. They did not see another rescue operation at Rabobank. Three years ago they had already helped the ailing shipbuilder IHC from Kinderdijk out of the fire, together with a number of other lenders. For the bank, this ultimately resulted in a loss of millions.
But now that the shipbuilding company had run into financial problems again in recent months, they thought in Utrecht: let the business go to the bottle. Then the damage for us will probably be limited. Rabobank would still get his last claims back. It had demanded certainties for that.
Unfortunately, the bank – and two other major lenders who did not like the plan – charged outside the court. Because it recently ruled, in a judgment that was unfavorable to Rabobank, that the bank still had to cooperate with a subsequent rescue plan. Under that plan, IHC sells a very profitable subsidiary, IQIP from Sliedrecht. Among other things, that company builds equipment to build foundations for wind turbines at sea. The proceeds are used to reduce debts, so that the company can continue. Rabobank must continue to finance under this construction.
The fact that Rabobank fears that things will go further downhill after this, for example because new orders are not forthcoming and without that profitable subsidiary it will become even more problematic to earn money – so that the rescue operation would in fact only be a postponement of execution – saw the court as unjustified concerns. IHC was indeed viable with the plan, the judge found. And so reorganization was better than bankruptcy – from the point of view of all stakeholders then.
Homologation Private Agreement
The judge’s ruling was already made at the beginning of last month, but the verdict, about which The Financial Times first reported, was only published this week. An appeal is not possible, with which Rabobank has to continue with IHC against its will. Such a situation is rare in the financial world.
The judgment is also one of the first major judgments based on a new, special law within bankruptcy law: the Homologation Private Agreement Act (WHOA). This law came into force in January 2021 and is essentially intended to make it easier for companies in financial difficulties to continue, and thus prevent bankruptcy. In fact, it was a radical change to the overarching Bankruptcy Act, which is more than one hundred and thirty years old.
The idea behind it is that prevention of bankruptcy is better than cure. It saves job losses and destruction of economic value. In the past, it sometimes happened that a company that was viable in principle went bankrupt because one or a few creditors were opposed to a ‘restructuring’. They saw more benefit for themselves in a bankruptcy than in a rescue, even though everyone would be better off that way.
In the past, a rescue plan had to be approved by all creditors, which in fact everyone had a veto at the same time. Now the approval of only a few creditors is enough, after which the court can then impose the plan on everyone.
This starting point offers companies that are struggling more perspective. Or, as Professor of Private Law Frank Verstijlen of the University of Groningen says: “The cards were laid fundamentally differently. There is more balance between all parties involved when a company is in financial trouble. Creditors – but also shareholders for that matter – can be forced into line with this. No one can get ahead.”
According to Verstijlen, about forty WHOA restructuring plans have already been submitted to the court since the introduction of the law, the ‘vast majority’ of which resulted in an imposed rescue action.
Most cases, however, have so far concerned medium-sized and smaller companies. “There have not been many as big as the IHC case.” Another major case that attracted attention earlier was that between football club ADO and financiers in 2022, which ended in a rescue from ruin for the club.
Prevent invulnerability
According to Robert van Moorsel, lawyer at the Corporate & Recovery.legal office in The Hague, the law “does what it is intended to do”: to prevent one party from being “untouchable” and safeguarding its own interests at the expense of those other parties involved.
Van Moorsel has more than 25 years of experience in insolvency law and, when the law was still being drafted a few years ago, advocated a more balanced balance between the interests of different parties in these types of situations. There was not enough of that under the old legislation, critics said.
Van Moorsel: “Rabobank would rather have one bird in hand than ten in the air. But the judge says no to that, in line with an amendment to the law of the Christian Union in 2020, the so-called ‘no-cash exit-amendment’. This amendment met with resistance from banks, because it would lead to an obligation to continue financing. In any case, most banks see light at the end of the tunnel at IHC based on expert reports, so the court can give weight to that.”
According to Van Moorsel, the new legislation is also leaving its mark in other ways. “Some cases do not even reach the court at the moment, because creditors have already stopped their resistance under the threat of a possible WHOA procedure. It has a preventive effect.”
But according to him, even with the amendments at the same time, not everything is in balance. Banks would still have a fairly strong position against other, especially smaller, creditors. He also expressed that criticism earlier, when the law was still being drafted.
Criticism from UvA lawyers
Other experts did the same at the time. A group of legal specialists from the University of Amsterdam (UvA) spoke in an opinion piece about ‘questionable exceptions’ that could be ‘misused’ by banks, among others, to disadvantage smaller creditors. The adjustments have improved the balance, according to Van Moorsel.
The initial proposal itself, incidentally, was co-designed by one of the most prestigious law firms in the Netherlands, de Brauw Blackstone Westbroek, and was not entirely without controversy.
In 2013, a former lawyer from the Zuidas office, Ruud Hermans, and a colleague wrote an amendment to the Bankruptcy Act, which formed the basis for the seven-year preparation of the WHOA, reconstructed NRC earlier. When the corona crisis broke out after 2020 and concerns arose that one company after another would go bankrupt, large law firms lobbied even more fiercely to get the law passed as soon as possible. That would be ‘useful and necessary’.
Smooth rules
It would be particularly interesting for the sector if the Netherlands could present itself as a new European ‘hub’ for international corporate reorganisations: as the place where flexible rules and service providers are available for foreign companies to get rid of their creditors. The law firms could then advise on this.
Connoisseurs of the legal world have known for some time: (imminent) bankruptcies are also trade. The lawyers largely copied the law from similar bankruptcy rules in the United States and the United Kingdom.
But in this case, ‘the bank’ gets no response. At the moment, there are not many options left for Rabobank. An appeal is not possible in WHOA procedures. Contrary to the European directive for this, says Van Moorsel.
One consequence that Rabo may link to the case is that it will be even more cautious in the future when granting large corporate loans. Because with this verdict, in the eyes of the bank certainly, new risks appear to be attached.
A version of this article also appeared in the newspaper of April 15, 2023.