On 27 August 2019, the Dutch Minister for Legal Protection ('Rechtsbescherming') did send his 11th letter on progress concerning several acts for the overall recast of the Dutch Bankprty Act to Dutch Parliament. On the 5th and last page it introduces the subject 'International insolvencies'. The following is provided, I quote: 'An insolvency adjudicated outside the European Union is in principle not recognized in the Netherlands and therefore has no effect on assets located in the Netherlands. An amendment to the Bankruptcy Act is being considered, whereby parts of the UNICITRAL Model Law on cross-border bankruptcies are included in the Bankruptcy Act. It regulates, among other things, (i) the applicable law, (ii) the recognition (enforcement) of foreign insolvency proceedings and (iii) the consequences of that recognition. I intend to put together an expert group to further explore this.'
Well, that is just as short as it is interesting, as it is a subject the Dutch government has been near to silent about for over a decade.
The first line ('no recognition'; 'no effects') is at odds with a much discussed Yukos judgement of the Dutch Supreme Court of September 2013 (in a non-EU case) clarifying that in that case the appointed Russian trustee (Mr Rebgun) may in principle exercise the power to sell the debtor’s assets located in the Netherlands, that has conferred on him under the foreign (Russian) lex concursus. The Court goes into quite some details to explain the Russian trustee’s position. The result of the case is that – outside the scope of the European Insolvency Regulation – a foreign insolvency office holder can effectively exercise its powers in the Netherlands, provided that his actions follow from the lex concursus (in this cas Russian law) and these actions respect all existing individual creditors’ attachments on assets located in the Netherlands. The foreign IP can act in the Netherlands without prior court decision on for instance recognition of its foreign proceeding or relief (as is required under the UNCITRAL Model Law), or for instance an exequatur. The only defence interested parties have is the submission that an action of the foreign IP is against Dutch public policy. The Yukos judgment therefore results in its effects in universality: the Netherlands is open for foreign insolvency proceedings.
Be it as it is, the important message is that an expert group will be appointed to 'explore' the matter.
I remember that a Dutch draft proposal ('Title X'), as part of a draft Proposal of 2007 to overhaul the whole Dutch Bankruptcy Act wished to follow the Uncitral Model Law, be it with a different structure, and provisions unaligned with those of the Model Law. Foreign, non-Dutch judges and IPs had difficulty in recognising the system. What it did do was to include filling of a gap in the Model Law itself (it does not provide for rules for applicable law). The Dutch Draft of 2007 suggests to copy the rules of law applicabe of the EU Insolvency Regulation.
The expert group is, respectfully, advised not to feel a hostage of the ideas of 12 years ago.
As I blogged earlier, the Model Law is certainly not outdated, however it was the fruit of the 90s, now however over 20 years old. I think national legislation on international insovency law (i) should also take into account more recently developed concepts and themes, such as registration of insolvency decisiones, rules for data protection, the main insolvency practitioner’s power to give a unilateral undertaking (in order to prevent opening of proceedings in another state), technology-driven developments in cross-border communication, professional and ethical rules for insolvency practitioners in their actions outside their own jurisdiction or rules for recognition of for instance decisions on director’s disqualification. See http://www.bobwessels.nl/blog/2017-11-doc7-some-remarks-on-the-model-law/. Furthermore - my advice would be - the expert group working on a national exploration should consider to (ii) also examine most recent UNCITRAL Model rules relating to annex actions and the group enterprise insolvencies, (iii) investigate experiences in recent practice by speaking at lenght with Dutch IPs having actual (and still ongoing) experiences in fresh Brazilian (Oi) and Indian cases (2016 case, see https://leidenlawblog.nl/articles/the-effects-in-the-netherlands-of-an-order-issued-in-indian-insolvency-proc, and the recent Jet Air case), (iv) speak to colleagues from e.g. Australia, Singapore and New Zealand, and learn from the obstacles they met rather recently when implementing UNCITRAL's ideas in their national lagislation, and (v) investigate what the best way would be to give effect to restructuring negotiations and plans, in the vicinity of insolvency, coming from outside Dutch' territory.
As it is 'exploration', no 'legislation', it certainly is worth considering to include non-Dutch experts in such a group. After all, the non-Dutch world will have to work with the results of it. Exciting times ahead! Those involved in the exploration should be wished all the best.
