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Blog 2019

2019-08-doc2a Scheme of arrangement - who is the foreign representative (+ text)

In the matter of Syncreon Group B.V. (and ors) the English High Court on 31 July 2019 ([2019] EWHC 2068 (Ch)) (see my blog of yesterday at http://www.bobwessels.nl/blog/2019-08-doc1-scheme-of-arrangement-does-english-court-has-jurisdiction-re-dutch-b.v/) a final matter for Falk J to decide relates to the question who will act as the foreign representative. The parties requested the judge to include in the order to be given a declaration that an officer of the Scheme of Arrangement companies was their appointed 'foreign representative' for the purposes of any proceedings commenced in the United States under Chapter 15 or in Canada under the Canadian Companies' Creditors Arrangement Act. In general, I would submit that where Syncreon is a Dutch company the question whether a person is validly appointed to act for the company will be governed by the law of the place of the company’s incorporation, i.e. Dutch law. Has, in the case at hand, the person in question been validly appointed by the directors of the Dutch company to represent it and act as its agent in seeking relief available to a foreign representative? Falk J shares the view of Snowden J expressed in Re Noble Group Ltd [2018] EWHC 2911 (Ch), at [107]. A person appointed by the company in relation to the a Scheme does not have the status of an office-holder under the English Insolvency Act 1986, nor that of an officer of the English court. A court will not intend in any way to prejudge the question of whether such person qualify as a 'foreign representative' under Chapter 15 or the CCAA. This is entirely a matter for those foreign courts.

2019-08-doc1 Scheme of arrangement - Does English court has jurisdiction re Dutch B.V.?

In the matter of Syncreon Group B.V. (and ors) the English High Court on 31 July 2019 ([2019] EWHC 2068 (Ch)) presented its written reasons for granting an application by Syncreon Group to convene meetings of certain classes of creditors for the purpose of considering a scheme of arrangement. Syncreon Group is a private limited company incorporated under the laws of the Netherlands, and the other applicant, Syncreon UK, is a company incorporated in England and Wales. Both are held directly or indirectly by Syncreon Group Holdings BV (Parent). The group headed by the Parent is the Group. It carries on the business of specialised contract logistics in the automotive and technology industry, having dealings etc in USA, Canada, the Netherlands, Ireland and Germany, and considers itself significantly over-leveraged and unlikely to be able to continue in business without restructuring its debt. The likely alternatives are enforcement action leading to an accelerated sale or piecemeal insolvency procedures. The Schemes form a key part of the proposed restructuring and the court solves several matters related to the classes of creditors. Has the court jurisdiction? Syncreon UK is both incorporated and has its centre of main interests (COMI) in England and Wales. So here exercising jurisdiction is appropriate. Syncreon Group, however, is Dutch incorporated and does not have an English COMI. In such a case the English judicial approach is that the court has a "sufficient connection" with the jurisdiction (refering to Lehman Bros International (Europe) (in admin) [2019] BCC 115 at [62]. The steps to take in practice are now rather clear, being (i) that Syncreon Group relies on the documents now being governed by English law, and (ii) that the parties having contractually submitted to the jurisdiction of the English courts. As to (i) the fact that the Parent Credit Facility (PCF) and Note documentation is governed by English law, and that the parties have submitted to the jurisdiction of the English courts, does provide a sufficient connection with the English jurisdiction. The courts is helpful by providing the basis for its argumentation: Re Vietnam Shipbuilding Industry Groups [2013] EWHC 2476 (Ch) at [8] and [9], whilst the change to the governing law is expressly contemplated by Article 3(2) of the Rome I Regulation (593/2008), and there being no objection in principle to such a change under English law: Mauritius Commercial Bank Ltd v Hestia Holdings Ltd [2013] EWHC 1328 (Comm) at [30]. As to (ii) the court explains that there have been a number of cases where governing law clauses have been changed with a view to creating a sufficient connection with the English jurisdiction for the purposes of a scheme of arrangement. Also here, the step taken is clear (and limited): 'Whether that fact makes any difference to the court's decision is a matter for the judge considering whether to sanction the Schemes, and not a matter for determination at this stage. For present purposes I will limit my comments to noting two points. First, the motivation behind the change to the governing law and jurisdiction clauses was explained to PCF lenders and Noteholders when the changes were sought. Secondly, the Group has received advice that the changes to the governing law and jurisdiction provisions will be respected ..., and that the Schemes should be recognised in the US, Canada and the Netherlands. Indeed, in the case of the US and Canada recognition is a condition of the restructuring. Although there are also significant operations in Ireland and Germany, it is anticipated that those jurisdictions will follow the EU principles referred to in the Dutch advice, and accordingly will be recognised there as well. In Re Magyar Telecom BV [2013] EWHC 3800 (Ch) David Richards J (as he then was) considered that the question of sufficient connection was closely related to the question of whether the scheme would have a substantial effect (paragraph 21). In these circumstances I am satisfied that there are no "roadblock" issues which make it obvious that the court has no jurisdiction or should otherwise refuse to exercise its discretion to sanction the Schemes, and accordingly that it is appropriate to permit the proposed Scheme meetings to be convened.' To be continued.

