On the brink of bankruptcy? The WHOA may be your way out

The WHOA helps otherwise viable businesses, that threaten to go bankrupt due to a high debt burden. Restructuring their debts can help these businesses stay afloat. Businesses that are no longer viable can also benefit from the WHOA, as it allows them to stop their business without going bankrupt. The entrepreneur in debt (the debtor) can initiate the WHOA process themselves.

Dirk Spoormans, a lawyer with the firm MannaertsAppels Advocaten shares his vision on how the law will help entrepreneurs. He has extensive experience as curator and administrator, and is familiar with financial company restructuring. The Netherlands Chamber of Commerce KVK consultant and legal adviser Sergej Schuurman explains the workings of the new law for entrepreneurs.

This is how the WHOA works

With the WHOA roadmap, you can follow the path from preparation to agreement step by step. The law offers opportunities for companies that have future prospects, but also for those that do not.

Companies with future prospects have a tool in their hands with the WHOA to avoid bankruptcy. The debtor consults with creditors. These agreements are recorded in a draft agreement.

This draft debt settlement agreement must be voted on. The court then confirms (homologates) the proposed debt settlement agreement. Even if not all creditors or shareholders involved in the settlement agree.

This is also known as a compulsory settlement, as creditors and shareholders have to abide by the agreement due to this law. Even if they have to settle for, say, a partial write-off, cancellation of debts, or deferral of payments.

The indebted entrepreneur retains control of his company during the WHOA process and can continue doing business. Within the WHOA, this is referred to as a reorganisation agreement.

Companies with no future prospects can use the WHOA for the financial settlement of a company. The WHOA makes it possible to exit in a controlled way while retaining control of your company. This allows you to avoid major financial losses. This is in contrast to bankruptcy where a receiver takes over your company and you no longer have any say. Within the WHOA, this is referred to as a liquidation agreement.

Rules for the WHOA process

The contents and design of the agreement have to meet certain standards. One of the requirements of the new law is that the entrepreneur classifies the creditors. Think of creditors with different rankings, for instance, the Netherlands Tax Administration, mortgage lenders, or property owners.

The WHOA makes it possible for entrepreneurs and creditors to design the debt restructuring agreement themselves, Spoormans explains: “For instance, it is up to you to decide if you want to offer the agreement to all creditors, or to one or several classes, or to exclude certain classes of creditors.” The creditors you do not approach for a settlement retain their right to full payment of outstanding debts. A majority within 1 class must agree to the proposal.

Next up is the confirmation by the court. If the court does confirm the agreement, the nay-sayers (those creditors who voted against the agreement) must uphold it. Even if they have to settle for less than the full amount they were entitled to. Spoormans emphasises that the law also makes provision for smaller self-employed creditors. “The WHOA stipulates that small SMEs, with fewer than 50 employees, must be repaid at least 20% of the outstanding debt. This protects the smaller SMEs.”

The WHOA also affects existing agreements, like rental agreements. With the court’s permission, the tenant can end the agreement unilaterally if the landlord does not agree to an offer of changes or termination. “For many businesses, the office space rental agreement proves a bottleneck in times of financial difficulty. The WHOA creates a possibility to avoid that”, says Spoormans.

Approval by the Dutch court is automatically recognised in other European member states, except Denmark.

Security and guarantee

If the debtor has a personal surety, guarantor or surety, these security rights do not expire with a WHOA agreement. An example of a personal surety is if you are a director-major shareholder (dga) of a private limited company (bv) and you have privately co-signed for a loan or mortgage of the bv.

If the loan creditor becomes involved in a WHOA agreement of the bv, the creditor may only recover part of his original claim based on the agreement. In this case, the creditor may still approach you privately for the entire original claim. This is stated in article 370 paragraph 2 Fw.

The law also states that, as a director, you cannot reclaim this paid amount from the bv afterwards. The idea behind this is that the bv is not liable for the entire debt afterwards. The bv could still run into problems afterwards and then the WHOA process would have been in vain.

The legislator did include the guarantee that a creditor will never be paid a larger amount than the amount of the claim that existed before the WHOA agreement was approved.

