In various blogs, we informed you on a number of aspects of the Dutch Scheme of Arrangement (“WHOA“). On 1 January 2021, this new act will enter into force. In this blog, we will set out the possible consequences of the WHOA for agreements.
Termination by the debtor
When a company faces financial difficulties, (long-term) onerous agreements could become a threat to the continuity of the company. For example, rental, purchase and/or lease agreements. To amend these agreements, one would normally need the cooperation of the counterparty. If the counterparty refuses to cooperate, the WHOA offers the possibility to unilaterally terminate the agreement by including such request in the restructuring plan to be approved by the court.
When the court grants its permission, the termination takes place by operation of law on the day the court has approved the restructuring plan against a maximum notice period of three months. Any claim for damages resulting from the early termination can be included in the restructuring plan. By doing so, the claim for damages can be settled against partial payment or otherwise.
To protect the rights of the counterparty who is affected by the restructuring plan, the WHOA provides various safeguards on which the request for approval of the restructuring plan can be rejected by the court. For this topic, we refer to our blog below.
An exception is made for employment agreements. Employment agreements cannot be terminated based on the provisions of the WHOA and remain subject to regular Dutch labor law.
Amendment, suspension and dissolution
On the other hand, the WHOA offers the debtor opportunities to preserve current agreements. The preparation of any restructuring plan is not a valid ground for a counterparty to suspend or terminate an agreement. So called ipso facto clauses or change of control clauses may not be invoked.
The debtor is also able to request the court to proclaim a so-called ”cooling-off” period when preparing a restructuring plan. If awarded, a counterparty may not amend, suspend or terminate the agreement based on a default incurred prior to the cooling-off period. Obligations that arise during the cooling-off period should be paid.
In order to support reorganizations of companies in distress, the WHOA provides for amendment of agreements and if such an amendment is denied, a termination of the agreement. Furthermore, the WHOA offers the debtor possibilities to preserve current agreements that are important to the continuity of the company.