Companies in financial difficulties may strenghten their financial position and/or secure their future by going through a business reorganisation or transfer the profiteable parts of their business to a new, bankrupcy remote legal entity. The new Dutch Creditor Arrangement Homologation Act (‘WHOA’) allows companies to restructure their debts under court supervision and thus avoid bankruptcy.
A business reorganisation may consist of several measures such as reducing costs, selling or terminating unprofitable business activities, better work capital and cash flow management, attracting new financing and entering into creditor arrangements. The legal side is crucial here. The agreements with banks, financiers, suppliers and customers will have to be properly drafted to be effective. Unprofitable contracts will have to be adjusted or terminated. Sometimes it is also necessary to take defensive measures against creditors. Your business may use the WHOA for this. With this new law the court may declare an arrangement with creditors binding on all creditors (‘homologation’) even for creditors who are not a party to this arrangement. In addition, the court may, through the WHOA, give you permission to terminate long-term contracts, such as leasing of real estate or business machines, prior to their contractual end date. Only employment contracts fall outside the WHOA. In principle, therefore, a collective dismissal of employes still has to go through the UWV or , if so implosed by the applicable collective labour agreement (cao), through the cao Dismissal Committee (ontslagcommissie). Finally, on the basis of the WHOA the court can impose a cooling-off period which temporarily prevents creditors from taking legal action or sell collatoral, making it possible to continue your business while carrying out the reorganisation.
Transfer of business
If a business reorganisation is no long deemed possible, transferring the profiteable parts of your business to a new business entity may be a viable alternative to safe at least part of the company. In the past, a transfer of business was the most common way to continue business activitiets both inside and outside bankruptcy. It is expect that business reorganisations will be more succesfull now that the WHOA has entered into force. In practice, a transfer of business usually depends on the cooperation of the bank and other creditors with security rights. And from the main suppliers if they can’t be replaced. The remaining activities of the old company are usually terminated after the transfer. Sometimes this can be done without bankruptcy. If not, the risk of personal liability and claims from the liquidator can be reduced with proper preparation.
Preventing personal liability
It is important that a reorganization or transfer of business is carried out properly. Errors or omissions may lead to personal liability of the company’s directors or main shareholders. Also, if a bankruptcy is declared, the Liquidator may be able to reclaim payments and/or nullify or reverse transactions made by or on behalf of the company in the face of bankruptcy. In any case, it is important for the board of directors to deposit the annual documents with the Chamber of Commerce in due time, to report pending default in payment of taxes or social premiums to the Tax Office in a time and prevent the company from taking on new debsts if a bankruptcy is likely to be unavoideable. As your lawyer I can help you to identify the potential risks in relation thereto and reduce them as much as possible.