Facts
In this case study, shipbuilder IHC Merwede Holding B.V. (IHC) plays the lead role. IHC has a complex financing structure in which nine banks, including Rabobank, provided joint financing. Through a Senior Facilities Agreement (SFA), these banks, the Secured Lenders, have given IHC access to a credit facility totaling €950 million. Part of this SFA is a Revolving Facility.
IHC finds itself in financial dire straits and initiates a WHOA process. On February 2, 2023, on behalf of itself and the legal entities forming a group with it, it submits a (group) agreement to the Secured Lenders, proposing to reduce the credit margin to €503 million and to modify some parts of the SFA. In short, under the agreement, the Secured Lenders are required to make previously agreed credit space that had not yet been utilized available to IHC on terms that deviate from the existing financing agreement to the detriment of the lenders.
Homologation
The Secured Lenders were divided into seven classes for voting on the Accord for their distinct rights. Six of the Secured Lenders voted in favor of the Accord. Rabobank and one other bank voted against the Accord. One bank abstained from voting. On balance, all classes voted in favor of the Arrangement under Section 381(6) of the FW.
IHC asked the court to homologate the agreement. Rabobank raised several objections and requested that the homologation request be rejected. Among other things, Rabobank argued that the WHOA does not allow for the imposition of obligations on creditors in the event of a composition.
The court rejects Rabobank's request and homologates the accord. With the homologation, the agreement is binding on all creditors, including the dissenting banks. In reaching its decision, the court considered, among other things, that the WHOA in principle allows an accord to result in financiers being obliged to continue financing on the basis of (prior to the accord) existing credit facilities in the future. No legal remedy is available to the parties involved against this court decision(Section 369(10) Fw).
The road to cassation
The court's ruling was published in the NJ and JOR, with a note by Verstijlen and Van de Wakker. Both disagree with the court's judgment. According to them, this is not a change of creditors' rights as referred to in Section 370(1) of the Fw, but a change of an obligation of creditors, by a change of the conditions under which that obligation exists.
According to Attorney General Snijders, this raises the question of whether the court's ruling is correct. Legal remedies to submit this to a higher court are excluded under the WHOA. The legislature chose this to ensure a quick and final judicial decision in homologation. The only way the homologation judgment can be submitted to the Supreme Court is through an appeal in cassation in the interest of the law. Although this form of cassation (unfortunately for Rabobank) does not affect the rights acquired by the parties from the court ruling, it does provide clarity on a legal issue that is of general interest. The Supreme Court's ruling is therefore very useful for legal practice.
There are limits to WHOA
The Supreme Court's answer to the cassation appeal is clear: the WHOA cannot be used to force financiers to make new credit resources available based on modified terms. This means that an agreement within the WHOA may modify existing creditor rights - such as payment deferral or partial forgiveness - but may not impose entirely new or more onerous obligations that significantly alter the existing financing agreement.
The Supreme Court ruled that the WHOA provides flexibility, but that this flexibility is not unlimited. The no creditor worse off principle is the basis for this judgment: an agreement may not enforce conditions that make creditors worse off than in a bankruptcy situation. This means that adjustment of existing obligations is possible, as long as the creditor is not put in a worse off position. Thus, the WHOA does not provide carte blanche for restructuring at the expense of creditors.
What does this mean for practice?
This ruling sets an important precedent for WHOA practice. Financiers and other creditors can now rest assured that WHOA cannot force them to extend new credit or to continue to extend credit under facilities not fully drawn under modified terms. This strengthens the legal position of financiers in WHOA proceedings.
This ruling additionally confirms that voluntariness and consent are important pillars of a successful WHOA. The WHOA remains a powerful tool for companies in financial distress, but its ability to bind dissenting creditors is by no means unlimited. A restructuring remains a balancing act, and this ruling brings that into sharp focus once again.
