Global | Publication | Q2 2024
On 11 August 2023, the Diebold Nixdorf group (Diebold Nixdorf), a multinational service provider and manufacturer of cash handling machines (i.e., ATMs), successfully restructured approximately US$2.7 billion debt by using a parallel Dutch WHOA and US Chapter 11. The restructuring of Diebold Nixdorf in the Netherlands and its recognition as a foreign main proceeding under US Chapter 15 marks the first time that a Dutch WHOA proceeding has been recognized in the US. The US Bankruptcy Court for the Southern District of Texas (US Court) gave full force and effect to orders of the District Court of Amsterdam (Dutch Court) entered in the Dutch WHOA proceeding and imposed an automatic stay with respect to the property of the Dutch WHOA parties in the US.
Diebold Nixdorf is a multinational company with more than 100 subsidiaries across the globe and approximately 21,000 employees worldwide. Diebold Nixdorf, Incorporated (Diebold Inc.) is the holding company of the group and based in the US. Diebold Nixdorf had a highly leveraged capital structure, consisting mostly of secured bond debt and term and revolving loans. At commencement of the restructuring proceedings, Diebold Nixdorf owed a total of approximately US$2.7 billion debt under 13 financing facilities. The credit facilities were mostly secured and provided to Diebold Inc. and Diebold Nixdorf Dutch Holding B.V. (Diebold Dutch Holding). Diebold Dutch Holding and the European subsidiaries (the Diebold WHOA Entities) were jointly and severally liable under almost all credit facilities.
Starting in 2016, Diebold Nixdorf’s liquidity started to deteriorate mainly due to declining sales, the increase in its debt burden and the acquisition of its German subsidiary (German Wincor Nixdorf). The Covid 19-pandemic and other global developments exacerbated the situation and by 2022 several of the credit facilities were approaching maturity. Against this backdrop, Diebold Nixdorf reached an agreement with certain of its financiers in October 2022 on the terms of a refinancing under which certain bonds were exchanged, various debt instruments were amended and additional liquidity was provided through a new Super-priority Term Loan and a new Asset Based Lending Facility. The 2022 refinancing was completed on 29 December 2022. It became clear in early 2023, however, that the restructuring and new financing were insufficient.
Consequently, Diebold Nixdorf commenced another round of negotiations with its financiers for a more comprehensive restructuring. The negotiations led to the signing of a restructuring support agreement (the RSA) on 30 May 2023, with an overwhelming majority of its secured creditors. The agreements would substantially deleverage Diebold Nixdorf by approximately US$2.1 billion. The main elements of the RSA were as follows:
To ensure that the restructuring was binding in its entirely and on all affected creditors, the RSA contemplated the effectuation of debt restructuring through, inter alia, (i) a pre-packaged WHOA plan to be filed by Diebold Dutch Holding, (ii) a pre-packaged Chapter 11 plan of reorganization to be filed by Diebold Inc. and certain of its subsidiaries, and (iii) a US Chapter 15 proceeding to recognize the WHOA proceeding.
The WHOA plan and the Chapter 11 plan were linked in several respects. The confirmation of one plan was a contractual condition for implementation of the other plan, and vice versa. Creditors under both plans were identical, but their positions were different. The distributions under the WHOA plan were made by cross-references to the Chapter 11 plan.
Based on the Dutch Bankruptcy Act (DBA), a debtor may offer its creditors and shareholders a restructuring plan to amend their rights when it is reasonably assumed that the debtor is unable to pay its debts. On 30 May 2023, Diebold Dutch Holding offered its WHOA restructuring plan (the WHOA Plan) to its financial creditors who were deemed affected under the WHOA Plan. Those creditors were entitled to vote on the restructuring plan. On 1 June 2023, the Diebold Dutch Holding commenced the WHOA proceedings in the Netherlands.
