WHOA is the remedy for the troubled company*

The WHOA is an excellent tool is to improve the prospects of a troubled company relatively quickly.

The Homologation Private Agreement Act has been in effect since 2021, which is just in time for companies that are fundamentally sound but need to take a temporary liquidity bump. Many companies will have been directly or indirectly affected by (the measures around) COVID-19. They may have used tax deferrals, deferred interest and principal payments or other creditors. Obviously, these obligations must be met at some point, but will they succeed?

JBR Corporate Finance has recently been involved in a WHOA proceeding as counsel to a large company affected by COVID-19 measures, including mandatory closure during lockdown periods, and thus has gained extensive experience with the proceedings.

The WHOA allows companies to offer its creditors and possibly shareholders a private agreement that would structurally reduce its debts, defer obligations or modify certain rights.

To go through such proceedings, the company must file a statement with the court stating that it is in the process of preparing an agreement. Either an open or closed procedure can be chosen, in most cases the first option will be the best in order to maintain internal and external calm. Support from a lawyer is required as well as the appointment of a restructuring expert.

Without going into all the legal and procedural aspects, we will discuss a few more important elements.

• During the two-month cooling-off period (possible two-month extension) that starts after filing the statement, creditors cannot recover from the company if they have been notified of the proceedings.
• During these two months, a restructuring plan must be drawn up in which various aspects must be addressed. An important component is a valuation of the company based on both reorganization value and liquidation value. This is because the creditors must not be worse off than in the case of bankruptcy.
• Furthermore, creditors and shareholders should be divided into classes. For example, with- or without security interest, the smaller claims and rental claims. It is crucial to the success of an arrangement that at least one class is mutually agreed upon.
• Ultimately, the court judges whether a convincing and balanced plan is presented that offers the company a realistic prospect of continuity, upon which the court can homologate the plan and thereby declare it binding for all creditors (incl. dissenting ones).

Our conclusion is that WHOA is an excellent tool for improving the prospects of a troubled company relatively quickly.

* This article is intended only as an outline of the possibilities offered by WHOA.