2019-07-doc1 Insolvency - Legislative developments in the Netherlands

Legislative developments in the Netherlands

The Dutch Bankruptcy Act (DBA) first entered into force in 1896. Over the first 100 years amendments were made over the years, the rules governing bankruptcy liquidation fundamentally remained the same. In 1998 special rules to deal with debt restructuring of natural persons have been included.

Early 2000, eight years after the entry into force of the New Civil Code, an attempt was made to revise the rather ineffective procedure of postponement of payment (surseance van betaling). The Commissions plans in 2007 were in general welcomed in by insolvency practitioners and by courts, however were not prioritized in politics.

Some 6-7 years voices became louder that the DBA needed a revision, especially to create a functional procedure re restructuring of near to insolvent, but viable businesses. This ultimately led to the launch of the legislative program ‘Recalibration of Bankruptcy Law’ (Herijking Faillissementsrecht) in 2012.

The legislative program aims to improve Dutch insolvency law by way of three main pillars or focuses: (i) combatting insolvency fraud; (ii) introduction of the ability to restructure companies; and (iii) generally modernisation of Dutch bankruptcy law.

First pillar: insolvency fraud

With regard to insolvency fraud, two bills entered into force on 1 July 2016. The first bill increases the possibility to use criminal law in cases of insolvency fraud. The second bill concerns the disqualification of directors for five years if they manifestly improperly performed their tasks during a period of three years before the insolvency.

A third and final bill in the pillar’s context focusses on the strengthening of the position of IPs, especially regarding fraud alert duties into force on 1 July 2017.

Art. 68 establishes the duties of the IP (‘curator’). His legal task is to manage and settle the estate. In 2017 a new paragraph 2 has been added: ‘The insolvency practitioner: a. examines in the management and settlement of the bankrupt estate whether there are any irregularities that have caused the bankruptcy, at least in part, complicating the liquidation of the bankrupt estate or have increased the deficit in the bankruptcy; b. informs the supervisory judge about this confidentially; and c. shall, if he or the supervisory judge deems it necessary, report or report irregularities to the competent authorities.’

Evidently in debate is how to reconcile the task to manage and administer the estate for the benefit of the collective group of the creditors and the specific task – for the general public interest – to report irregularities.

Second pillar: corporate restructuring

In 2013 the Dutch government introduced the first draft bill regarding the second focus of the aforementioned program, the draft Bill on Continuity of Undertakings I. This draft bill aims to regulate the pre-pack (Dutch variant of the English instrument) as it has developed in practice since 2011. The Bill should not take away its advantages, still granting restructuring practitioners sufficient leeway to apply the pre-pack to very different cases. The draft bill went to Dutch Parliament but was halted after the publication of the opinion of the attorney-general to the ECJ in the Estro case. A few weeks later followed the CJEU 22 June 2017, C-126/16, ECLI:EU:C:2017:489. The Court of Justice of the EU held (in short) that Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses, and in particular Article 5(1) thereof, must be interpreted as meaning ‘… that the protection of workers guaranteed by Articles 3 and 4 of that directive applies in a situation, such as that at issue in the main proceedings, in which the transfer of an undertaking takes place following a declaration of insolvency and in the context of a ‘pre-pack’ where that ‘pre-pack’ is prepared before the declaration of insolvency and put into effect immediately after that declaration, and, in particular, a court-appointed prospective insolvency administrator investigates the possibilities for continuation of the activities of that undertaking by a third party and prepares for acts which must be carried out shortly after the insolvency to enable such continuation and, moreover, it is irrelevant in that regard that the ‘pre-pack’ is also aimed at maximising the proceeds of the transfer for all the creditors of the undertaking in question.’

Only in June 2019 a consultation of the Ministry has been published asking for view how to deal with employee protection in pre-insolvency situations.

In 5 September 2017, a draft bill named the ‘Act on the Confirmation of a Private Restructuring Plan in order to Prevent Bankruptcy’ was presented. This draft bill introduces a statutory framework for a pre-insolvency restructuring similar to the UK scheme of arrangements. Although the exact timing for implementation of these and other proposals remains uncertain, the draft bills show a clear trend in the Netherlands towards a more rescue-friendly environment and a more competitive formal insolvency law regime within Europe.

