It is a legal struggle of almost epic proportions, the struggle for survival in which the Big Bazar bargain chain has found itself. Since the pandemic, the company has been struggling with its business model, devised in 2007 to outshine competitor Action. That seemed to go well for a long time, with a significant expansion to dozens of stores throughout the Netherlands, until it stopped working.
The company now has insufficient cash to buy new products (the total debt is said to be 30 million euros, the losses have been accumulating for years), and has incurred major payment arrears with several shop lessors and suppliers. A number of creditors therefore filed for bankruptcy of the chain. After some legal ping-pong (no delay, delay, after all, no delay), Big Bazar seems to have found a last life buoy on Tuesday: the company’s works council asked the judge to appoint a restructuring expert, who will sign an agreement between Big Bazar and its creditors. need to close. Until the court has taken a decision on this, bankruptcy is again suspended.
The fact that Big Bazar has managed to stretch the battle so far is due to a recent revision of the 130-year-old bankruptcy law. Where previously only suspension of payment (deferral of payment) could actually be used as a ‘cooling off period’, an additional option has been introduced as of January 1, 2021 to get out of bankruptcy. The purpose of the adjustment is to help companies that are still economically viable, but which are at risk of bankruptcy due to a heavy debt burden, to reorganize, in this case to restructure the debt burden.
Whoa procedure
This new option is called the Whoa procedure, which stands for the Private Agreement Homologation Act. In plain Dutch, thanks to the Whoa, the court can approve (homologate) a private agreement between a company and its creditors, whereby all creditors are bound to the agreement under certain conditions, including those who vote against. This makes debt restructuring possible without the individual consent of all creditors. It is not for nothing that insolvency practice refers to ‘compulsory agreements’.
Since the law came into force, its use has increased significantly, observed the Financial Day bath recently. While a total of 111 companies invoked the Whoa procedure in 2022, there were already 116 in the first half of 2023. The majority of these were behind closed doors, a small number of cases took place in public, they wrote. the judges who together form the so-called Whoa pool in their annual report. Among other things, the imminent bankruptcy of football club ADO Den Haag (2022) and that of shipbuilder IHC (2023) were major, eye-catching Whoa cases.
This raises the question of whether the arrival of the Whoa has created an additional opportunity for entrepreneurs to avoid bankruptcy. The fact is that during the corona pandemic, the number of bankruptcies was extremely low, partly thanks to generous government support. In that sense, the growing number of companies that are still running into problems is a kind of catching up. In addition, the attitude of the tax authorities, often one of the most important creditors in a bankruptcy, has also changed, partly due to corona. A large proportion of the companies that have now run into problems have a substantial debt with the tax authorities. The tax authorities are often inexorable: the debt must be returned, or at least as much as possible and if necessary at the expense of other creditors. But now, says professor of insolvency law Rolef de Weijs, among others, the tax authorities are more lenient. That will soon change, because the tax authorities will tighten the reins considerably as of 1 October.
viable
For many of the companies with a corona debt, the question of whether they are viable will still have to be answered, after all, that is the core of the Whoa. It is up to the judges in the Whoa pool to determine this not only from a legal point of view, but also from a financial and economic point of view. It is expected that many entrepreneurs have actually been wrongly kept alive in the pandemic, and will now still go under. They won’t be saved by the Whoa either. But for companies that are able to continue, having large debts in themselves has become less decisive for their survival. Shoe chain Shoeby is an example of this. That company also appealed to the Whoa this week to reach a deal with its creditors. The court has yet to consider that request.
Read also: Fashion chain Shoeby tries to avoid bankruptcy
That being said, De Weijs is still critical of the new law. He believes that ‘ordinary’ creditors such as suppliers or lessors in particular are in danger of becoming victims of too easy handling of the Whoa. “If one of the groups of creditors agrees to a settlement under the Whoa, the rest can be forced to participate. But a taxman can do that more easily than a supplier. The Whoa can thus become a stick to beat the small suppliers with,” he says. In addition, creditors must pay very close attention to how the ownership of the company is progressing during the restructuring. “In principle, in a restructuring, creditors also take precedence over the existing shareholders. But if no agreements are made about this, the current shareholder can simply stay put. As a creditor, you therefore lose out twice: your debt has largely been written off, perhaps against your will, and you get nothing in return.” He therefore advocates taking a good look at how the Whoa procedures have worked out so far: “Have the restructurings not been too much for the suppliers?”
Evaluation
The Whoa will be subject to an evaluation at the end of this year. This is done on behalf of the WODC – a department of the Ministry of Justice – and by a committee that includes Professor Reinout Vriesendorp.
Vriesendorp cannot and does not want to say anything about the outcome of that evaluation at this time. “What you can see after two and a half years is that the restructuring practice has found its way to the Whoa,” he says. Conflicting interests such as those raised by De Weijs are simply the core of insolvency law, says Vriesendorp.
It will remain exciting for Big Bazar for a while. This Friday, the court will rule on the request of the works council to appoint a restructuring expert. The main question will then also be whether Big Bazar is a viable company after the restructuring and whether it has sufficient resources to meet the current obligations. Until then, the company will dangle in the twilight zone between economically alive and dead.
A version of this article also appeared in the newspaper on September 7, 2023.