A WHOA plan is a private restructuring agreement by which a business restructures its debts without going into bankruptcy. If not all creditors agree, the court can still make the plan binding on everyone: confirmation, or homologation.
Legal basis
The Act on Confirmation of Private Restructuring Plans entered into force on 1 January 2021 and appears in Articles 369 to 387 of the Bankruptcy Act. Access exists where it is reasonably likely that the business will be unable to continue paying its debts. The debtor or a restructuring expert offers the plan; creditors and shareholders are divided into classes and vote by class, a class agreeing where two-thirds of the amount represented is in favour. Article 383 sets out the grounds for confirmation and Article 384 the grounds for refusal, including the key requirement that no creditor may be worse off than in a liquidation. Article 376 allows a stay of up to four months, extendable to eight.
How it works in practice
There is a closed and a public variant; the closed one is used most, because it stays out of the public eye. The heart of the file is the valuation evidence: what does the business yield as a going concern and what on liquidation? The whole argument rests on that difference. Long-term contracts can also be amended or terminated unilaterally, with the exception of employment contracts.
Where it goes wrong
Businesses start too late, once liquidity has run out and there is no room left to fund a plan. A second error is a class composition that cannot be defended; that becomes the battleground at the confirmation hearing. Third, it is forgotten that employment contracts fall outside the WHOA, so workforce reduction must follow the ordinary route.
Related terms
The plan is the alternative to bankruptcy, connects to the actio pauliana and to directors’ liability.
Considering a restructuring? Our corporate law specialists assess whether the WHOA is feasible.
