No creditor worse off
The principle that no creditor may be worse off under a restructuring agreement than in the event of bankruptcy.
The 'no creditor worse off' principle is a core requirement of Dutch insolvency law, particularly in the context of the homologation of a private composition under the WHOA. It requires that every creditor receives under the composition at least the same distribution as it would obtain upon liquidation in bankruptcy.
This principle safeguards creditors against prejudice and furnishes the court with an objective assessment framework for determining whether the composition is fair and equitable. In practice, the value in bankruptcy is calculated and compared with the expected recovery under the composition.
A breach of this principle will ordinarily result in refusal of homologation, unless the prejudiced creditor subsequently consents.
“The court refused homologation because the composition was contrary to the no-creditor-worse-off principle.”
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