WHOA Update - Position of tax authorities

Since my last WHOA Update, a lot has happened regarding the WHOA. Also, more is clear again about some important aspects, such as the position of the tax authorities.
So time for a WHOA Update.

On October 11, 2021, State Secretary Vijlbrief of the Ministry of Finance informed the House of Representatives via a parliamentary letter about the tax administration's policy on tax debts accrued during the corona measures support measures. This letter contains useful and necessary information for business owners who have accumulated arrears with the tax authorities over the past year and a half.

Expired government measures

October 1 was an important day. The government support offered because of corona expired as of that date. As of this day, entrepreneurs also have to (start to) meet current obligations again. The government measures meant that for many companies liquidity came under less pressure than without the government support. On the other hand, for many companies the (fiscal) debt burden has increased enormously as a result. Entrepreneurs are granted a one-year reprieve from paying this accumulated debt burden, after which they can make payment arrangements whereby the total debt burden must be repaid in five years.

Note that interest is charged on the outstanding debt.

There is no question of a (generic) waiver: this would be unfair to those companies that did fulfill their tax obligations during the support measures. So generic remission is out of the question, but remission by agreement is?

Position of tax authorities in WHOA proceedings

The tax authorities have a special position in all insolvency proceedings: they have a preferential position and "get ahead" of most other creditors. In WHOA proceedings, the tax authority is often also an in-the-money creditor because of its preferential claim on the debtor's landed property; in bankruptcy, the tax authority can expect a distribution because of that preferential claim.

The Tax Administration (and Customs) will settle for the same percentage as unsecured creditors during the period August 1, 2022 to September 30, 2023 under amicable rehabilitation agreements (a creditors' agreement under the WHOA or an amicable route through the municipality).

Should the agreement fail and the company still go bankrupt, the tax authorities will invoke their preference.

This way, it seems a lot easier to reach an agreement, and in addition, unsecured creditors can presumably be offered a higher payout: at the same percentage (rather than double), significantly more money goes to unsecured creditors.

Double percentage

By the way, I wonder to what extent the requirement of the double percentage against unsecured creditors is still a hard requirement. In previous WHOA trajectories, we have already seen that the tax authorities were satisfied with a lower percentage and, moreover, the requirement of the double percentage only applies vis-à-vis unsecured creditors who do not qualify as small businesses (see Renewed Recovery Guidance dated July 1, 2021). If the requirement were to apply with respect to small businesses, then at least 40% would always have to be offered to the tax authorities, unless there is a compelling reason to offer the small creditors less than 20%. 

Fair

Is this fair to the companies that did pay taxes during the corona crisis? There is something to be said for that. The premise in the WHOA is that a company worth saving should be able to be saved. 

It is ultimately up to the creditors to make an informed decision on whether or not to accept the accord. Only when the majority of creditors (in a class) accept the agreement can the agreement be homologated. Without a majority, bankruptcy inevitably still follows.

Wait until August 2022?

For the business owner considering opening a WHOA proceeding: don't wait until August 2022 or beyond to do so. Proper preparation is essential and takes time.

Conclusion

It is possible to restructure tax debts under WHOA, even those incurred during the corona crisis. There is a time slot of 13 months from August 2022 during which the tax authorities will settle for a lower rate than normal in order to more easily restructure those corona debts in particular. However, don't wait until August 2022 to do that; start preparing to restructure your company now.

For questions about this article, guidance on a WHOA proceeding or offers for appointment as a Restructuring Expert, please contact Reinier Pijls (r.pijls@pvdb.nl) or one of his office colleagues(www.pvdb.nl/ondernemen).