2017-07-doc6 Odd decision of Dutch Supreme Court in Oi Brasil case

On 7 July 2017, the Dutch Supreme Court decided in a case concerning the relationship between two sets of insolvency proceedings. These had been opened in Brazil as well as in the Netherlands. These proceedings concern the Dutch suspension of payment (surseance van betaling) for two Dutch legal persons, Oi Brasil Holdings Coöperatief U.A. (Oi Coop) and Portugal Telecom International Finance B.V. (PTIF). In Brazil a restructuring proceeding (recuperaçaõ judicial) (‘RJ-procedure’) had been opened. A RJ procedure is a consolidated judicial restructuring procedure aimed at restructuring the group on a going concern basis in connection with the financial difficulties in which it is in. Before the Duch Supreme Court Oi Coop and PTIF argue (among many other things) that these RJ procedure means that the Dutch suspension of payment procedure is to be subordinated to the restructuring process in Brazil in the interests of the success of that procedure and in the interests of the group as a whole. The result would be that the insolvency practitioners for both companies, appointed by the Dutch court, would not be involved or only to a limited extent concerning the question which actions would be benificial to the restructuring. The Dutch Supreme Court is clear (in my translation):

‘This view can not be accepted. It is clear in this procedure that the Netherlands Bankruptcy Act applies to Oi Coop and PTIF as companies established in the Netherlands. This means that the rules of the Bankruptcy Act are in principle in full aplicable to them, including in the case of surseance art. 228 of the Act, which means that the debtor has the power of managing and disposal of his assets together with the insolvency practitioner, so the debtor alone can not act without its cooperation, authorization or assistance. In the absence of an (applicable) international or special national arrangement to the contrary, there is no reason to make an exception as a result of the fact that Oi Coop and PTIF belong to an international group of related companies which has its centre of main interest abroad and against which in a foreign jurisdiction a restructuring proceeding, such as the RJ-procedure is pending. The latter fact, however, can be taken into account where the law does leave room for it, such as the balancing of interests which has to take place on the basis of art. 242 section 1 of the Act in connection to the cancellation of the suspension of payment proceeding. Furthermore, the insolvency practitioners in a case like this in fullfilling their task may take into account the interests of the group as a whole and the creditors of the group as a whole. However, as a starting point, also in insolvency proceedings the individual legal personality of members of a group applies.’

What strikes is that the question whether the Dutch courts had jurisdiction in these proceedings has not been been taken into account, at least not in the consideration cited. The Surpreme Court automatically ties the question regarding applicable law to the fact that both companies are legal persons, incorporated or established on the basis of Dutch corporate law. Under the EU Insolvency Regulation decisive for international jurisdiction is a debtor’s centre of main interest (COMI). Evedently, the Regulation does not apply to Brazil. In our 2012 report ALI-III Global Principles for Cooperation in International Insolvency Cases 2012 (in short: ALI-III Global Principles and Guidelines 2012) prof Ian Fletcher (london) and I have recommended to apply the COMI principle (with some modifications) as a global rule. See Principle 13 in the Report, the full text of which can be found here [https://www.iiiglobal.org/sites/default/files/alireportmarch_0.pdf]. he Report is the result of a joint study commissioned by the American Law Institute (ALI) and the International Insolvency Institute (III), conducted over a period of six years, ending in 2012. The Report was produced in collaboration with expert consultants (Members of ALI or III and others) representing more than 30 different countries, reflecting a wide and representative cross section of the different legal traditions and styles around the globe. These ALI-III Global Principles and Guidelines 2012 constitute a nonbinding statement, drafted in a manner to be used both in civil-law as well as common-law jurisdictions, and aim to cover all jurisdictions in the world. It is noted that the Report, at the end, also contains a separate Annex with a Statement of the Reporters, setting out our proposals for Global Rules on Conflict of Laws Matters in International Insolvency Cases. These proposals are not included in the Global Principles for Cooperation in International Insolvency Cases, but have been submitted to ALI and III as a useful starting point for further debate on a global level, bearing in mind the necessity to have these proposals tested against existing treaties or conventions and ALI’s other work products and ongoing work on Principles related to other topics with conflict of law consequences. We notice in the Report that the Global Rules on Conflict of Laws Matters in International Insolvency Cases may serve as legislative recommendations in general and sometimes in more detailed terms. They may also serve as a guide for courts, insolvency practitioners and creditors in those circumstances where applicable law with regard to international insolvency cases fails to deal with a certain point in issue or is vague. In Rule 12 (‘Law of the State of the Opening of Proceedings’) we defend, on a global scale, the lex fori concursus rule. This rule is reflected in the Dutch Supreme Court’s decision.

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