In June 2019, INSOL International released its ‘Ethical Principles for Insolvency Professionals’. Ethics is about the values that should be lived and worked by and respected by all insolvency professionals while interacting with creditors, judges, consumers of the debtor, its board or shareholders. Ethics is nothing scary, a threatening term for being wary for all types of misconduct and liabilities. No, ethics is the result of the view that the rightness of certain actions should be based on rules of behavior. These rules flow from norms with regard to professional conduct. Working according to clear, consistent ethical principles is an important component for delivering quality work, for the benefit of those whose interests are to be served as well as the community at large. In the INSOL Ethical Principles six principles have been put forward, involving (i) integrity, (ii) objectivity, independence and impartiality, (iii) professional/technical competence, (iv) professional behaviour, (v) remuneration and (vi) practice management (involving six specified policies). Each Principle is accompanied by a commentary, explaining its intention and providing certain examples of the Principles, as well as the meaning of several terms used, for which a Glossary is added. The commentary and glossary are helpful sources putting more flesh on the bones of the Principles. My Leiden colleague Gert-Jan Boon and I will be discussing these Principle in more detail in one of the coming issues of Global Restructuring Review, under the title 'The Ethical IP'.
With the INSOL Ethical Principles INSOL International - we believe for the first time - touches on the core of the profession, which is a laudable initiative. Although not mentioned as such, the Principles may assist also national legislators, especially those in Europe, when revising existing or drafting future rules. As my colleague and I discussed earlier (see http://www.bobwessels.nl/blog/2019-06-doc1-soft-law-instrumentst-in-insolvency-restructuring-law/) the last two decades, professional and ethical principles and recommendations have undergone a great development. They now make an important contribution to the highly desirable professionalization of IPs, judges, regulators and, for that matter, legislators. This was also emphasized in the recently adopted EU Directive on restructuring and insolvency 2019/1023. This new Directive recommends the adoption of codes of conduct by practitioners. Therefore, also the Principles of INSOL may be a relevant source for practice.
In Europe, in a 2017 report to the European Law Institute (ELI) it has been recommended (http://www.bobwessels.nl/blog/2017-09-doc3-eli-business-rescue-report-published/) that European and national legislators should set professional and ethical standards for insolvency practitioners and ensure that the relevant professional bodies are consulted and involved in the creation of such standards and that they take into account best practices for appropriately regulated professional parties as set out in principles and guidelines on regulation of the restructuring and insolvency profession developed or adopted by European and international non-governmental organisations active in the area of restructuring and insolvency. Such standards should at least contain rules on licensing and registration, supervision and discipline, qualification and training, an appointment system, work standards during administration, legal powers and duties, remuneration, reporting and communication and ethical working standards (including rules on conflict of interests and a complaint procedure). For the full 400-pages report, see https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3032309.
The INSOL Ethical Principles do not cover all these subjects. Guidance will be needed too when dealing with the role of an IP acting on specific legislative duties, e.g. relating to privacy, anti-fraud and anti money laundering, with his role regarding assets of financial transactions based on innovative technologies (crypto- and PSD2-payments) and when looking for an answer for the position of a debtor in possession (DIP), its role in an IP-like function and its rights and duties under national corporate law.
One of the greatest dangers for soft law principles on paper, is that paper is patient, but gets out of date in this fast changing world by the (let's say:) year. That is an unwelcome receipt for the new guest in the house of soft law, as soft law constantly needs updating and improvement. It also serves as a workable tool demonstrating that the profession can keep up its own pants and takes its professional responsibility seriously and learns from inevitable mistakes. In this way, the INSOL Ethical Principles too can continue to make a dynamic and positive contribution to reflect on the intrinsic values and behaviour of IPs, and contribute to the profession’s confidence and respect, not only of the courts and of the creditors and debtors, but also of the general public.
IPs, positively, know that a companies' restructuring is a continuous process. The same applies to the profession's ethics too.
In the matter of Syncreon Group B.V. (and ors) the English High Court on 31 July 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  EWHC 2911 (Ch), at . 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.
In the matter of Syncreon Group B.V. (and ors) the English High Court on 31 July 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)  BCC 115 at . 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  EWHC 2476 (Ch) at  and , 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  EWHC 1328 (Comm) at . 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  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.