The Act on the Confirmation of a Private Restructuring Plan (WHOA) has by now become a well-known instrument for the restructuring of companies with a heavy debt burden. The WHOA offers possibilities to restructure companies that are in serious financial distress without bankruptcy. In an earlier blog it was already described that, within the WHOA, a role is also assigned to employee participation. It became clear that the works council or staff representation can have a role at the start and during the preparation of a WHOA process. But how does this work in relation to the formation of the WHOA agreement? Is the entrepreneur obliged to submit the WHOA agreement to the works council for advice?
The WHOA offers entrepreneurs the opportunity to (financially) restructure or wind up their business in a controlled manner. Although a WHOA agreement cannot make changes to the rights arising from the employment contracts of employees who are employed by the debtor, a WHOA agreement often nevertheless also has consequences for the employees working at that company. For the legislator, this has been a reason to also devote attention to employee participation in the WHOA. For example, the entrepreneur must describe in the start declaration in what manner the works council or the staff representation (pvt) has been informed, and that same works council or the pvt may submit a request for the appointment of a restructuring expert. This already shows that employee participation must be involved in a WHOA process at an early stage. What is the role of the works council during this process and in reaching a WHOA agreement?
Article 375(1) of the Bankruptcy Act (Fw) sets out the components of which a WHOA agreement must consist. Subsection (l) provides that the WHOA agreement must also describe the manner in which the works council or the staff representation (pvt), in accordance with Article 25 of the Works Councils Act (Wor), has been asked or will still be asked to issue advice. This means that the WHOA refers to the right of advice under the Works Councils Act. The WHOA therefore appears not to grant the works council and the staff representation an independent right of advice regarding the WHOA agreement.
his is consistent with the explanation that can be found in the legislative history (Parliamentary Papers II 2018-2019, 35 249, no. 3, p. 13). It follows from this that a conscious choice was made not to grant the works council voting rights in the formation of the WHOA agreement. According to the legislator, a works council would not be able to assess whether the conditions for a WHOA agreement have been met. The works council would then have to assess whether the proposed agreement is reasonable and could ensure that an impending bankruptcy of an otherwise viable company is prevented. This does not fall within the task or the capabilities of a works council. In short: the works council has no voting rights and may not issue advice on the WHOA agreement.
Nevertheless, the obligation is included to state in the WHOA agreement in what manner Article 25 of the Works Councils Act (Wor) has been complied with. This means that it is acknowledged that an advisory process may be required. In the legislative history it has been noted in this regard that it is quite possible that the restructuring operation has more the character of a reorganization process, in which, in addition to a restructuring of debts, there is also an adjustment of the business operations in order to save costs. It is emphasized that a proposed adjustment of the business operations is pre-eminently a subject on which the works council can form a judgment and is entitled to give advice. In my view, this also justifies the reference to Article 25 Wor. If the restructuring also leads to a proposed decision within the meaning of Article 25 Wor, then the works council must be asked for advice on that decision.
The advice of the works council then relates to the possible side effects or consequences that the WHOA agreement also entails. Consider, for example, proposed decisions regarding:
Such proposed decisions must, in accordance with Article 25 Wor, be submitted to the works council for advice in a timely manner. The advice of the works council then concerns one of these decisions and not the WHOA agreement directly. Indirectly, however, the advice may relate to it, for example if significant credit is required for the WHOA to succeed. A positive opinion of the works council contributes to obtaining such credit and thus to the conclusion of a WHOA agreement.
In the legislative history it is also noted that the advice of the works council on the proposed decisions — which are connected with the WHOA agreement — may influence the voting behavior of the creditors entitled to vote. The parliamentary documents include the following statement on this point (Parliamentary Papers 2019-2020, 35 249, no. 6, pp. 9–10): “If the works council has not been asked for advice in a timely manner or has issued a negative opinion, this may constitute an uncertain factor in the context of the restructuring operation. This may negatively affect confidence in the success of the restructuring operation among the creditors or shareholders entitled to vote, and thus also their voting behavior.”
I wonder to what extent voting behavior will actually be influenced and will genuinely have an effect on the conclusion of a WHOA agreement. However, I can imagine that it helps to have the support of the works council — and thus of the people working within the undertaking — in order to complete a necessary reorganization quickly and successfully. Timely involvement of the works council therefore remains important.
If the works council must be asked for advice, it is advisable to make clear arrangements about the course of this advisory process at an early stage. In this type of advisory process, speed is often required, meaning that the usual advisory periods often need to be shortened, while the matters involved can be complex for the works council. Therefore, ensure timely involvement of the works council, provide sufficient information to the works council, allow sufficient time for its members, and facilitate the involvement of an expert. With these ingredients, the works council can often act quickly and carefully.
For questions, please contact Renate Vink-Dijkstra, partner & lawyer Employment, Employee Participation & Mediation.
This blog was written for HERO.
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