Allen & Overy has advised on a landmark restructuring of a Dutch group of companies under the newly-enacted Dutch Act on the Confirmation of Private Plans (also referred to as the ‘WHOA’ or the ‘Dutch Scheme’), which represent the first time a non-SME group of companies has been restructured using the Dutch scheme, as well as the first-time a secured lender has been cross class crammed down in such a procedure by a non-financial creditor. The outcome of this restructuring, and the various successful judgments Allen & Overy was able to obtain in the process, are expected to give guidance for similar restructurings in the foreseeable future.
The group involved (whose identity was not disclosed as part of the process) was, prior to the Covid-19 pandemic, a successful business delivering strong financial performance. However, like many businesses, it had been significantly and adversely affected by the ongoing Covid-19 pandemic, with government-imposed shutdowns resulting in a dramatic drop in revenue. In December 2020, Allen & Overy was engaged to help deliver a solvent restructuring solution for the group in order to restructure its €110 million senior debt, its €15 million super senior debt and its wage tax liabilities. The group, which had suffered severe liquidity constraints due to the Covid-19 pandemic, was primarily looking to gain liquidity headroom by temporarily rolling-up interest payments (PIK-interest) and obtaining an additional liquidity injection from its shareholders. In light of objections raised by the group’s senior lender to the proposal, in January 2021, just weeks after the legislation took force, the group initiated confidential Dutch scheme proceedings to implement the proposal.
After a lengthy process, that involved among others, the appointment of an independent restructuring expert at the request of the senior lender, the drawing up of various reports by independent (financial) experts and obtaining rulings from the court on multiple preliminary (legal) questions and issues, a restructuring plan was able to be put up for a vote in early September 2021. In line with the original intentions of the proposed restructuring, the restructuring plan sought to, among others things, implement a covenant-holiday, introduce a liquidity covenant, roll-up the senior interest (PIK-interest) until Q1 2023 (against an increased rate), post-pone wage tax payments and, finally, inject additionally liquidity into the group by the shareholders. The restructuring plan was voted down by the senior lender, but accepted by the tax authorities. Therefore, despite the senior lender’s dissenting vote, the courts could be petitioned to have the restructuring plan sanctioned. On 3 November 2021, the court sanctioned the restructuring plan, reasoning among others that the dissenting senior lender would not be worse off under the restructuring plan than in hypothetical bankruptcy of the group and that the restructuring plan did not violate the so-called ‘absolute priority rule’.
Allen & Overy, who advised management on this restructuring and spearheaded the entire process, in conjunction with the court-appointed restructuring expert, managed to secure important rulings in favour of the group in the progress that among other things, (i) barred the senior lender from enforcing against the shares of the group or replacing the (supervisory) board members of the group by relying on the voting rights pertaining to said pledged shares, (ii) barred the senior lender from voting on the super senior debt, after having acquired the super senior debt though their ‘option to purchase’ said debt under the finance documents, (iii) clarified the ability to implement so called ‘group restructurings’ under a Dutch scheme, (iv) established that rights under a credit agreement could be compromised against market terms, other than by way of a write-off, notwithstanding the so-called ‘absolute priority rule’ and (v) that a restructuring plan may not result in any changes in the governance structure of a company. Furthermore, many other issues were clarified in the process that had not previously been dealt with by the courts.
Senior partner Brechje van der Velden, who led on the litigation side of the matter, commented: “Successfully using a Dutch scheme to achieve a solvent solution to the financial difficulties facing this group is an excellent result for the group’s customers, employees, creditors and other stakeholders. It is also another market-leading first for Allen & Overy.” Partner Kuitenbrouwer, who led on the restructuring side of the matter, added: “This restructuring will give a large amount of guidance for future Dutch schemes and demonstrates the flexibility of the new Dutch scheme to achieve a successful resolution of the financial difficulties facing many businesses as a result of the Covid-19 pandemic. We expect this restructuring will assist for many other economically viable businesses to follow suit and seek to maximise their chances of survival on a going concern basis, whilst noting that the fact pattern of the matter seems to be unique and will therefore not form a blue print for the outcome of matters to come.”
Next to Brechje van der Velden and Aroen Kuitenbrouwer, the core Allen & Overy restructuring team comprised senior associate Simon Aarts, associate Géza Orbán (lead) and associate Joost Schipper. The restructuring team worked closely with Allen & Overy’s wider banking and litigation team. Please feel free to reach out to any of the involved team members, should you have any questions regarding this restructuring or the Dutch scheme in general.
The various judgements can be found here (in Dutch):