In vari­ous blogs, we informed you on cer­tain aspects of the Dutch Scheme of Arrange­ment (the “WHOA“).  On 1 Janu­ary 2021, this legis­la­tion will become effect­ive.  In this blog, we will set out the con­sid­er­a­tions to opt for a pub­lic or a private WHOA pro­ced­ure.

The WHOA provides for two pro­ced­ures in which the reor­gan­iz­a­tion plan can be put into effect:  a pub­lic and a private one.  A choice for one of the pro­ced­ures must be made as soon as the court becomes involved and this choice can­not be changed dur­ing the pro­ced­ure.  There­fore, the choice should be care­fully con­sidered.  A pub­lic pro­ced­ure involves a pub­lic hear­ing and pub­lic­a­tion in the pub­lic Insolv­ency Register, the Dutch Gov­ern­ment Gaz­ette and the Trade Register.  The private pro­ced­ure involves a private court hear­ing without any pub­lic­a­tion, which is clearly an advant­age, cer­tainly when the arrange­ment only relates to a lim­ited group of cred­it­ors.  There are also oth­er, less obvi­ous dif­fer­ences between the two pro­ced­ures.

In prin­ciple, the European Insolv­ency Reg­u­la­tion is applic­able to a pub­lic pro­ced­ure and the private pro­ced­ure will be gov­erned by the nation­al rules of inter­na­tion­al private law (“nation­al IPL“), which has con­sequences for the jur­is­dic­tion and the inter­na­tion­al recog­ni­tion of an approved WHOA arrange­ment.

Jur­is­dic­tion
In the pub­lic WHOA pro­ced­ure, the court will derive its jur­is­dic­tion from the Insolv­ency Reg­u­la­tion. In that respect, it is import­ant if the cen­ter of main interest, the “COMI”, of the debt­or lies with­in the Neth­er­lands or that the debt­or has an estab­lish­ment in the Neth­er­lands. In a private pro­ced­ure, the court will derive its jur­is­dic­tion from art­icle 3 of the Dutch Code of Civil Pro­ced­ure (DCCP), fol­low­ing which it must be determ­ined if the applic­ant has its dom­i­cile and/or habitu­al res­id­ence in the Neth­er­lands or if the busi­ness is oth­er­wise suf­fi­ciently con­nec­ted with the Neth­er­lands. Gen­er­ally speak­ing, the determ­in­a­tion of the jur­is­dic­tion from the DCCP is broad­er and there­fore offers more oppor­tun­it­ies for the Dutch courts to assume jur­is­dic­tion. Cer­tainly, in case of a restruc­tur­ing of an inter­na­tion­al group of enter­prises, a private pro­ced­ure may be pre­ferred.

Recog­ni­tion
For the inter­na­tion­ally oper­at­ing debt­or, it is most import­ant that its court approved restruc­tur­ing plan is recog­nized abroad. In a private pro­ced­ure, this recog­ni­tion depends on the nation­al IPL of the mem­ber state con­cerned or on applic­able treat­ies to which both coun­tries are party. In a pub­lic pro­ced­ure, the Insolv­ency Reg­u­la­tion applies under which the court decisions are auto­mat­ic­ally recog­nized by the oth­er EU mem­ber states (sep­ar­ate from Den­mark). This is, among oth­er things, import­ant if there are group com­pan­ies with assets in oth­er mem­ber states. A cool­ing-off peri­od declared by a Dutch court would, in prin­ciple, also pro­tect for­eign assets. Fur­ther­more, it pre­vents for­eign cred­it­ors from recov­er­ing their part of the claim that was writ­ten off under the restruc­tur­ing plan. How­ever, the Insolv­ency Reg­u­la­tion also con­tains import­ant restric­tions. Des­pite the WHOA pro­ced­ure, cred­it­ors with a right of pledge or mort­gage can, even when a cool­ing-off peri­od has been ordered, effect recov­ery of for­eign assets. The ter­min­a­tion of rent­al agree­ments regard­ing real estate in oth­er EU coun­tries shall be gov­erned by the loc­al insolv­ency laws. In such a case, it will not be pos­sible to use the WHOA for ter­min­a­tion of for­eign rent­al agree­ments, while this could be done for Dutch interest prop­erty (we refer to our blog below about the amend­ment of agree­ments under the WHOA).

Con­clu­sion
The choice for a pub­lic or private WHOA pro­ced­ure requires thor­ough con­sid­er­a­tion. The pub­lic pro­ced­ure is pub­lic and can influ­ence the busi­ness oper­a­tion neg­at­ively because parties are reluct­ant to do busi­ness with a party that faces bank­ruptcy. Often, a private pro­ced­ure will be pre­ferred but the jur­is­dic­tion and inter­na­tion­al recog­ni­tion should also be taken into con­sid­er­a­tion.