Pension contributions under WHOA: Supreme Court gives its opinion

The ball is in the court: pension fund claims for overdue pension contributions do not fall within the scope of the Homologation Private Agreement Act ("WHOA"). Below, Reinier Pijls elaborates on this Supreme Court ruling and the (major) consequences the ruling has on WHOA practice.

Prejudicial questions

It's all about one very small sentence from the WHOA, namely section 369(4) Fw reading:

"The provisions of this section shall not apply to rights of employees employed by the debtor arising from employment contracts within the meaning of Article 610 of Book 7 of the Civil Code."

The Amsterdam District Court was asked to rule whether the claim of the Pensioenfonds Horeca & Catering actually falls under the WHOA via the above article The pension fund was of the opinion that pension entitlements are rights of employees, because they arise from the employment contract. Moreover, they are employed by the debtor. The debtor, an operator of a hotel business, did not think so.

The WHOA procedure is designed (among other things) to create Get clarity on whether a restructuring succeeds. It is therefore not possible to appeal or cassate against decisions of the WHOA judge. Because this is a very important legal question for the practice and applicability of the WHOA, the Amsterdam District Court asked the Supreme Court for advice; a preliminary question.

That question read:

"Under Section 369(4) of the Fw, does the provisions of Section 2, Title 4 of the Bankruptcy Act (the WHOA) apply to claims by occupational pension funds within the meaning of the Bpf 2000 Act concerning overdue pension contributions?"

Before the Supreme Court answers such a question, it is first advised by the Attorney-at-law-General.

Opinion Attorney-at-law-General

In this conclusion of the Attorney-at-law-General of December 6 last, it was already advised to rule that claims of pension funds cannot be restructured under the WHOA.

Supreme Court ruling on pension contributions under WHOA

In answering the question of law, the Supreme Court drew on the legislative history of the WHOA. It follows from the legislative history, as well as from a proposed legislative amendment to Section 369(4) Fw, that the legislature did not envision pension debts being covered by the WHOA. This is because there is a special triangular relationship between the employer (the debtor), the employee (who cannot be affected by the WHOA) and the pension fund. Upon reaching retirement age, the employee has a claim against the pension fund because of the contributions paid by the debtor.

Triangulation of pension contributions

Thus, this triangular relationship means that contribution claims cannot be restructured under the WHOA with a compulsory settlement. Ó likewise, pension funds cannot be cooled by invoking the WHOA cooling-off period. This means that a pension fund's bankruptcy petition can thus no longer be parried with a request for a cooling-off period. 

What implications does this ruling have for WHOA practice?

In four ways, this ruling has implications for WHOA practice.

1. Clarity

On the one hand, the judgment creates clarity: as a rule, it is often difficult to "get" a pension fund into an agreement, and - as evidenced by the preliminary questions - it always generated discussion. For example, the pension fund often feels that it has a "higher" rank than the other creditors - when it does not.

2. Pension fund arrears

On the other hand, we see that for many SMEs, it is precisely the pension fund arrears that are a (major) cause of pain. So it will certainly influence whether the WHOA is an appropriate procedure to restructure the company with pension debts. This is enormously unfortunate, because then the alternative will soon be a "cold" restructuring: restart via bankruptcy - with all its consequences.

3. Other distribution of liquidity

Thus, as a result of this ruling, available liquidity may be distributed differently: it will be allocated to the pension fund rather than "fairly" distributed among the various creditors (classes).

4. No cooling off period

Finally, a bankruptcy petition cannot be parried with a cooling-off period. Thus, if the pension fund is going to collect "hard," payments must be made to avoid bankruptcy.

Thus, the pension fund's claim is one to take extra account of and it is advisable to continue/engage in discussions with the pension fund about a solution.

Nevertheless, WHOA remains the way to effectively and efficiently rescue a viable business. After all, the pain is rarely just in the debt to the pension fund.

Is this now the final verdict on pension contributions under WHOA?

Now that the Supreme Court has answered the preliminary question in the negative, it is back to the court. The Amsterdam District Court will declare the WHOA inapplicable to the pension fund's claim in the above-mentioned proceedings. It will do so in first and highest instance. That judgment will then stand and will therefore also apply to other proceedings. Perhaps the matter will later be brought before the European court to test it against European regulations.

However, our expectation is that without legislative change, nothing will change. However, the European Insolvency Directive does allow for the rights of employees to be changed in the context of a restructuring (and thus also of pension funds). The legislator will then have to phrase Section 369(4) of the Insolvency Act in such a way that it follows that the rights of the pension fund do fall within the scope of the WHOA. Before this will take place, however, it will be several years later.

In a nutshell

In practical terms, this means the following in a nutshell: for all current and future WHOA proceedings, pension funds cannot be forced to agree to a restructuring. Cooperation can of course be requested from the pension fund. In my experience, it is quite possible to talk to (some) pension funds about a one-time (partial) discharge if this can safeguard employment. Of course, you will have to come up with a well-founded argument, but the best is always the enemy.

Following this article, do you have questions about pension contributions under WHOA or other questions about restructuring? Contact Reinier Pijls (r.pijls@pvdb.nl) or complete the form below.