Dutch Scheme: tool or trouble?
The Netherlands finally has its own state of the art restructuring law, the Dutch Scheme. What does that bring GCs? A great tool if handled with care and otherwise trouble. We will sketch the outlines and illustrate how it works on a group company, an acquisition, and a customer in financial distress.
Dutch financial restructurers have long been yearning for a tool like the U.S. Chapter 11 or U.K. Scheme of Arrangement. Since 1 January 2021 we have it. Some say it’s even better than its U.S. and U.K. counterparts: the Act on the Confirmation of an Extrajudicial Restructuring Plan, a.k.a. the Dutch Scheme (Wet homologatie onderhands akkoord or WHOA). Click here for the Act, in Dutch.
The Dutch Scheme solves the hold-out problem which arguably caused many essentially viable but over-indebted businesses to go bankrupt. Where they would otherwise have been able to re-emerge deleveraged in line with their earning capacity, shareholders or creditors could until recently basically veto a restructuring plan that would do just that. And they could do so even if in bankruptcy they would not receive anything (out of the money). This afforded them a disproportionate power over others that did have something to lose in bankruptcy.
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