Pursuant to Section 369 (6) DBA, a restructuring plan may be prepared and offered through a confidential procedure or a public procedure. Confidential WHOA proceedings take place behind closed chambers, and Dutch courts have jurisdiction in these proceedings if there is a sufficient connection with the Netherlands (e.g., if the debtor has assets in the Netherlands or it has Dutch law governed debt). The public version of the WHOA proceeding is listed on Annex A of the EU Insolvency Regulation (Recast) (EIR) and Dutch courts have jurisdiction in these proceedings only if the debtor has its centre of main interest (COMI) in the Netherlands. Diebold Dutch holding opted for the confidential WHOA procedure, mainly due to the lower threshold for the Dutch Court to accept jurisdiction in respect of Diebold Dutch Holding and the Diebold WHOA Entities, and in particular the non-Dutch entities.
Unlike Chapter 11, the Dutch WHOA proceeding does not provide for an automatic stay. However, the WHOA debtor may request the court to issue a stay for a limited period of time. In a Dutch WHOA proceeding, the maximum duration of such a stay is four months, which can be extended to up to eight months provided that the debtor establishes that important progress has been made on the restructuring plan. The WHOA stay (i) prevents parties from taking enforcement actions against the assets of the debtor or taking possession of assets that are under the control of the debtor, (ii) allows for the lifting of attachments on the assets of the debtor, and (iii) suspends any pending suspension of payments or bankruptcy cases.
On 1 June 2023, Diebold Dutch Holding requested a group-wide stay with respect to itself and the WHOA entities for a period of three months. A week later (on 8 June 2023), the Dutch Court granted the stay on an ex parte basis.1
The Dutch Court assessed whether the request for a stay could be granted in light of the three required conditions. First, the Dutch Court ruled that the stay was necessary for the continuation of business during the WHOA proceeding because potential enforcement action by creditors would make it difficult to reach a successful restructuring. Second, the stay was in the interest of the joint creditors of the debtor for two reasons: The stay applied to only a limited group of creditors, namely creditors under the facility agreements and the affected creditors were unlikely to be prejudiced during the stay given that the debtor was able to satisfy its current obligations under the DIP facility based on the cashflow forecasts. Third, no interests of creditors or third parties were substantially prejudiced given that a large majority of the financial creditors had given their consent by entering into the RSA.
It bears emphasizing that Diebold Dutch Holding requested a group-wide stay in this particular case. The WHOA provides for the possibility of a stay for group companies of the debtor that are not formally debtors under the WHOA proceeding. Based on Section 2:24 (b) of the Dutch Civil Code (DCC), a group is an economic unit in which legal persons and partnerships are organizationally interconnected. According to the Dutch Court, Diebold Dutch Holding and the Diebold WHOA Entities together formed a group as referred to in Section 2:24 (b) DCC. Therefore, the Dutch Court granted the request to impose a group-wide stay. We have seen in other international restructurings, such as the international restructuring of the Vroon group where a parallel Dutch WHOA proceeding and English scheme of arrangement was used,2 that this is a powerful feature of the WHOA to facilitate large, international restructurings – and differs from the scope of the US automatic stay which absent separate court order is limited to the Chapter 11 debtors.
In addition to the request for a stay, Diebold Dutch Holding also requested appointment of an observer to supervise the WHOA proceeding for the benefit of the joint creditors. The Dutch Court granted this request and appointed an observer who was tasked with providing periodic updates about important developments in the WHOA process to the Dutch Court.
On 2 August 2023, the Dutch Court sanctioned the WHOA Plan of Diebold Dutch Holding.3 Whilst the WHOA Plan mirrored the US Chapter 11 plan, the class composition was different. Under the DBA, only impaired creditors are required to be classified and vote on the WHOA Plan and must be divided into different classes. Under the WHOA, there were four classes of creditors: (i) the First Lien Claims (Class 1); (ii) the 2023 Stub First Lien Term Loan Claims (Class 2); (iii) the Second Lien Notes Claims (Class 3), and (iv) the 2024 Stub Unsecured Notes Claims (Class 4, and together with Class 1, Class 2 and Class 3, the WHOA Classes). The WHOA Plan was adopted by all WHOA Classes, except for Class 4. Certain creditors in Class 4 also argued that the WHOA Plan should not be sanctioned by the Dutch Court.
