As is known, the majority of entrepreneurs are in trouble. Despite government measures to prevent financial problems, the corona virus threatens to take its toll. Many companies are currently surviving with the help of the emergency aid, but the fear of bankruptcy is inevitable.
What is Whoa?
In view of the impending bankruptcies, the Underhand Agreement Homologation Act (Whoa) is just right. The court can now, as of October 6, 2020, approve a private agreement between a company and its creditors. The law therefore makes it possible for entrepreneurs to restructure debts, with the result that bankruptcy may possibly be prevented.
When is there the Whoa?
From the start: a company is in payment problems and is not expected to pay its debts anymore. At the request of the company or its creditors, the court can declare a company bankrupt. This is often not a desirable situation for both the company and the creditors. The Whoa acts in this to prevent bankruptcy for companies that, considered in themselves, have profitable business activities, but are no longer able to operate profitably due to a high debt burden.
How does Whoa prevent bankruptcy?
The Whoa prevents a small group of creditors and / or shareholders from undermining or damaging the interests of the other parties involved. Previously, all stakeholders had to agree to a restructuring proposal for this proposal to go ahead. Only one party had to work against it, and bankruptcy became almost inevitable. The Whoa makes it possible that a minority of creditors and / or shareholders who do not agree to the composition can be bound by composition. Thus minorities practically lose their right of veto by this law.
Example
Company A has payment problems and cannot avoid bankruptcy without restructuring its debts. Company A presents a proposal for a creditors' agreement. This proposes, for example, deferment of payment or a reduced interest rate. 90% of the creditors agree; 10% disagree. Where previously the proposal was often rejected, the court can now decide that all creditors are still bound by this proposal, regardless of an agreement or not.
Who is the Whoa Beneficial For?
The Whoa can offer a solution for medium-sized companies. A medium-sized company usually has a substantial number of creditors and cannot reach an individual solution with these creditors. The court can therefore play a decisive role in this. The Whoa is less applicable for small businesses. A small business might be better off talking to creditors on its own to save the high costs of litigation. If the majority of creditors are not open to restructuring by then, the Whoa offers no way out anyway.
This article was originally published on KRC Van Elderen website at https://www.krcvanelderen.nl/actueel/aanpassing-faillissementswet-whoa
