The cost of agreement (WHOA).

To be honest, I was skeptical about the new law on homologation by private agreement ("WHOA") when I first learned about it. Indeed, the initial publications seemed to indicate that the new law was primarily suitable for SMEs+ and larger, but not so much for SMEs and/or sole proprietors. This was mainly due to the expected additional costs for a so-called Restructuring Expert and a maze of advisors and valuation reports. This while precisely for SMEs and self-employed workers such a legal regulation could be of added value.

I have since returned to this (in part). So has the practice, apparently, because the first proceedings are on remediation of SMEs (see here) and not large companies.

During the development of WHOA, a number of other additions and/or changes were made by the legislature that greatly improved the usability of the law for SMEs.

That makes me see WHOA now as a useful extension of our restructuring practice and the agreements we have negotiated in it. Not only for large companies, but also for SMEs and self-employed workers

The Restructuring Expert

The introduction of a new role in insolvency law generates a lot of interest, but also makes one skeptical. Many people think they know that a receiver, for example, costs a lot of money and that a Restructuring Expert will therefore also cost a lot of money. The agreement might therefore not succeed in advance for the small business owner because the Restructuring Expert still has to be paid first.

That thought is correct in principle. Indeed, it is expected that the cost of a Restructuring Expert will indeed be high.

However, the legislature has provided two solutions to this problem: (1) it is not mandatory to have a Restructuring Expert appointed and (2) if the creditors do ask for one (because they have opened the proceedings, for example), the cost of the Restructuring Expert can be placed on the creditors.

This allows the business owner itself to remain in charge of the progress and scope of the agreement, but also allows the agreement to be supervised by the company's own accountant/accountant and attorney. How much time those advisors put into the agreement is much more in the control of the business owner .

If the request is made by one or a few creditors, the costs remain the responsibility of the business owner. Therefore, keep good contact with the creditors and actively inform them; this will prevent them from making such a request.

If the business owner itself chooses to proceed with a Restructuring Expert, the court, when appointing the Restructuring Expert, sets the maximum salary (see here). It also requests that three quotes be attached to the request for appointment of the Restructuring Expert (see here). Thus, the business owner knows in advance what to consider. 

Valuation reports

It was also often said that the number of valuations that had to be prepared (liquidity forecasts, appraisals, cash flow charts, reorganization valuations, etc.) would lead to too great a cost for the small business owner. It turned out that this too need not always be the case.

While the law prescribes that the agreement proposal must include information on values, it does not specify the requirements that those valuations must meet. This means that the business owner also has great freedom in determining values. For example, a current balance sheet based on the company's own records can already provide much needed information about the value of the company. It is therefore conceivable that the scope and quality of valuations for the smaller business owner and the SME will therefore have to be less than that of larger companies.

Observer

The Observer is appointed only if the court deems it necessary and in any case when there is a cross class cram down. If a Restructuring Expert has been or will be appointed, an Observer will not be appointed. The cost of the Observer is already determined at the time of his appointment.

The Observer is entitled to receive information from the board and may compel the board to provide that information under circumstances. The Observer oversees the arrangement and will provide a view on how the interests of the joint creditors are safeguarded.

Financing the agreement

In particular, the minimum requirement of a 20% distribution to small creditors makes it difficult for many business owners to finance the arrangement. If they do not manage to do so with their own resources and/or help from third parties, they may soon opt for a TOA credit; a subordinated loan with a medium term and a fairly low interest rate. In this way, the central government is also trying to keep the number of bankruptcies low in 2021 and help business owners keep its head above water.

Note! When considering the financing requirement, also take into account the court fees, which are hefty! (see here)

WHOA

Want to learn more about WHOA? Read my article on how a WHOA proceeding works here.

Need a no-obligation sparring session to see if WHOA is right for your business? Then feel free to contact me.