WHOA

Restructuring over-indebtedness

For a company that is viable on its own but is at risk of bankruptcy as a result of excessive debt, continuity can potentially be achieved through debt reduction.

A debt reduction can be achieved by reaching an agreement with creditors on a one-off payment on their claim against final discharge. If an amicable route is feasible (all creditors agree to the proposal), this is preferable. The chances of success are increased if an amicable settlement meets the requirements under the Homologation Private Arrangement Act (‘WHOA’) and its implementation follows a similar path.

Should the path fail because one (or more) creditor(s) do not want to participate, the WHOA offers the possibility of having a submitted agreement approved (‘homologated’) by the court, thus also binding creditors and/or shareholders who have not agreed to that agreement.

A restructuring process is intensive and complex, both in elaboration and in communication and stakeholder management

A successful trajectory is determined by:

• Thorough preparation
• Cooperation, multidisciplinary team
• Communication and proactive information
• Transparency: creditors and shareholders are entitled to information specified by law in order to form an informed opinion on the agreement
• (Restoring) stakeholder confidence in the future
• Professional guidance from an experienced financial expert and insolvency lawyer

I. Preparation of information memorandum

• Analysis and description of the nature, extent and cause of the financial problems
• What attempts have been made to resolve these problems
• What is the company's prudential position as at the fixation date?
• Pre-insolvency test
• Liquidation or settlement value of assets
• Position of creditors/shareholders: claim and securities
• What restructuring measures (including debt reduction) are needed to restore the company's financial health?
• What will the balance sheet look like after the arrangement is concluded?
• Operational, liquidity and balance sheet forecasts: 3-5 years after agreement, including underlying assumptions, uncertainties, market expectations
• Reorganisation value
• Is the value expected to be realised after debt reorganisation through agreement
• Is obviously higher than the liquidation value
• WHOA basically requires each entity to offer its own arrangement

Intended conclusions

• The company can honour the agreement
• The company has returned to financial health after restructuring its debts

II. Formulating draft agreement

• Creditors and shareholders involved are divided into classes, taking into account securities and preferences
• Distribution of the reorganisation value among the different classes

III. Required funding in principle complete for

• Current commitments during the trajectory
• Cost of the trajectory
• The agreement

Implementation

• Filing of start statement
• Inform creditors and agree amount of claim and securities per fixation date
• Submit draft proposed settlement to key stakeholders, e.g. shareholders, bank, tax authorities, suppliers
• Submit final agreement to voting shareholders
• Vote
  
  • 100% approval: private agreement reached
  • Less: (chances of success in) request for approval by the court