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The legal position of the management and supervisory board under WHOA

What does the board do?

The board may offer an agreement

Under the WHOA, the board may offer an agreement to (some) creditors if it is reasonably likely that the company will not be able to continue paying its debts. The arrangement provides for a change in the rights of creditors and shareholders (e.g. amendment or termination of an agreement) and can be declared binding (homologated) by the court. The board does not need the consent of the general meeting for the offer, submission for homologation and execution of an agreement. This prevents, as far as possible, shareholders from obstructing the process by exercising their shareholder rights.

The board may request a cooling-off period, an observer or restructuring expert

To prepare the arrangement in relative calm for presentation to creditors, the board can ask the court to declare a cooling-off period. This is a period of up to four months during which creditors may not recover from the company. This period can be extended, provided that the total period including extensions cannot exceed eight months.

When declaring a cooling-off period, the court may appoint an observer to supervise the establishment of the arrangement, with an eye to the joint creditors. The observer informs the court as soon as it becomes clear that it will not succeed in bringing about an agreement or if the interests of the joint creditors are harmed.

If the board does not want to prepare an agreement itself, it can apply to the court through a lawyer to appoint a restructuring expert.

The directors have a duty towards both the restructuring expert and the observer to provide all information, in particular about facts and circumstances which they know or ought to know are important to the observer or restructuring expert for the proper performance of his task. Directors shall also provide the necessary cooperation to the observer/restructuring expert.

What does the supervisory board do?

Aim for an agreement

If it is reasonably plausible that the company will not be able to continue paying its debts, the existing powers of the supervisory board intensify. If continuation is no longer possible, the supervisory board should push for a plan for reorganisation, restructuring or liquidation, for example under the WHOA.

Supervision and advice

If the management board offers a composition to the creditors, the supervisory board may be expected to have critically and proactively analysed the composition and to assist the management board with advice, if necessary by bringing in its own advisers (e.g. lawyers) to form an opinion on the agreement to be offered.

If the management board wants to request an observer or restructuring expert, it is up to the management board to discuss this with the supervisory board. If the court subsequently appoints an observer or restructuring expert, the supervisory board members must provide it with all information, especially about facts and circumstances which they know or should know are important for the proper performance of the observer’s or restructuring expert’s duties.

In principle, the statutory and statutory powers of the supervisory board must still be respected in the event of an agreement under the WHOA. Directors who fail, for example, to ask the supervisory board for required approval run the risk of being held liable if the company suffers losses as a result. Thus, the provisions of the articles of association that make the management board’s decision to offer an agreement subject to the approval of the supervisory board should in principle be followed.

Are you a director or commissioner and want advice on your role in WHOA? Feel free to contact us. We will be happy to advise you.

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The legal position of the management and supervisory board under WHOA