Restructuring of Royal IHC: New developments under the Dutch WHOA

Introduction

In this blog, our Dutch team examines the recent WHOA restructuring of Royal IHC (the Company) where they played a leading role advising the dissenting secured lender. This was a landmark restructuring and one of the largest WHOA cases to date. It was also the first WHOA proceeding involving a syndicate of lenders. The entire WHOA proceeding was completed in an expedited timeline of less than three months.

Confirmation of the WHOA restructuring plan

The WHOA plan was offered for voting to secured creditors on 2 February 2023. The District Court of Rotterdam (the Dutch Court) confirmed the WHOA restructuring plan on 9 March 2023, making it binding on all affected creditors. The confirmation of the WHOA restructuring plan has further stretched the boundaries of the WHOA and illustrates the ability under the WHOA to: (i) impose amendments to commitments under facilities agreements; (ii) change the waterfall under an intercreditor agreement; (iii) grant protection for a sale of assets against claw-back risks; and (iv) change the ranking of hedging liabilities.

(i) Non-consensual amendments to facilities agreements

One of the key questions in this WHOA proceeding was to what extent amendments to commitments under a senior facilities agreement are possible under the WHOA. The secured lenders had made available working capital facilities as well as cash and bank guarantee facilities to the Company, which were not fully drawn. The Dutch Court decided that – in principle – the WHOA may be used to force creditors to continue financing a company’s working capital under existing credit facilities which set a precedent for the extension and amendment of commitments in facilities agreements and has an impact on undrawn credit lines and commitments under working capital facilities, revolving credit facilities and bank guarantee facilities. 

(ii) Non-consensual amendments to the waterfall in an intercreditor agreement and a harbinger to super priority for rescue financings

Another significant issue was whether it was possible to amend the waterfall in the intercreditor agreement under the restructuring plan. The Dutch Court decided that – whilst the Dutch legislature had not allowed for an in rem change in ranking of security rights under the WHOA – a contractual change of ranking is possible. This decision is a very important feature for the Dutch restructuring landscape for two reasons. First, this decision may lead to the situation where debtors with smaller financings that lack intercreditor agreements may not benefit from this ruling since any changes to ranking of security could only occur with property law effect (which is not possible under the WHOA), whilst larger financings involving an intercreditor agreement may be able to benefit from such flexibility. Second, the Dutch Court may have introduced the ability to achieve a super priority and priming rescue financing whereby a senior creditor obtains a first ranking position through changes in the intercreditor agreement, given that in practice super priority of rescue financing is not only implemented through the creation of new in rem security rights but also through contractual changes to the waterfall.

(iii) The WHOA does not impact hedging liabilities

As part of the amendments to the intercreditor agreement proposed under the restructuring plan, the Company sought to change the ranking of hedging liabilities resulting from currency swap transactions under ISDA master agreements. The opposing lender, however, argued that the WHOA cannot affect hedging liabilities under financial collateral arrangements (financiëlezekerheidsovereenkomsten). The Dutch Court ruled that no changes were being made under the plan to financial collateral arrangements since the changes proposed did not amend the ISDA master agreements but rather the priority of the hedging counterparties under the intercreditor agreement. This ruling is remarkable as it implies that changes to financial collateral arrangements are possible as long as such changes occur through amendments to an intercreditor agreement or the senior facilities agreement. This is not in line with the text of section 369(4)(c) DBA that excludes financial collateral arrangements and close-out netting provisions from the scope of the WHOA. We would expect that the WHOA courts will respect this exclusion in future WHOA cases.

(iv) The sale of assets in and claw-back protection under the WHOA

Finally, the Company requested the Dutch Court to approve the sale of the shares in a business unit to a third party. The Dutch Court assessed whether it was reasonably likely that (i) the transaction was immediately necessary for the performance of the restructuring plan, and (ii) the interests of the joint creditors were not materially prejudiced by the transaction. It concluded that the transaction should be approved under these tests. This illustrates how distressed M&A transactions can be implemented in a restructuring plan under the WHOA and protected against claw-back action in a subsequent bankruptcy. This is a helpful feature which can also be used for protection of rescue financing under the WHOA.

This blog is an extract from our full article on this WHOA proceeding. For more on the WHOA restructuring of Royal IHC, reference is made to the full article: Restructuring of Royal IHC: new developments under the Dutch WHOA | Netherlands | Global law firm | Norton Rose Fulbright