The Prohibition of Recourse under the WHOA: In Search of a fair balance
A company may be in financial distress while still being viable at its core. In such cases, restructuring its debts may offer a way to avoid bankruptcy. This can be achieved through an arrangement with creditors, laid down in a restructuring plan. Since 2021, Dutch law has provided a specific framework for this purpose: the ‘Wet homologatie onderhands akkoord’ (WHOA). The WHOA is designed to preserve viable businesses that would otherwise be forced into bankruptcy. Although creditors will often receive only partial payment under such a plan, they are generally better off than they would be in liquidation.
As the WHOA is still relatively new, the application of certain of its provisions remains unclear. One example is the so-called ‘no-recourse’ rule. This rule is relevant in tripartite relationships, where a third party, such as a surety, guarantees the company’s debt to a creditor. If the restructuring plan prevents the creditor from recovering the full amount from the company, the creditor may still claim payment from the guarantor. Once the guarantor has paid, it acquires a ‘right of recourse’ against the company, allowing it to seek reimbursement for the amount paid. The no-recourse rule under the WHOA, however, restricts that possibility. The guarantor is prevented from passing the burden of the payment back to the company. Without such a restriction, the company could still be confronted with the debt that the restructuring plan was intended to reduce, albeit indirectly through the guarantor. That outcome could undermine the restructuring and potentially lead to the company’s bankruptcy after all. At the same time, the no-recourse rule has significant consequences for the guarantor, who has to bear the full loss.
The precise scope and application of the no-recourse rule therefore raise numerous questions. These questions have now been litigated up to the Dutch Supreme Court, which is expected to deliver its judgment in the autumn of 2026. In her thesis, Sophie anticipates the answers to several fundamental issues and examines whether a fair balance van be struck between preserving a viable company and protecting the guarantor’s interest in reimbursement.