6 June 2022
What is liquidation by arrangement?
The Court Approval of a Private Composition (Prevention of Insolvency) Act (Wet Homologatie Onderhands Akkoord), called WHOA, offers companies in financial difficulties an effective opportunity to get rid of excessive debt and avoid being declared bankrupt. A company can make a fresh start after part of its debts have been written off and another part have been financed differently. An aspect of a WHOA agreement that is much less well known is that it can also be used for the controlled dissolution of a company without liquidation. This is called liquidation by arrangement.
If a company threatens to go into liquidation and is non-viable, it may be worthwhile offering creditors liquidation by arrangement. In an ideal situation, there will be enough funds to pay off the debts of the company. Unfortunately, this does not often happen in practice. In a WHOA agreement, the funds that are available after the controlled sale of all assets are divided fairly among all creditors. The statutory order of priority is taken into account. Creditors may therefore be forced to settle for a payment that is much lower than their outstanding claim. However, the prospects of the creditors may be even worse in a liquidation scenario.
Liquidation by arrangement is accomplished in the same way as a regular WHOA agreement that is focused on the continuation of the company. The big difference is that all the assets are sold. This may take place as a separate sale of all assets, for example through an auction, but also as a sale of the company as a whole: a restart. In this way, the discontinuation of business operations can take place in a controlled manner. A liquidation by arrangement thus prevents the destruction of capital. This often occurs during a liquidation, when all the company’s assets are realised under great time pressure. Moreover, the company remains in control during the entire WHOA process. There is no trustee in bankruptcy involved. This saves a lot in costs and avoids the risk of personal liability.
In a WHOA agreement, current agreements, such as lease and rental agreements, can also be terminated before the term. However, this does not apply to employment contracts. Arrangements will have to be made with any employees though a regular dismissal procedure.
Should it be necessary to wind-up a company, the specialists of GMW lawyers can advise you on how this can best be organised. If offering a liquidation by arrangement under the WHOA scheme proves to be the right option, we can arrange and implement this arrangement for you until the agreement is approved by the courts.
Do you have any questions? Please do not hesitate to contact us.
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