Best interest of creditors

The best interest of creditors principle provides that a private composition or restructuring plan may be homologated only if it is at least as advantageous for every creditor as a liquidation in bankruptcy. This prevents creditors from being compelled to accept an arrangement that would worsen their position.

This criterion is particularly relevant under the Act on the Homologation of Private Agreements (WHOA) and plays a significant role in the court’s approval of compositions. The test affords individual creditors a minimum level of protection against being bound by a forced arrangement.

In practice, a valuation report is frequently prepared to demonstrate compliance with this requirement, and the court may refuse homologation if the test is not satisfied.