In various blogs, we informed you on certain aspects of the Dutch Scheme of Arrangement (the “WHOA“). On 1 January 2021, this legislation will become effective. In this blog, we will set out the considerations to opt for a public or a private WHOA procedure.
The WHOA provides for two procedures in which the reorganization plan can be put into effect: a public and a private one. A choice for one of the procedures must be made as soon as the court becomes involved and this choice cannot be changed during the procedure. Therefore, the choice should be carefully considered. A public procedure involves a public hearing and publication in the public Insolvency Register, the Dutch Government Gazette and the Trade Register. The private procedure involves a private court hearing without any publication, which is clearly an advantage, certainly when the arrangement only relates to a limited group of creditors. There are also other, less obvious differences between the two procedures.
In principle, the European Insolvency Regulation is applicable to a public procedure and the private procedure will be governed by the national rules of international private law (“national IPL“), which has consequences for the jurisdiction and the international recognition of an approved WHOA arrangement.
In the public WHOA procedure, the court will derive its jurisdiction from the Insolvency Regulation. In that respect, it is important if the center of main interest, the “COMI”, of the debtor lies within the Netherlands or that the debtor has an establishment in the Netherlands. In a private procedure, the court will derive its jurisdiction from article 3 of the Dutch Code of Civil Procedure (DCCP), following which it must be determined if the applicant has its domicile and/or habitual residence in the Netherlands or if the business is otherwise sufficiently connected with the Netherlands. Generally speaking, the determination of the jurisdiction from the DCCP is broader and therefore offers more opportunities for the Dutch courts to assume jurisdiction. Certainly, in case of a restructuring of an international group of enterprises, a private procedure may be preferred.
For the internationally operating debtor, it is most important that its court approved restructuring plan is recognized abroad. In a private procedure, this recognition depends on the national IPL of the member state concerned or on applicable treaties to which both countries are party. In a public procedure, the Insolvency Regulation applies under which the court decisions are automatically recognized by the other EU member states (separate from Denmark). This is, among other things, important if there are group companies with assets in other member states. A cooling-off period declared by a Dutch court would, in principle, also protect foreign assets. Furthermore, it prevents foreign creditors from recovering their part of the claim that was written off under the restructuring plan. However, the Insolvency Regulation also contains important restrictions. Despite the WHOA procedure, creditors with a right of pledge or mortgage can, even when a cooling-off period has been ordered, effect recovery of foreign assets. The termination of rental agreements regarding real estate in other EU countries shall be governed by the local insolvency laws. In such a case, it will not be possible to use the WHOA for termination of foreign rental agreements, while this could be done for Dutch interest property (we refer to our blog below about the amendment of agreements under the WHOA).
The choice for a public or private WHOA procedure requires thorough consideration. The public procedure is public and can influence the business operation negatively because parties are reluctant to do business with a party that faces bankruptcy. Often, a private procedure will be preferred but the jurisdiction and international recognition should also be taken into consideration.