WHOA protects large companies, but SMEs lag behind in debt approach: ‘Costs too high’

The Dutch Act on the Confirmation of Private Plans (WHOA) appears to be a lifebuoy for companies in financial crisis, but smaller companies benefit less from it. This is the conclusion of a joint research team from the University of Groningen and Leiden University, which has so far evaluated the WHOA on behalf of the Scientific Research and Data Center.

The Act on the Confirmation of Private Plans (WHOA), in force on January 1, 2021, offers viable companies the opportunity to restructure their debts and thus prevent bankruptcies. Unfortunately, smaller companies in particular are not well aware of the law and are put off by the high costs of a WHOA process.

Viable companies.
Companies in financial difficulties can restructure their debts with the WHOA by proposing an agreement to their creditors and/or shareholders. This agreement can range from partial debt relief to converting debt into shares. If the creditors agree (a private agreement), the company may ask the judge to approve the agreement. The creditors and shareholders who do not agree will also be bound by the agreement.

The research commissioned by the Scientific Research and Data Center (WODC), the knowledge institute for the Ministry of Justice and Security, emphasizes from their findings that the WHOA generally functions well and strengthens the reorganizing capacity of viable companies. It offers support facilities, such as a cooling-off period, to maintain operations during the process.

The law also seems to contribute to amicable agreements outside the courts. Nevertheless, the researchers see some creditors who stick to the legal procedure of a WHOA course through the courts. The WHOA, originally intended for small and medium-sized enterprises, does not appear to connect well to this segment in practice. Small entrepreneurs and their creditors are often unaware of the law and realize too late that a change of course is necessary. In addition, the significant costs for the WHOA trajectory make it unsuitable for smaller companies. For example, expensive experts must be hired to investigate the viability of the company and engage lawyers in the proceedings. In addition, one has to pay court fees. And the entrepreneur has to pay for that from his own funds.

Evaluation according to the research team
The evaluation of the WHOA, just three years after its entry into force, is considered premature. The law is still under development and all bottlenecks may not have come to light yet. The researchers therefore advise that a follow-up study be carried out in about five years’ time, in which the economic impact of the WHOA, such as employment conservation, can also be further investigated.

Disadvantages and points of attention for creditors
This research – and associated analysis – is mainly written from the position of the company that ends up in a WHOA process. For creditors, a number of cases seem to have been appointed quite unilaterally, albeit to protect the company entering into the WHOA process, but that too quickly ignores the interests of and possible consequences for creditors. In this context, there are also a number of drawbacks at the WHOA, as the lunch meeting that we organized in consultation with Bierman Advocaten in November last year showed.

Retention of title and classification
It remains important, also in a WHOA, that you must agree on a good retention of title, in order to optimally protect your rights and that your claim is classified in a better ‘ class ’, with which you significantly increase your chances of a higher offer.

Cooling period: maximum (2x) four months
WHOA legislation states that a cooling-off period can be pronounced by the judge for a maximum of 4 months, with the possibility of a further 4-month extension. This means that goods subject to a retention of title remain in the possession of the company in question with the aim of still selling them. Our experience shows that invoking retention of title always makes sense. Firstly, because if no cooling-off period has been obtained, the retention of title can be invoked immediately and the goods are therefore claimed. Secondly, because even if there is a cooling-off period, you are in a better creditor position than the ‘ ordinary ’ creditors, as indicated above.

Obligation to execute pending orders
One of the articles of law that seem completely one-sided is the mandatory right that when you have a pending order, at a company that ends up in a WHOA process, you have an obligation to execute this order in accordance. A company that already has to wait for the money is financially squeezed because purchasing cannot simply be done and therefore cannot comply with the obligation to deliver, with the risk of claims for damages. In addition, there is a chance that a WHOA trajectory will fail. The discrepancy is therefore ‘ m also in the duty of care for companies to be ‘ a good family man ’, behave reasonably and as a responsible person who does everything necessary to prevent (foreseeable) damage. This may conflict with the aforementioned extradition obligation.

In short, our experience is that it is necessary to evaluate more frequently and from multiple angles, insights and interests must be examined to see whether the laws and regulations in this area need to be adjusted or amended.

Source: de Ondernemer, MODINT Credit & Finance
Photo: Shutterstock

Do you want to know more about the WHOA? Contact MODINT Credit & Finance. Mail to info@modintcredit.com or call +31 88 505 4700.

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