Practice areas: Business and Commercial Law, Corporate Law and Business Structuring, Restructuring and Insolvency
Is a company at risk of becoming insolvent due to an excessive debt burden, even though its operations are viable in themselves? If so, the Act on the Approval of Private Arrangements (WHOA) offers a solution. This Act makes it possible to enforce a financial restructuring between the company, its creditors and shareholders by means of a compulsory arrangement. The aim of the WHOA is to strengthen companies’ ability to reorganise and to preserve or maximise value.
A WHOA can have far-reaching consequences. For example, it can alter the company’s entire capital structure and may even result in adjustments to future obligations arising from existing contracts. For shareholders, this raises a logical question: what rights and powers do I actually have once a WHOA process is underway?
What are the powers of the general meeting during WHOA proceedings?
During the WHOA proceedings, the general meeting retains its powers and remains bound to act in a reasonable and equitable manner. In practical terms, this means that the general meeting retains, amongst other things, the power to dismiss directors and supervisory directors, to amend the company’s articles of association and to wind up the company.
Nevertheless, the WHOA imposes a significant restriction on the powers of the general meeting where the conclusion of the agreement itself is concerned. This is because the General Meeting’s approval is not required for the proposal of an agreement, even if the articles of association or a shareholders’ agreement stipulate otherwise. Such statutory or contractual approval requirements do not apply.
If the implementation of an agreement requires a resolution by the general meeting, the approved agreement takes the place of that resolution. The general meeting is therefore not required to give separate approval for implementing measures arising from the agreement.
What powers do individual shareholders have during WHOA proceedings?
The WHOA also applies at the level of the individual shareholder. As the company’s financial difficulties justify it, an arrangement may (significantly) alter shareholders’ rights. If a shareholder is affected by the agreement, they are entitled to vote: they may vote on the agreement and must receive all the information necessary to make an informed decision. Shareholders entitled to vote are then also bound by the agreement.
Please note: not every shareholder is automatically included in the agreement. The proposer (the company or a restructuring expert) may choose to exclude certain shareholders from the agreement, and thus leave their rights unchanged, provided there are reasonable grounds for doing so or if classes of shareholders with an equal or higher ranking (indirectly) consent to this.
Protection of shareholders’ interests
The court may (of its own motion or at the request of the company or the restructuring expert) grant interim relief or make such orders as are necessary to safeguard the interests of shareholders.
Shareholders themselves have relatively few means of protecting their interests during the arrangement procedure. For example, they cannot take legal action against a cooling-off period.
So what can shareholders actually do?
Consequences of the ratification (declaration of binding effect) of the agreement for shareholders
If the agreement is ratified (declared binding), it will be binding on all shareholders entitled to vote. Not only are shareholders who have consented to a change in their rights or claims bound by it, but also those who voted against, abstained or cast a blank vote. Shareholders who were not present at the vote but who were duly summoned are also bound by it. If, after ratification, there are still assets available for distribution, shareholders will generally be at the back of the queue.
Are you a shareholder involved in a WHOA process?
Are you a shareholder involved in a WHOA and would you like specific advice on your situation? Please do not hesitate to contact us.
Want to read more? See also the other posts in this blog series: the legal status of the governing bodies of private limited companies facing financial difficulties.
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