The Supreme Court recently issued a ruling on the question of whether the Homologation Underhand Agreement Act (WHOA) applies to claims by industry pension funds for pension premium arrears. The question was answered in the negative. This article discusses the judgment.
What is the Homologation Underhand Agreement Act (WHOA)?
On January 1, 2021, the Homologation Underhand Arrangement Act (WHOA) entered into force. With this regulation included in the Bankruptcy Act, a new restructuring instrument has been introduced. Its purpose is to prevent companies from being declared bankrupt while they are still (partly) viable. Under the scheme, the court can impose a compulsory agreement on creditors and shareholders. This is called homologation. An arrangement may change the rights of those involved. For example, a creditor may have to settle for partial payment of his claim against the debtor.
The WHOA and the position of workers
Section 369(4) of the Bankruptcy Act provides that the scheme of the WHOA does not apply to rights of employees employed by the debtor arising from employment contracts. Thus, the WHOA can be used to settle various debts, but not debts to employees.
Under the WHOA, contracts can also be amended or terminated (Article 373 Bankruptcy Act). However, due to article 369 paragraph 4 Bankruptcy Act, this does not apply to employment contracts.
Are pension contributions covered by the WHOA?
The judgment of the Supreme Court was rendered in response to a preliminary question from a district court. The proceedings involved the following. A hotel company offered a WHOA settlement. In the settlement offer, the Stichting Pensioenfonds Horeca en Catering was put in a class of unsecured creditors. This class was offered payment of 20% of the claim. All classes voted in favour of the settlement with a sufficient majority. The Pension Fund voted against the settlement and filed a defense against the homologation request. The Pension Fund argued that the WHOA does not extend to claims for pension contributions, because of what is stipulated in Section 369(4) of the Bankruptcy Act.
Thus, the legal question arose whether the WHOA applies to pension contributions. Are there here rights of employees employed by the debtor arising from employment contracts? The court referred this question to the Supreme Court.
Rights of employees arising from employment contracts?
The Supreme Court briefly discusses the establishment history of the statutory provision. Based on this, the Supreme Court concludes that with rights of the employees in the sense of article 369 paragraph 4 Bankruptcy Law nothing else is meant than with obligations of the debtor towards its employees.
Furthermore, the Supreme Court pointed out that a pension agreement, pursuant to Section 1 of the Pensions Act, is that which has been agreed between an employer and employee regarding pensions. The Explanatory Memorandum to that Act states that it makes no difference to the reciprocal rights and obligations between employer and employee whether they actually agree the pension themselves or whether the organizations representing them do so. Therefore, the Supreme Court takes as a starting point that, also in the case of participation in an industry-wide pension fund on the basis of an obligation, a pension agreement applies between an employee and an employer.
Pension is a condition of employment and is part of the employment relationship
The Supreme Court continued:
“Pension is an employment condition and as such the pension agreement forms part of the employment relationship between the employee and the employer. It follows from the foregoing that the rights and obligations of the employee and the employer arising mutually from compulsory participation in an industry pension fund under the Wet Bpf 2000 must be regarded as rights and obligations arising from an employment contract.”
Furthermore, the Supreme Court points to the triangular relationship that exists between the employee, the employer and the pension provider (such as an industry pension fund). In this relationship, the employer is also obliged to the employee to pay to the pension provider.
Claims for pension fund contributions in arrears fall outside the scope of WHOA
The Supreme Court considered that involving claims by a pension fund for premium arrears in a WHOA agreement would impair the employee’s corresponding right against the employer. It could also jeopardize the pension accrual of employees. This would not be in line with the intention of the legislator, according to the Supreme Court.
The Supreme Court therefore concludes that the WHOA regulations do not apply to a claim for premium arrears from an industry pension fund, and that such a claim cannot be included in a private settlement as referred to in Article 370 (1) of the Bankruptcy Act.
WHOA cooling-off period cannot extend to workers’ rights
A cooling-off period is – in short – a period during which creditors cannot take recourse against assets of the debtor (unless an authorization has been issued by the court). Also, during the cooling-off period, a petition for bankruptcy filed by a creditor against the debtor is suspended. The debtor who has started a WHOA process (or the restructuring expert) can request the court to declare a cooling-off period (section 376 Bankruptcy Act). In practice, the proclamation of a cooling-off period is requested relatively often.
Can the cooling-off period extend to pension contributions?
In the judgment discussed, the Supreme Court also noted that a cooling-off period declared by the court cannot extend to the rights of employees under section 369(4) of the Bankruptcy Act. Therefore, the cooling-off period cannot extend to claims of an industry pension fund for pension contributions either, according to the Supreme Court.
Thus, it appears that even if a cooling-off period has been declared under the WHOA, pension funds may continue to take collection action against the debtor, including taking recourse and filing for bankruptcy.
Remediation of debts to pension funds for pension premium arrears not possible
The judgment of the Supreme Court seems to me to be correct. It was the intention of the legislator that the position of employees cannot be affected by the WHOA and it is therefore appropriate that pension entitlements remain unaffected.
Of course, the fact that the debts to the pension fund cannot be restructured by means of a WHOA agreement may be a reason for a debtor to choose to file for bankruptcy on its own anyway.
Looking for a lawyer about WHOA agreement in Rotterdam?
Thus, the Supreme Court has made it clear that claims relating to overdue pension contributions of industry-wide pension funds fall outside the scope of the WHOA. If you need legal assistance in offering a settlement under the WHOA or if you wish to object to the settlement as a creditor, please contact Peter de Graaf or one of our other insolvency law specialists.