New law helps avert bankruptcies

As many companies are now no longer able to conduct their business in the usual manner due to the coronavirus pandemic, more companies are expected to be faced with money problems and perhaps even bankruptcy. The Court Approval of a Private Composition (Prevention of Insolvency) Act (Wet Homologatie Onderhands Akkoord or ‘WHOA’) put forward by Sander Dekker, Minister for Legal Protection, which was adopted by the Dutch Senate today, can help avert bankruptcy. The Act makes it easier for companies to reach an agreement with creditors and shareholders on debt restructuring.

Minister Dekker:

'If a majority of creditors of a company in serious financial distress jointly reach agreement on debt repayment, it is not acceptable for just one individual creditor or shareholder to be able to block such an agreement. Precisely to prevent businesses from collapsing, we are making it easier in such situations to agree on debt rescheduling and to continue the business. This is good for employees, business owners and creditors.'

More companies can continue to operate

Currently, an agreement on debt reduction can be reached only if all the creditors and shareholders concerned grant consent. Each individual party concerned therefore has an incentive to refuse to grant consent in order create a better position for itself, making it difficult and often impossible to reach agreement. This will now change.

The intent is for the WHOA to increase the debt restructuring options by having the court confirm that an agreement is supported by the majority. This means that a debt reduction agreement can no longer be thwarted by an individual creditor or shareholder. It will be easier for companies that are at risk of bankruptcy due to a heavy debt burden, but still have viable business activities, to continue these activities and avert bankruptcy.