Finally, the third pillar: modernization

On 1 January 2019, the Modernisation of Bankruptcy Procedure Act (MBPA) (in Dutch: Wet Modernisering Faillissementsprocedure) entered into force. This act, which will apply to bankruptcies opened on or after 1 January 2019, is aimed at updating Dutch bankruptcy law to bring it more in line with modern practice.

The MBPA implements measures aimed at achieving four distinctive goals: (i) increased digitalisation and transparency increased digitalisation and transparency, (ii) increasing the speed of the bankruptcy procedure, (iii) providing for a more made-to-measure procedure; and (iv) increased specialisation and expertise. The latter goal has led to the possibility of a supervisory judge to appoint an expert – at the costs of the estate – to support the judge in cases that require particular expertise and the possibility for the appointment of more than one supervisory judge in a bankruptcy liquidation case.

Next

Other pending possible future legislation are considered for the following topics: (i) consumers and (pre-paid) gift cards, (ii) secured rights in insolvency (hardly influenced by insolvency; ideas for paying IPs because of the many asset-less estates, (iii) security rights for loans given by a shareholder. The latter is normally subordinated, but its position is secured by other means, (iv) insolvency and privatised institutions (e.g. schools; hospitals)

Finally, to assist the Ministry a ‘Committee on Insolvency Law’ has been established for four years. Its chairman being prof. Michael Veder.

International cooperation between courts

The Netherlands takes into account best practices for cooperation in cross-border insolvency cases, as set out in principles and guidelines on communication and cooperation adopted by European and international associations active in the area of insolvency law, and in particular the relevant guidelines prepared by UNCITRAL. For the European Union best practices have resulted in EU Cross-border Insolvency Court-to-Court Cooperation Principles and Guidelines (also ‘JudgeCo’ Principles and Guidelines. In October 2016 the Judicial Insolvency Network held its inaugural conference in Singapore, which concluded with the issuance of a set of guidelines titled ‘Guidelines for Communication and Cooperation between Courts in Cross-Border Insolvency Matters’ also known as the JIN Guidelines. The JIN Guidelines address key aspects of and the modalities for communication and cooperation amongst courts, insolvency representatives and other parties involved in cross-border insolvency proceedings, including the conduct of joint hearings. On 1 May 2019 the District Court Midden-Nederland adopted its version of these JIN Guidelines.

Available via https://www.rechtspraak.nl/English/Pages/International-Insolvency.aspx#cb01f363-fd8e-4073-8fe3-1113887a8b5a5a3194d6-d64d-45e7-929b-bc40836492a26

This is a 5  minute impression provided in June in Cologne during tha annual meeting of International Experience on Exchange of Insolvency Law (IEEI) https://www.insolvenzrecht.jura.uni-koeln.de/16370.html

IEEI-members – From Bob Wessels – July 2019

2019-06-doc5 A Standing International Forum of Commercial Courts (SIFoCC)

Since a few years a Standing International Forum of Commercial Courts (SIFoCC) is active. Membership of SIFoCC involves access to a unique international network of judges to share knowledge and expertise, to discuss common problems and identify and prepare for major future change and development.
Membership is open to jurisdictions with an identifiable commercial court or with courts handling commercial disputes. The judiciary of the country becomes the member, rather than any individual judge. Opportunities via membership include the establishment of a sustainable peer-to-peer relationships at judicial level, sharing best practice and support in its wider application, and assistance in building capacity. Through these activities SIFoCC wants to serve better all in the judicial industry: users, markets and other courts, to join forces to make a stronger contribution to the rule of law than commercial courts can do separately, and, ultimately, contribute to stability and prosperity worldwide.
The present membership of SIFoCC include commercial courts in New York, Delaware, Australia, Singapore, Ireland, and London (England & Wales), Sctland and Northern Ireland, Canada and New Zealand. SIFoCC is building its global network by having included courts from the Gulf States (Dubai, Qatar, Abu Dhabi and Bahrain), Hong Kong. Courts from Europe (Hamburg and the English-language Netherlands Coomerical Court) were included, as were offshore jurisdictions (e.g. Bermuda, Eastern Caribbean, The Cayman Islands).
SIFoCC agreed to progress the following areas of work in the first instance (i) a multilateral memorandum on current best means of enforcement of commercial judgments between members, (ii) a working party on how best practice might be identified and litigation made more efficient, (iii) a structure for judges of the commercial court of a number of developing countries to be able to spend short periods of time together as observers in the commercial court of another SIFoCC country, and (iv) practical arrangements for liaison with arbitral bodies to identify and resolve areas of difficulty.

Where only 'courts' can become a member it is hoped that individual judges can easily share experiences and be involved in the development of a programme to can directly tackle their needs. As said many times, problems emerging in a global economy need global solutions; courts are taking steps in a right direction and judges as indivicuals should be involved along the way. More information, see https://www.sifocc.org.