The WHOA allows you to offer an arrangement to your creditors and shareholders, as well as proposals to amend and terminate agreements. The purpose of the WHOA is to give companies that have fallen on hard times the opportunity to restructure their debts or terminate the company without bankruptcy. This can be done with a closed or public procedure. During the proceedings, a cooling-off period can be requested as a result of which bankruptcy petitions are suspended and attachments can be lifted. The first two judgments handed down over a week ago involved a dispute over a cooling-off period. The second ruling shows that the Amsterdam court came to a necessary reasonable interpretation of Section 376(4)(a) Bankruptcy Act. In last Tuesday's ruling, a restructuring expert was appointed for the first time. We discuss this ruling in this article.
The ruling, published on Wednesday 20 February 2021, shows that two private limited companies jointly requested the appointment of a restructuring expert ("HD"). The two applicants belong to a group.
On the day the application was lodged, both applicants had also filed a commencement statement. During the proceedings, it emerged that a reorganisation plan was already in place. Apparently, there is no need for a cooling-off period, as no request to that effect was made. A request was, however, made for the proceedings to be held in private.
In full compliance with the provisions of the National Rules of Procedure for WHOA Cases in the District Courts, the petitioners submitted the names of two HD candidates, together with their quotations.
The court then considers whether the candidates HD are sufficiently qualified. A HD must perform his duties effectively, impartially and independently, according to the law and stated by the court. The court then assesses whether the candidates HD qualify on the basis of the offers.
The bids contain information showing that the HD candidates have the qualities that appear to be important in this particular case. An outline plan of action and a statement that the HD candidate has "complete freedom" in relation to the applicants, the group to which they belong and other stakeholders such as director, shareholders, client and suppliers.
The court states that it took into account in its choice:
The ruling does not provide sufficient insight into the specific competences and experiences that were the deciding factor in appointing one of the two candidates in this case. The ruling shows that the court-appointed HD is given one more week to submit a plan of action and a budget. This is interesting.
We, along with other restructuring experts, had been wondering for some time how to present an adequate budget in the offer prior to court appointment. Incidentally, the law and the National Rules of Procedure for WHOA cases courts only require submission of an offer and do not talk about a plan of action. A prospective HD has no involvement with the applicant(s) and cannot relate to them. Therefore, until an offer is sought, he is basically blank. Apparently, the court recognised this and gave the appointed HD more time to gather information to adjust his budget and plan of action.
This seems a reasonable solution. Pursuant to Section 371 Bankruptcy Act, it is thus a two-stage process. The court first determines on the basis of the bids whether the candidates HD are suitable, appoints one and then gives a deadline to prepare a plan of action with a corresponding bid. Pursuant to Section 371(5) in conjunction with Section 371(10), the HD will be given an opportunity to be heard on his plan of action and budget before fixing the salary.
In the court's considerations in arriving at its choice, the cost of the HD and any third parties to be engaged by him apparently do not explicitly play a role. The question that then arises is what minimum information the applicant will have to provide to the prospective HD in advance to enable the HD to assess for himself whether he can be a prospective HD and make an offer that gives the court sufficient insight. Another interesting question is whether the applicant(s) should provide the same manner and/or the same information to both candidates. All stakeholders seem to have an interest in a transparent process with a level playing field so that the most suitable candidate HD is appointed. This part of the process was apparently not considered by the legislature and no requirements are set out in the WHOA process regulations.
A reasonable solution would seem to be to require the applicant to ensure that the selection process has a transparent identical query and all subsequent additional information provided is shared with all candidates HD. It is up to the candidates HD to ask the right questions, request sufficient and adequate information. This creates a transparent process and a level playing field. This avoids presenting candidates HD who, for example, are not suitable for a specific case, are not free after all, have been given a wrong idea of the burden in time and lead time or lack certain expertise. As a result, the quality, turnaround time and/or cost may leave something to be desired. Also, dismissal and appointment of a successor may prove necessary. Which will lead to delays and higher costs.
The above is not in the interest of stakeholders. It is expected that experience will be gained with this during the coming period. It is important that this experience is used to achieve process improvement. Marxman Advocaten closely follows developments in the context of the WHOA. We gladly share our experience and knowledge. Let us work together to ensure that the WHOA stimulates the reorganisation capacity of companies in a reasonable and transparent manner.
Then contact one of our WHOA specialists.