THE BOTTOM LINE
- A Business Must Be Viable: The Dutch Scheme (WHOA) is a tool to rescue a fundamentally viable business, not to orchestrate the liquidation of an “empty shell.” Courts will deny protection if a company has already transferred its core operations and assets elsewhere.
- Pre-Filing Actions Face Scrutiny: Transferring valuable assets to a related entity just before seeking court protection is a major red flag. If creditors can show that a bankruptcy investigation into such actions would be more beneficial, the court is likely to agree.
- A Vague Plan Is No Plan at All: A request for a cooling-off period must be backed by concrete, swift action. Without a clear outline of the proposed deal, creditor classes, and committed financing, the court will see the process as detrimental to creditors’ interests.
THE DETAILS
A Dutch medical laboratory, facing financial distress and a pending bankruptcy petition, attempted to use the popular WHOA restructuring tool. Before seeking court protection, the company transferred all its primary assets and business activities to a newly established foundation. It then requested a four-month “cooling-off period” to halt creditor actions, arguing that the foundation would eventually pay a “fair price” for the assets, which would then be used to fund a deal for its remaining creditors. However, several major creditors, owed millions, strongly opposed the move, asking the court to let the bankruptcy proceed instead.
The District Court of Midden-Nederland sided firmly with the creditors, refusing to grant the cooling-off period. The court’s primary reason was that the company was no longer in a “WHOA-state.” This legal condition requires a company to be on the brink of insolvency but still operating a viable enterprise that can be saved. By offloading its core business, the company had become an empty corporate shell. The court concluded that the WHOA framework is not intended for such situations; its purpose is rescue, not the liquidation of remnants after a self-managed asset strip.
Furthermore, the court ruled that the interests of the collective creditors were not served by granting protection. Creditors had raised serious concerns about the company’s prior conduct, including a significant dividend payment made shortly before its financial decline and the questionable transfer of assets to a foundation controlled by the very same director. They argued that a bankruptcy trustee was better positioned to investigate these transactions for potential prejudice to creditors. The court agreed, pointing to the company’s lack of progress and the sheer vagueness of its proposed plan. The promise of a deal funded by an unpriced asset sale—with payment terms extending as far as 2030—was deemed insufficient to justify delaying a potential bankruptcy.
SOURCE
Source: Rechtbank Midden-Nederland
