Bankruptcy & Bankruptcy Act: compulsory agreement in 2020/’21

Bankruptcy is common, as is suspension of payments. But it also happens, of course, that a company in financial difficulties wants to avoid bankruptcy and enters into discussions with creditors in a timely manner. A single creditor can obstruct these negotiations and create a blockage. The other creditors are thus forced to accommodate the blocking creditor, which means that they may opt for bankruptcy. The partly outdated Dutch bankruptcy law is being amended on this point. From October 1, 2020, an extrajudicial coercive settlement will be possible via the Accreditation of Private Agreement in Bankruptcy Act (WHOA). This agreement applies to all creditors in 2020 and 2021, including creditors who are obstructive.

What is the Bankruptcy Act?

The Bankruptcy Act provides strict legal rules in the event that a debtor is no longer able to meet his financial obligations. Bankruptcy declared by the court means a seizure of virtually the entire assets of the debtor or company and loss of employment. Sometimes a restart is possible.

Preventing bankruptcy

A company in financial problems will often want to avoid bankruptcy and look for solutions. This may involve attempting to raise additional capital, but also negotiating with creditors about canceling some of the debts, making additional investments and agreeing to a deferment of payment. The problem, however, is that as long as no suspension of payments or bankruptcy has been declared, creditors retain their full right to payment of the outstanding debts. Outside of a moratorium and bankruptcy, creditors and shareholders may be limitedly obliged to cooperate in a private agreement, even if this agreement is the only salvation for the company. Creditors who do not want to cooperate cannot be forced to do so. Bankruptcy proceedings are also expensive and can take a long time, while great haste may be required. This must therefore change and the Act on the Approval of Private Agreements in Bankruptcy (WHOA) can ensure this.

Act on the approval of private agreements in bankruptcy: the compulsory agreement

The Act on the Confirmation of Private Agreements in Bankruptcy (WHOA) introduces a regulation on the basis of which the court can approve a private agreement on the restructuring and restructuring of a debtor’s debts, which also applies to creditors or shareholders who are not involved in have agreed to the agreement. For those who did not agree, the court’s approval of the agreement is mandatory. For them, this agreement is a compulsory agreement.

Conditions for application of WHOA and approval of compulsory agreement

A court will not simply confirm a private agreement and sideline some of the creditors with a compulsory agreement. A number of conditions must be met (at the discretion of the court), in addition, those who voted against the agreement can submit a request for refusal of approval:

  • The debtor himself takes the initiative to reach an agreement. If the debtor fails to do this or the plans are insufficient while an (improved) agreement seems to be the only way out to prevent bankruptcy, the creditors can also take the initiative for an agreement. Creditors can even ask the court to appoint an expert who can draw up a proposal for a composition.
  • First, an attempt was made to reach an agreement amicably.
  • The agreement is necessary and sufficient to avert the threat of bankruptcy.
  • There is at least one category of creditors or shareholders involved that supports the agreement by a large majority.
  • The agreement is reasonable. This means that the joint interests of creditors and shareholders benefit from it and are in any case not degraded.

Conclusion compulsory agreement

A compulsory settlement becomes possible in a number of cases in order to restructure a company in time and thus prevent bankruptcy and job loss. This relaxation of the Bankruptcy Act is expected to take effect on October 1, 2020.