prevented as much as possible, the WSNP takes precedence over it.
WHOA grounds for suspension
For the WHOA, this premise is laid out in two places in the Bankruptcy Code:
- if a bankruptcy petition (on its own motion or at the request of a creditor) and a request for the appointment of a restructuring expert are pending simultaneously, then the request for the appointment of a restructuring expert will be heard first and consideration of the bankruptcy petition will be suspended (Article 3d Fw.); or
- in the event that WHOA proceedings have already been commenced, a declaration of a cooling-off period can be used to ensure that a suspension of payments application or bankruptcy petition (on the creditor’s own initiative or at the creditor’s request) is suspended (Art. 376(2)(c) FW).
Thus, a WHOA proceeding can suspend a bankruptcy filing.
Arnhem-Leeuwarden Court of Appeal dated April 19, 2021 (ECLI:NL:GHARL:2021:4081)
Recently, in proceedings before the Arnhem-Leeuwarden Court of Appeal, this premise was put forward not as a ground for suspending a bankruptcy petition, but (unsuccessfully) as a ground for setting aside a bankruptcy that had already been declared.
Facts
Hof Filmprodukties B.V. was declared bankrupt in absentia at the request of a creditor. The objection lodged by Hof Filmprodukties B.V. was declared unfounded by the District Court of Midden-Nederland, which upheld the bankruptcy. Hof Filmprodukties B.V. appealed against this ruling.
On appeal, Hof Filmprodukties B.V. took the position, among other things, that due to an omission in the service of the petition for bankruptcy, it had been declared “raw” bankrupt, which meant it could not have claimed the WHOA. With this, Hof Filmprodukties B.V. tried to achieve the annulment of the bankruptcy, after which it still wanted to be eligible for the WHOA.
Review
Although in my opinion the Court of Appeal could have dismissed the case with the observation that the Bankruptcy Act – with reference to the priority rules referred to under i. and ii. – only grants suspensory effect to a WHOA procedure (which was a station already passed), the Court of Appeal proceeds to give a substantive judgment on the (un)feasibility of a WHOA agreement. The Court of Appeal considered:
“It does not follow from the documents that Hof Filmprodukties made constructive efforts to reach a solution with its creditors in order to reach a feasible and well-considered settlement. The court therefore does not follow Hof Filmprodukties in its contention that it could have successfully used a reorganization agreement based on the WHOA.”
A WHOA agreement therefore proved unfeasible for Hof Filmprodukties B.V. Because the other conditions for assuming a bankruptcy situation were also met (plurality of creditors and being in “the condition of having ceased to pay”), the bankruptcy was upheld on appeal.
To what extent the Court of Appeals’ willingness to consider the feasibility of a WHOA agreement in its adjudication should be seen as an opening for the proposition that a potentially feasible WHOA agreement can lead to the annulment of a bankruptcy that has already been declared, further case law will have to show.
This contribution was written by Mr. Jeroen van der Pouw Kraan , affiliated with the Corporate and Insolvency Law practice groups.
