The WHOA in brief
The purpose of the WHOA is to restructure companies with healthy business operations that are on the brink of bankruptcy due to heavy debt. In this way, unnecessary bankruptcies are prevented and companies can return to financial health.
In principle, the WHOA is designed to reach a private agreement with creditors. To prevent a promising agreement from being thwarted by obstructive creditors, the WHOA offers the possibility of a forced composition. This means that under certain conditions, even non-consenting creditors will be bound by an agreement. This gives the debtor a "big stick" to get creditors to cooperate.
After court approval of the settlement (homologation), even the creditors who have not agreed to the settlement are bound. By also imposing the obligations of the agreement on the non-voting creditors, a viable company is prevented from going bankrupt because a small number of creditors do not want to cooperate.
Interesting for retail?
WHOA is an interesting option for any business owner in dire straits to restructure its debts. It can be attractive to get ahead of a bankruptcy through a reaching an agreement where creditors are paid only a percentage of their claim in order to reduce debt.
In addition to the ability to reduce outstanding debts, the WHOA also allows for the restructuring of current agreements. The arrangement provider can make a proposal to a creditor to modify or terminate an agreement. If the creditor does not agree to the proposal, the provider has the ability to terminate the agreement in the interim. This power thus provides a precision tool to purposefully include one or more existing agreements in the restructuring of the company. You can think, for example, of the extension of due dates, relaxation of resolutive or suspensive conditions, adjusted payment arrangements and modifications of long-term agreements such as rental and lease agreements.
For retailers working with a franchise formula, restructuring the franchise agreement can be a useful tool. Perhaps the company now prefers to continue under "its own banner," for example because the formula no longer suits the business.
Good reasons for a retailer in dire straits to consider WHOA. But how does it work out in practice for retailers?
Success story: Shoeby
The fashion chain Shoeby successfully went through a WHOA process from late 2023 to early 2024. The reason for the family business to start the procedure was a substantial increase in its debt burden due, among other things, to the corona crisis and the lockdowns that followed. Added to this were inflation and reduced purchasing power, which had built up a high debt burden. Shoeby was unable to pay off this debt burden and threatened to default on its obligations if it did not reorganize.
Shoeby's agreement offered a partial payment to its creditors on the condition that they would waive the right to claim the remaining amount (final discharge). The agreement was said to have been reached "in good consultation" with the creditors.
Shoeby's CEO explains that Shoeby is a healthy company at its core, which allowed them to successfully complete the WHOA process.
No success: Big Bazar
Big Bazar was also experiencing financial problems. Costs had risen sharply for the retailer, while sales and profits were disappointing. Suppliers and landlords could no longer be paid on time, accumulating significant debt. Finally, in August 2023, the chain filed for bankruptcy by the owner of a storefront.
In response, the chain initiated a WHOA process, requesting a cooling-off period. This cooling-off period - which was granted provisionally - suspended the processing of the bankruptcy petition, giving Big Bazar time and space to prepare a settlement.
Big Bazar's goal was to offer an arrangement to its creditors, with each creditor receiving a percentage distribution subject to granting final discharge. In doing so, Big Bazar attempted to obtain external financing in order to pay for the accord, but this proved insufficient to meet ongoing obligations. Mainly for this reason, final extension of a cooling-off period was not granted and bankruptcy was still declared on September 26, 2023.
WHOA for your business
WHOA provides a great tool for retailers to reshape a core healthy business, allowing that healthy core to continue to run. It is to your advantage to explore this option in time, so that additional financing can be raised if necessary and you are well prepared to enter the race.
