The WHOA: what exactly does this apparent miracle cure do?

The WHOA cannot be ignored. The media frequently report on a growing number of companies reorganizing with the help of this tool. These range from retail businesses to football clubs, and from restaurant chains to hotels. But what exactly does this apparent miracle cure do?

WHOA stands for the “Act on the Confirmation of Private Restructuring Plans” (in Dutch: Wet Homologatie Onderhands Akkoord). Quite a mouthful, but in short, this law allows companies to reduce their debt burden through a restructuring plan. Under such a plan, a struggling company makes a proposal to its creditors to settle outstanding debts that are putting too much strain on the business.

Why was the WHOA necessary?

Until recently, such a restructuring plan could only be implemented if all creditors agreed. If only a majority cooperated, the dissenting minority (or even a single creditor) could block the plan, frustrating the reorganization and often leading to bankruptcy — leaving creditors with even less. The only legal alternative was a formal suspension of payments (surseance van betaling), during which a judge could enforce the plan and prevent creditors from having veto power. However, in practice, such suspensions almost always led to bankruptcy, defeating the goal of rescuing the company.

Therefore, a new regulation was needed: one that worked outside of suspension of payments or bankruptcy and could still force dissenting creditors to participate in a plan. That’s exactly what the WHOA provides.

WHOA from start to finish

A WHOA restructuring plan comes together after a legally defined process. To navigate it successfully, legal and financial advisors are essential. The process often starts with the submission of a “declaration of intent,” officially notifying the court that the company is initiating WHOA proceedings.

From that point, the plan is developed. First, all current creditors and their claims must be identified, and their legal ranking assessed. Based on this, creditors are grouped into so-called “classes.” Then, the outlook for each class in a potential bankruptcy is examined—i.e., what they would likely receive from a court-appointed trustee. The restructuring proposal must not offer creditors less than this baseline.

Next, the value created by saving the company via the WHOA plan is estimated. The idea is that this added value flows back to creditors through the proposal so they share in the company’s recovery.

Once this is established, proposals can be made to the creditor classes. A vote is held. If enough support is gained, the company can request the court to declare the plan binding on all creditors—including those who voted against it. This is called confirmation (homologatie). Once confirmed, the plan can be implemented. The full process usually takes about three to six months.

Who can use the WHOA?

The WHOA is available to companies facing unsustainable debt but that are otherwise viable. This means the company must be able to cover its ongoing costs and show that it has long-term prospects. Typically, this requires either a positive cash flow or the support of a shareholder (or financier).

WHOA and the Tax Authorities

The WHOA is currently being widely used because many companies are burdened with COVID-related tax debts. These tax debts can be included in the WHOA plan. Both the Dutch Tax Administration and the Employee Insurance Agency (UWV) have provisions for this.

Legal tools

One reason WHOA is so effective is the additional tools provided by law to support the process. One of the most important is a “cooling-off period”. During this time, creditors may not take measures that could harm the company, such as placing liens, enforcing security rights, or stopping deliveries. Even banks may not terminate credit facilities. This allows the company to prepare the plan in relative peace.

In short

The WHOA has become a popular and powerful instrument for companies looking to escape from excessive debt. However, success depends heavily on thorough preparation and a well-structured process.

About the author

This article was written by Derk van Geel (derk.vangeel@actlegal-netherlands.com), partner in Insolvency Law & Restructuring at act Fort Advocaten in Amsterdam. Do you have questions about this article or considering a WHOA process? Derk will be happy to help. For more information on the WHOA, visit AllesOverWhoa.nl.