The Dutch Court rejected these arguments and sanctioned the WHOA Plan. Under the WHOA, a court will sanction a restructuring plan – that has been adopted by the requisite majority (i.e., 2/3rd of the value of votes casted) in at least one “in the money” class of creditors – unless statutory rejection grounds apply. The court will assess the general rejection grounds (which are mainly focused on due process) and the additional rejection grounds (such as the “best-interest-of-creditors test” and the “absolute priority rule”). The general rejection grounds are assessed ex officio by the court, whilst the additional rejection grounds will only be assessed if a creditor or shareholder invokes them. Whilst certain Class 4 creditors had argued that the sanctioning of the WHOA Plan should be rejected, they did not invoke any additional rejection grounds, but mainly relied on the general rejection grounds under the WHOA.
Therefore, the Dutch Court only assessed the WHOA Plan on the basis of the general rejection grounds. The Dutch Court had to test, inter alia, whether there was a threat of imminent insolvency, that the class composition was in accordance with the DBA, and that all relevant information as statutorily required was included in the WHOA Plan. Based on the documents, the Dutch Court reasoned that in the absence of a successful restructuring proceeding, the DIP Facility would become immediately due and payable. The Dutch Court found that Diebold Dutch Holding and the Diebold WHOA Entities would be unable to repay this debt. Therefore, the Dutch Court concluded that there was a threat of imminent insolvency. It also ruled that the class composition was appropriate, and that all relevant information required by the DBA had been included in the WHOA Plan. The Dutch Court concluded that none of the general rejection grounds were applicable and, hence, sanctioned the WHOA Plan.
Interestingly, in this restructuring two forms of third-party releases (or non-debtor releases) were included in the WHOA Plan. On the one hand, Diebold Dutch Holding as the debtor under the WHOA would restructure all financial debt against the Diebold WHOA Entities (which were group companies of Diebold Dutch Holding but were not debtors under the WHOA). Given that the WHOA provides specifically in Section 372 DBA that such group guarantees may be restructured, the Dutch Court also sanctioned this part of the WHOA Plan. On the other hand, the WHOA Plan also included far-reaching third-party releases of (former) directors and shareholders from potential litigation claims. Diebold Dutch Holding, however, requested the court not to rule on this third-party release as the debtor considered it doubtful that such provision was valid under Dutch law. The Dutch Court respected this move and thus sanctioned the WHOA Plan, but explicitly stated that its ruling did not address the effectiveness and enforceability of those third-party releases. Hence, should the third-party release provision be implicated in the future, its enforceability will only then be considered by court.
Similar to the solicitation process in the WHOA, on 30 May 2023, Diebold Inc. and nine affiliates (the Diebold Chapter 11 Entities) commenced solicitation of votes on their Joint Prepackaged Chapter 11 Plan of Reorganization (the Chapter 11 Plan). Thereafter, on 1 June 2023, the Diebold Chapter 11 Entities filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the US Bankruptcy Court). On the same day, the Diebold Chapter 11 Entities filed the Chapter 11 Plan, which sought to implement the restructuring outlined in the RSA, and the accompanying disclosure statement (the Disclosure Statement).
Unlike the WHOA, upon the filing of the Chapter 11 cases, Section 362 of the US Bankruptcy Code provides for a self-effectuating worldwide automatic stay enjoining all persons and governmental units from, among other things, (i) commencing or continuing any judicial, administrative or other proceeding against the Diebold Chapter 11 Entities that was or could have been commenced before the Chapter 11 cases were commenced, (ii) recovering upon a claim against any of the Diebold Chapter 11 Entities that arose prior to the commencement of the Chapter 11 cases, (iii) taking any action to collect, assess or recover a claim against any of the Diebold Chapter 11 Entities that arose before the commencement of the Chapter 11 cases, and (iv) acting to obtain possession of, or exercise control over, property of the Diebold Chapter 11 Entities bankruptcy estates. In furtherance of these protections, the US Bankruptcy Court entered an order confirming these protections in order to advise third parties of the existence of the self-effectuating nature of the automatic stay.
