The WHOA in a nutshell, how does it actually work?

The Private Agreement Homologation Act (WHOA) will come into force on 1 January. The WHOA offers companies in financial difficulties a new tool for debt restructuring. Good timing, now that many companies are in the danger zone due to the corona crisis.

Read more: Shlomo Rechnitz – The Jerusalem Post

What does the WHOA mean for entrepreneurs in financial difficulties?

Is your company’s business viable, but is it heavily indebted? And do you want to avoid bankruptcy? Then the WHOA may offer a solution. On the basis of the WHOA you can offer your creditors, or part of them, a composition. You may determine the content and structure of the agreement yourself, within the limits of the law. For example, you can divide creditors into different classes. You can then make a proposal per class for partial payment of the receivables, against remission of the remainder. You are not obliged to offer an agreement to every class. If you decide to exclude a class from the composition, these creditors retain the right to full payment of their claim.

Once one class has agreed to your proposal, you can ask the court to confirm (homologate) the agreement. As a result, all creditors to whom you had made a proposal are bound by the agreement. Tip: you have quite a lot of freedom when it comes to class division. If you prepare the proposal well and get advice from an expert at an early stage, you may be able to achieve important strategic advantages. That can help you achieve your goal; that as many creditors as possible agree to your proposal.

What conditions apply to an appeal to the WHOA?

In order for a proposal to succeed under the WHOA, you must meet – in short – the following conditions:

1. Your company is in payment difficulties.
2. The activities of your company are viable at the core.
3. The agreement is better for creditors than a bankruptcy.
4. The agreement is realistic, feasible and complies with the law.
5. The value of the composition is equally and fairly distributed among creditors.
6. Employment conditions remain unchanged (the WHOA does not apply to employment contracts).

In addition, it is also taken into account whether the agreement has advantages compared to a bankruptcy, such as the preservation of employment, for example.

What does the WHOA mean for creditors?

Suppose you, as a creditor, are asked to agree to a proposal, how do you deal with that? In order to make a proper assessment, it is important to critically assess the proposal (or have it assessed), including checking the following:

1. Does the proposal meet the legal requirements (see above)?
2. Has all information been provided?
3. Has the procedure been followed correctly?
4. Is compliance with the agreement sufficiently guaranteed?
5. Will the interests of creditors not be harmed by the composition?
6. Is there cheating or unfair distribution?

In addition, the WHOA includes a scheme for SMEs with fewer than 50 employees. They must be paid at least 20% of their outstanding receivables. The outcome of this assessment may be a reason to refuse your cooperation with the agreement. Of course you can then still be bound by the agreement through homologation, but that is only after a judicial review.

Conclusion

The WHOA offers the opportunity to restore companies to health, prevent bankruptcies and maintain employment. This is of social importance, especially in the current corona era. But for creditors it is important to assess a proposal with a healthy critical eye. This prevents you from being disadvantaged as a creditor.

Questions?

Are you considering offering a composition to your creditors? Or have you received a proposal as a creditor? Please feel free to contact us. If you would like to read more about possibilities for restructuring, click here for Frédérique Vos’ blog about this.