Financial difficulties
Court Approval of a Private Composition Act
The Court Approval of a Private Composition Act (WHOA) came into force on January 1, 2021. This change in the law has significantly altered Dutch insolvency law.
Compulsory composition outside bankruptcy under the WHOA
The WHOA allows a debtor to offer a compulsory composition to creditors and other stakeholders (such as shareholders) that may help avoid bankruptcy. Previously, the possibility to have a compulsory composition declared binding only existed in suspension of payment proceedings or bankruptcy proceedings.
Binding of creditors to WHOA composition
The composition becomes binding on the creditors if the court homologates the composition. Even if creditors have voted against the composition, they can be bound by the composition. One of the requirements of the law is that the composition must be reasonable and fair. The creditors are given the opportunity to vote on the composition and are divided into different classes for this purpose. For example, a mortgagee will be assigned to a different class for the part of his claim that is covered by the mortgage right than a creditor without privilege (i.e. an unsecured creditor).
The content of the composition under the WHOA
The debtor has a great deal of freedom in designing the composition. The proposed composition may entail a change in the rights of those involved (creditors and shareholders). For example, a creditor may have to settle for only partial payment of his claim or conversion of part of the debt into share capital.
Legal regulation of the WHOA
The legislation of the WHOA is quite complex. Various requirements are imposed on the contents of the composition. For example, the expected value of the company after the composition should be stated (the reorganization value), as well as the expected proceeds from the liquidation of the debtor’s assets in the event of bankruptcy (the liquidation value). Valuations should therefore be carried out.
On this basis, the ‘no creditor worse off rule’ can be tested, which means that the court can reject the request for approval of the composition at the request of a creditor if the creditor would be in a worse position as a result of the composition than in the event of liquidation of the debtor’s assets in bankruptcy.
In addition to the debtor, creditors and stakeholders, other persons may also play a role, such as a restructuring expert, observer and other experts to be appointed by the court.
Lawyers counseling WHOA
We are happy to assist you if you wish to offer a composition in order to avoid bankruptcy or if you are faced with a debtor who wishes to offer a composition.
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Please click further if you would like to know more about how we can advise you on the following areas/topics:
SPECIALIZED LAWYERS
These are our lawyers who are specialized in this area.
Justin de Vries
Peter de Graaf
Furkan Alkilic
More about companies in financial distress
Action on taxation in box 3
As we all know, there has been a lot of recent movement on box 3 taxation. Box 3 primarily taxes savings, investments and real estate. The assets in this box were previously taxed on the basis of a flat rate of return: the tax authorities set an assumed percentage, regardless of the actual return. This meant that many taxpayers paid taxes on a return they had not actually received. You may also have overpaid taxes in the past. If so, chances are you may be eligible for legal redress!
Directors’ liability after turboliquidation
In a recent court case concerning turboliquidation of a catering business, the court ruled that the directors were not personally liable. The case involved the discontinuation of the business without assets, with creditors being paid pro rata. The landlord claimed unlawfulness, but the court held that the turboliquidation had been carried out correctly with no obligation of bankruptcy.
Director’s liability for tax debts
Directors of troubled companies are usually aware that acts performed in the face of bankruptcy (if it comes to that) will be examined by a receiver. Unobligatory legal acts that have harmed creditors may be reversed by the trustee.