The US Bankruptcy Court conducted its “first day” hearing on 2 July 2023. At that hearing, the court entered an order conditionally approving the Disclosure Statement and set a hearing to consider confirmation of the Chapter 11 Plan, and the adequacy of the Disclosure Statement, on 12 July 2023.
Only impaired creditors receiving distributions under the Chapter 11 Plan are permitted to vote on the Chapter 11 Plan and are also divided into different classes. Those voting classes were: (i) the First Lien Claims (Class 5); (ii) the Second Lien Notes Claims (Class 6); and (iii) the 2024 Stub Unsecured Notes Claims (Class 7 and together with Class 5 and Class 6, the Plan Classes). The Chapter 11 Plan was adopted in all Plan Classes, except for Class 7, which comprise the Stub Unsecured Notes Claims that had also not accepted the WHOA Plan. All other classes of claims and interests in the Chapter 11 Plan were either unimpaired and conclusively presumed to accept the Chapter 11 Plan, or impaired and deemed to reject the Chapter 11 Plan because they received no recovery on account of their claims or interests.
The US Bankruptcy Court conducted a hearing on 12 July 2023 (the Confirmation Hearing) to consider confirmation of the Chapter 11 Plan and approval of the Disclosure Statement. Despite Class 7 voting to reject the Chapter 11 Plan, the Chapter 11 Plan was still confirmed because it met the requirements for confirmation under Section 1129 of the US Bankruptcy Code, including that the Chapter 11 Plan was fair and equitable, and did not “discriminate unfairly.” With respect to classes of impaired unsecured creditors, a plan is fair and equitable if it satisfies the “absolute priority rule,” meaning that no class of creditors or interests junior to the objecting class is receiving a distribution under the plan. Similarly situated creditors may be treated differently under a plan and still be confirmable if the treatment does not equate to “unfair” discrimination.
The valuation evidence submitted in support of the Chapter 11 Plan established that holders of First Lien Claims were under-secured and were only receiving an approximately 38% recovery at the Total Enterprise Value (TEV) midpoint. As a result, the value of the liens securing the Second Lien Notes Claims were zero and thus the claims were unsecured. Accordingly, the Chapter 11 Plan waterfall resulted in no value to be distributed to unsecured creditors, which included the holders of claims in Class 6 and 7. Nevertheless, the holders of First Lien Claims agreed under the Chapter 11 Plan to provide a “gift” to holders of Class 6 and 7, resulting in each receiving the same 4.8% recovery on their claims based on the TEV midpoint. The Chapter 11 Plan, therefore, did not discriminate unfairly as to holders of claims in Class 7. The Chapter 11 Plan was also fair and equitable because no claim or interest junior to Class 7 received an economic recovery under the Chapter 11 Plan.
At the Confirmation Hearing, the Bankruptcy Court approved entry of, and entered an order confirming the Chapter 11 Plan, which went effective on 11 August 2023.
In parallel to the WHOA proceedings in the Netherlands, on 12 June 2023, Diebold Dutch Holding, filed a voluntary petition for relief under Chapter 15 under the US Bankruptcy Code. On the same day, Carlin Adrianopoli,4 in his capacity as the duly appointed foreign representative of Diebold Dutch Holding, filed a motion seeking recognition of the Dutch reorganization proceeding, including the stay order.
On 12 July 2023, the US Court recognized the WHOA proceeding as a “foreign main proceeding” as Diebold Dutch Holding had its COMI in the Netherlands. Immediately upon the recognition of the WHOA proceeding as a foreign main proceeding, Diebold Dutch Holding was entitled to, inter alia, an automatic stay with respect to the property of the Dutch WHOA parties within the territory of the US. Also, the US Court recognized the stay order of Dutch Court and prohibited creditors in the US from taking actions (i.e., enforcement actions) that would be in violation of the Dutch stay.