Registration and publication in the Insolvency Register

Public agreement proceedings are registered and published in the public Insolvency Register (in Dutch)

The main requirements for WHOA

• The company is unable to pay off its debts, now and in the foreseeable future.
• The aim of an agreement must be:
  • a restructuring agreement
  • a liquidation agreement
• The agreement must be well-thought-out and tenable.
• The decision-making process and the contents of the agreement must meet certain legal requirements.
• An important condition is that the agreement must be reasonable. This means, for example, that the agreement must not affect the position of the creditors and shareholders adversely.
• Staff employment conditions must remain unchanged. Unpaid pension contributions may also not be included in the WHOA agreement.
• Should a settlement fail, the debtor cannot offer a WHOA settlement again for 3 years.

For all companies

The WHOA is part of the Bankruptcy Act (Faillissementswet or Fw) and applies to all companies. In Spoormans’ estimation, sole proprietors and self-employed professionals without staff (zzp’ers) will also make use of the new law more often. “It is true that sole proprietors and zzp’ers can also make use of the Natural Persons Debt Restructuring Act or WSNP, but that means having to follow an administrator’s instructions for 3 years – that’s not something they generally enjoy doing.” Plus, you can only make use of the WSNP if you end your business.

"Also, consultancy fees for guiding a WHOA route, can be a hurdle for the small self-employed professional."

Until 2024, the court had issued more than 300 judgments. These rulings mainly deal with the cooling-off period, the appointment of a restructuring expert or observer and other aspects related to the WHOA route.

WHOA is one of the options

If bankruptcy threatens, there are several options. Debt restructuring, either voluntary or statutory (the WSNP), or bankruptcy. The WHOA is added to those options. As Schuurman states, many businesses want to avoid bankruptcy: “Once the court pronounces bankruptcy, the curator takes over your business. The curator has one priority, and that is making sure the creditors are paid. The process may take years, and can end with you still in debt at the end of it.”

Spoormans thinks the new law is a very welcome addition to today’s daily practice. “It offers entrepreneurs in difficulties a solution other than bankruptcy. And the WHOA is faster and more efficient than the existing alternatives.”

Roles in the WHOA procedure

The entrepreneur can prepare and offer an agreement to their creditors and shareholders themselves. When preparing the agreement, the entrepreneur lodges a declaration with the court clerk to the effect that he or she is starting a WHOA process.

There are several parties involved in the WHOA process:

Engaging a legal adviser, financial adviser or restructuring expert increases the success rate of the agreement. After all, the WHOA process must be completed carefully. External help may be needed in getting the financial records in order and in making classifications. An external consultant also helps with planning, given the prescribed deadlines in the process.

The debtor can ask the court to appoint a restructuring expert, who can try to reach an agreement. The court appointing the restructuring expert will make adjustments if it finds that the restructuring expert is not performing their duties properly and may replace them in extreme cases.

Creditors, shareholders, or a works council (ondernemingsraad or OR) or other staff representatives can also take the initiative and put the WHOA process in motion. They can ask the court to appoint a restructuring expert. A lawyer is needed when the homologation petition is filed with the court.

Get started

You can submit your agreement for homologation to the court. Prepare your agreement carefully:

• Consult with your bank, landlord, suppliers, and shareholders.
• Come to arrangements on, for example:
  • payment extensions
  • debt acquittal
  • transferring debts to shares in the company.
• Put these arrangements down in black and white in a concept agreement. Do not forget to rank the creditors and shareholders in different categories. Do this based on their legal position and the different arrangements you want to make with them.
• Submit the concept agreement to your creditors and shareholders. Make sure they can reflect upon the proposal for at least 8 days before it is put to the vote.
• Organise a vote for the creditors and shareholders involved in the agreement.
• Make a report within 7 days of voting, noting amongst other things the result of the vote. Share this report with the creditors and shareholders involved.

Read what the requirements are and what you can do straightaway in the article Avoid bankruptcy with the WHOA.

If a creditor applies for your bankruptcy before you are ready to submit your agreement to court, inform the court immediately that:

• your payment delay is a consequence of the outbreak of the COVID-19 virus;
• you are working on the preparation of an agreement, and that
• you want to make use of the WHOA, and are preparing to submit your homologation request to the court.