The WHOA is new. The exact effect that the Act will have is therefore net yet clear – for debtors, creditors or any other party involved. Case law, among other things, is contributing to this implementation in practice. On 15 January 2021, the Court of The Hague passed the first judgment under the WHOA. The debtor was a retailer in The Hague that was faced with difficulties because of the corona measures. Relying on the WHOA, the debtor wished to offer its creditors a winding-up agreement. This first court ruling is addressed in this article.

In the judgment, the debtor filed the (mandatory) start-of-procedure declaration for the preparation of the composition with the Court of The Hague and requested the court:

1. 1. 1. to order a two-month cooling-off period; and
      2. to lift the attachments on his assets.

Request to order a cooling-off period

According to the debtor, “breathing space” was needed to prevent individual actions for recovery by creditors from bringing the company down. The court then assessed whether the conditions of Article 376 of the Bankruptcy Act for ordering a cooling-off period had been met. Those conditions are:

1. 1. 1. the debtor must have promised that it will be able to offer a composition within a maximum period of two months;
      2. the cooling-off period is necessary for the continuation of the business conducted by the debtor during the preparation of the negotiations on a composition; and
      3. it serves the interests of the debtor’s joint creditors, and the interests of the creditors that have levied attachment or have filed a petition for bankruptcy are not materially affected.

In the court’s opinion the above conditions were met. In assessing the request, the court primarily considers the interests of the joint creditors. The court found that without a cooling-off period it would not be possible for the debtor to prepare a composition. Bankruptcy would then most likely be unavoidable, in which case it was very likely that the creditors would receive nothing. The cooling-off period created an opportunity for a higher repayment of the claims. The court therefore found the cooling-off period to be in the interest of the joint creditors.

It is also noteworthy that the court took a flexible approach to the condition that the continuation of the business required a cooling-off period, because the debtor’s company was not actually conducting any activities and no longer generated any turnover due to the corona measures. The court nevertheless ruled that the condition had been met.

Request to lift attachments

The debtor’s second request related to the lifting of the attachments that had been levied on the debtor’s stock and equipment. In the court’s opinion, the attaching party’s interests would not be substantially harmed by a temporary lifting of the attachments, because the value of the assets would not significantly decrease during that period. The court therefore did not believe it made sense to uphold the attachments. It found that the company would go into bankruptcy also without the attachments being lifted, in which case the attaching parties would not receive any payment at all.

Conclusion

The first judgment to be passed under the WHOA demonstrates that the WHOA can be a fast and effective method for business owners with financial problems to restore their businesses. Our expectation is that in the near future many more companies can be saved by using this new instrument. If you fear that creditors will file for bankruptcy or take further actions for recovery, you are well advised to look into the possibilities offered by the WHOA. A composition under the WHOA can prevent bankruptcy and place the company in calmer waters. A successful composition may also offer refinancing opportunities, because the company’s equity position improves and most of the pressure is (temporarily) off.

If you wish to know whether your company is eligible for the WHOA scheme or if you have any other questions on this subject, please contact Helger Kamerman (+31-6-51080197).

This article was published in the Newsletter Vestius of March 2021

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