On 7 August 2023, following the filing of an emergency motion by the foreign representative, the US Court entered an order, inter alia, recognizing and giving full force and effect to the WHOA Plan that was sanctioned by the Dutch Court. The US Court’s order permanently enjoined all parties who were affected or bound by the sanctioned WHOA Plan from a number of actions including the following: treating the WHOA proceeding, the Chapter 15 case, the sanctioned WHOA Plan as a default or event of default; taking or continuing any act to create, perfect or enforce a security interest, set off or take other actions that would be against the sanctioned WHOA Plan; and commencing or continuing an individual action against Diebold Dutch Holding or any other party involved in the Dutch proceeding or the Dutch WHOA parties’ assets, rights, and obligation to the extent that they have not been stayed. Such injunctions are effective solely within the territorial jurisdiction of the US. Diebold Dutch Holding and the foreign representative were also entitled to additional assistance and discretionary relief provided that the requests are consistent with “the principles of comity” as stipulated in Section 1507 (b) US Bankruptcy Code.5
The successful reorganization of Diebold Nixdorf under the parallel Dutch WHOA and US Chapter 11 proceedings, and the recognition of the sanctioned WHOA Plan in the US once again proves the capacity of the WHOA to successfully be used in cross-border reorganization cases. There are several lessons learned from the smooth implementation of the Diebold Nixdorf restructuring. First, in parallel Dutch-US cases it is important to initiate a Chapter 15 proceeding as soon as the respective Dutch court grants a stay to minimize the gap between the Dutch court’s stay order and the recognition of such order in the US. Next, the appointment of an observer is one of the positive elements of the WHOA proceedings, particularly in cross-border reorganization matters due to the complexity of such cases. The observer brings an objective view to the restructuring, which can facilitate court approval. Appointment of an observer at an early stage of cross-border cases is of paramount importance. Furthermore, the length of WHOA proceedings may in general be shorter than a Chapter 11 proceeding. This must be considered especially when two plans are very much interrelated to each other -- since it is unclear whether and to what extent Dutch courts allow amendments to a sanctioned reorganization plan (if the Chapter 11 plan is revised due to objections by parties or rulings of the Bankruptcy Court). Last but not least, in Diebold, the Dutch Court seemed to have flexibility as to the incorporation of clauses that were inspired by the Chapter 11 practice. Nevertheless, the extent to which the Chapter 11 practice can be reflected in WHOA plans is yet uncertain and may become clearer in future parallel Dutch-US cases.
1 District Court of Amsterdam 2 August 2023, ECLI:NL:RBAMS:6159.
2 James Stonebridge, Omar Salah, Jade Porter and Bas van Hooijdonk, ‘Vroon restructuring: A lesson in adapting to and overcoming challenges’ (Q4 2023, Norton Rose Fulbright).
3 District Court of Amsterdam 2 August 2023, ECLI:NL:RBAMS:6160.
4 Mr. Adrianopoli was also authorized to act as the foreign representative of the Diebold Chapter 11 Entities. On 13 July 2023, Mr. Adrianopoli applied for an Initial Recognition Order, a Supplemental Order and a Plan Confirmation Recognition Order pursuant to Part IV of the Companies’ Creditors Arrangement Act (CCAA) in Canada. On 18 July 2023, the CCAA court entered such orders in the recognition proceedings. The CCAA proceedings were terminated on 19 September 2023.
5 Pursuant to the principles of comity, the court will reasonably assure: (1) just treatment of all holders of claims against or interests in the debtor’s property; (2) protection of claim holders in the United States against prejudice and inconvenience in the processing of claims in such foreign proceeding; (3) prevention of preferential or fraudulent dispositions of property of the debtor; (4) distribution of proceeds of the debtor’s property substantially in accordance with the order prescribed by this title; and (5) if appropriate, the provision of an opportunity for a fresh start for the individual that such foreign proceeding concerns.
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