Creditors' agreement

What we do

On January 1, 2021, the Private Agreement Homologation Act (WHOA) entered into force. This act supports companies that are at risk of bankruptcy due to high debt levels, but still have viable business activities. Bankruptcy can be prevented when an organization reorganizes its debts. Before the WHOA came into effect, all creditors and shareholders had to agree to a creditors' agreement. If even one creditor did not agree to the amicable settlement, bankruptcy could still be filed. With the WHOA, creditors are divided into different classes. If the majority within a class agrees to the proposal, the court can confirm the agreement. Those who voted against are then also bound by the agreement. Our lawyers and legal experts offer legal advice to creditors and debtors regarding creditors' agreements.

Questions regarding the creditors' agreement? Contact us.

What is a creditors' agreement?

A creditors' agreement is a proposal by which a company with a problematic debt burden makes agreements with its creditors and shareholders regarding the restructuring of those debts. In such cases, creditors often receive only a portion of their claim in exchange for avoiding bankruptcy, in which they would typically receive even less. Since the entry into force of the Private Agreement Homologation Act (WHOA), such an agreement can, subject to conditions, be mandatorily imposed by the court on all parties involved, including those who vote against it. The WHOA is enshrined in the Bankruptcy Act (Articles 369 to 387). Whether you manage an international group or are the baker around the corner, our lawyers and corporate counsel will assess whether a creditors' agreement is feasible and sensible in your situation.

The WHOA procedure step by step

A WHOA process has a fixed structure. First, the company (or a restructuring expert appointed by the court) files a declaration of commencement with the court. Subsequently, an agreement is drafted, categorized into classes, made available for inspection, and put to a vote. Following this, a voting report is drawn up, and the debtor submits a request for homologation to the court. The company can choose between a closed and a public agreement procedure; the closed variant remains outside the public domain, while the public variant is recorded in a register and can promote international recognition. We assist both debtors in setting up a comprehensive process and creditors who wish to exert influence on the proposal in a timely manner.

Class division and voting

In a WHOA agreement, creditors and shareholders are divided into classes. Parties with comparable rights – for example, in a bankruptcy – are placed in the same class. Voting takes place separately for each class. A class has voted in favour of the agreement when creditors representing at least two-thirds of the total claim amount within that class consent. If not every class consents, the court may still homologate the agreement via a so-called cross-class cram-down , provided that at least one class that would receive funds in bankruptcy has consented. A correct class division is decisive for the success of the agreement; an incorrect division is a frequently used ground for defense.

Homologation and grounds for rejection

Homologation is the ratification of the agreement by the court. The judge assesses the application against general and additional grounds for rejection. An agreement is refused, among other reasons, when there is no imminent bankruptcy, when compliance with the agreement is insufficiently guaranteed, when creditors are worse off than in a bankruptcy (the so-called no creditor worse offprinciple), or when the offered value is not fairly distributed. Dissenting creditors are entitled to a distribution equal to the value of their share. Furthermore, significant protection applies to small SME creditors: in principle, they must be offered at least 20% of their claim , unless there are compelling grounds for doing so.

Cooling-off period and restructuring expert

To create stability during negotiations, the debtor or the restructuring expert may request the court for a cooling-off period. During this period, individual creditors cannot recover their claims from the company's assets without authorization from the court. The cooling-off period lasts a maximum of four months and can be extended to a total of eight months. Creditors, in turn, may request the court to appoint an independent restructuring expert to prepare an agreement on their behalf. We advise on the use of these instruments and ensure that the interests of our clients—whether on which side of the table—remain safeguarded.

Creditor or debtor: your position

If you are a debtor, we help you assess whether your business is viable, draft a substantiated agreement and classification, and handle the homologation request. If you are a creditor, we ensure that you come to the table in a timely and well-informed manner, verify that the agreement does not disadvantage you compared to bankruptcy, and defend against the homologation where necessary. A creditors' agreement can be an alternative to or precede a suspension of payments or a bankruptcy application, and often relates to a broader reorganization or restart.

Frequently asked questions about the creditors' agreement

Can I, as a creditor, be bound to an agreement against my will? Yes. If the court homologates the agreement, you are bound by it, even if you voted against it. However, you may not be worse off than in bankruptcy.
What majority is required? Within a class, at least two-thirds of the claim amount must agree. For homologation, one consenting class that would receive a distribution in bankruptcy suffices.
Is there protection for small creditors? Yes. In principle, small SME creditors must be offered at least 20% of their claim.
How long does a WHOA process take? That varies per case, but the WHOA is aimed at a relatively fast process; the cooling-off period covers a maximum of four to eight months.

Creditors' agreement within our insolvency law

The creditors' agreement is one of the instruments within our broader Insolvency Law. Our mixed teams of lawyers and in-house counsel guide companies and creditors through all phases – from impending payment arrears to full-fledged restructuring – and, where necessary, address related issues such as directors' liability or debt restructuring. From international corporations to the baker on the corner: we translate complex insolvency rules into a concrete, feasible strategy.

Questions about a creditors' agreement?

Are you considering offering a creditors' settlement, or are you, as a creditor, facing a WHOA process? Our insolvency lawyers and corporate counsel would be happy to advise you. Contact us for an initial assessment of your options.