Hanjin’s rehabilitation and bankruptcy sweeps the world. Last Friday, 25 November 2016, the Rotterdam District Court (ECLI:NL:RBROT:2016:9090) had to decide on a request to open secondary insolvency proceedings regarding Hanjin Shipping Europe GmbH & Co. KG (‘Hanjin Europe’). So the Netherlands has become the latest in a growing list of jurisdictions to grant recognition or assist in coordination re Korean cargo shipper Hanjin Shipping’s rehabilitation proceedings, after Japan, the US, the UK, China and Singapore.
Hanjin Europe has entered ‘vorläufiges Insolvenzverfahren’ (‘provisional insolvency proceedings’) in Germany (a proceeding not listed in Annex A to the EIR 2000), for which Dr. Dietmar Penzlin has been appointed as ‘vorläufiger Insolvenzverwalter’ (‘provisional liquidator’). The Rotterdam court presents the facts: Hanjin Europe has its registered office in Hamburg, Germany, and operates an establishment in Rotterdam, employing 59 persons for activities such as loading, unloading and transfer for seafaring, under the name of Hanjin Shipping Netherlands. Also located in the Netherlands is an ING bank account with a balance of € 78,804.53.
Insolvency proceedings were opened in Hamburg on 26 October 2016, the court appointing Penzlin as provisional liquidator, with the Court’s instruction to him (amongst others) to find out where the debtor’s center of main interests (COMI) is and whether in another Member State main insolvency proceedings have been opened. By order of 21 November 2016 of the Hamburg court the provisional liquidator has been empowered to request for opening of secondary insolvency proceedings in the meaning of Article 29 EIR 2000 in the Netherlands, Belgium, France and the Czech Republic. Moreover, an e-mail has been shown of Moo Kyoon On, statutory director of Hanjin Europe expressing his confirmation with the request.
The Rotterdam court decides the following (I added the numbers and the italics):
1 Proceeding not on Annex A, liquidator listed in Annex C
Secondary proceedings may be requested by the liquidator in the main insolvency proceedings. ‘Insolvenzverfahren’ is listed in Annex A; the ‘vorläufiges Insolvenzverfahren’ is not. However applying ECJ’s 10 year old, but still important decision in Eurofood (C-341/04) (in short: proceeding not mentioned on Annex A, ‘liquidator’ listed on Annex C) the court decides that the conditions to be recognised as main insolvency proceedings are satisfied.
2 Liquidator instructed by the Hamburg court to file for secondary proceedings
The German court decided that COMI of Hanjin Europe is in Germany based on the presumption that can be derived from the registered office. The provisional liquidator has also been given the task to examine whether COMI is located in Germany. The Rotterdam court observes, that the judgment of the German court on COMI does not seem definitive. Upon further review of this request, the court determines that it will have to follow this opinion, as there can not be established objective factors at this time showing that the COMIwould be located elsewhere. The provisional liquidator is listed on Annex C. The Rotterdam court continues to state that from the judgment of the Hamburg court it follows that the debtor has been divested of its assets (at least partially). This leads to the conclusion that the proceedings opened in Germany, are opened in a Member States where the debotor’s COMI is. The provisional liquidator therefore is entitled to apply for secondary proceedings, concludes the court.
3 Establishment
The court says that Hanjin Europe has an establishment in Rotterdam, and that therefore the Dutch court can open secondary insolvency proceedings. Article 27 EIR provides that secondary proceedings may be permitted ‘… without the debtor’s insolvency being examined in that other State’, ie the Netherlands. The court determines that the wording of this provision leaves some room for scrutiny. In this case it is also in place, since the two decisions that are produced do not contain any definitive judgment as to the insolvency of Hanjin Europe. In the German provisional proceedings the provisional liquidator received an instruction from the court to investigate the condition of the estate. In the request for opening of secondary proceedings, the provisional liquidator states that Hanjin Europe has applied for insolvency proceedings, and that it is expected that it will be finally granted on or about 1 December 2016. The provisional liquidator estimates that there will be not sufficient assets in the estate to meet the salaries of the staff related to the notice period. Given the above, the Rotterdam court at this moment is satisfied regarding the status of insolvency of Hanjin Europe.
4 Interest
The court continues by expressing that there is also an interest in the opening of secondary insolvency proceedings. The provisional liquidator has stated that the salaries of the employees from November 2016 onwards can not be paid. It is a monthly amount of about € 150000. The German Federal Employment Agency does not compensate Dutch employees in case of insolvency because of unpaid wages. The provisional liquidator needs a secondary procedure in order to settle the lease and employment contracts in the Netherlands and to monetize the Dutch assets, the court concludes. The opening of secondary proceedings then follows.
A few remarks.
1 Proceeding not on Annex A, liquidator listed in Annex C
In the Eurofood case the French Government did submit that, since the definition of ‘insolvency proceedings’ in Article 2(a) and Annex A of EIR 2000 does not include the appointment of a ‘provisional liquidator’ (in this case such an official from Ireland), such appointment cannot lead to an ‘insolvency proceeding’ within the meaning of the Regulation. Advocate General Jacobs (Opinion of 27 September 2005, case C-341/04 Eurofood IFSC Ltd.) rejected both submissions: ‘84. The effect of Article 2(a) is that ‘the collective proceedings referred to in Article 1(1)’ are ‘listed in Annex A’. There is consensus among commentators on the Regulation that ‘… once the proceedings have been included in the list, the Regulation applies without any further review by the courts of other Member States’.
In Eurofood compulsory winding up by the court in Ireland is included in Annex A, Jacobs does not consider that the application of the Regulation to such proceedings may be put in doubt on the ground that certain aspects of the definition in Article 1(1) are not satisfied. Regarding the French Government’s submission, the Advocate General considers: ‘87. Again however that argument seems to me to betray a misunderstanding of the scheme of the Regulation. Compulsory winding up by the court in Ireland is listed in Annex A. The provisional liquidator, mentioned in the list in Annex C, was appointed in the context of such a proceeding. Those factors to my mind suffice.’ The Rotterdam court follows the same path.
2 Liquidator instructed by the Hamburg court to file for secondary proceedings
Prior to the Eurofood-case, it was generally held that the insolvency practitioner who has been appointed according to national law, as a temporary or provisional liquidator – e.g. appointed after the request for the opening of main insolvency proceedings, but before the actual opening – is not permitted to request the opening of secondary proceedings (on the basis of Article 29(a) EIR 2000, see Virgós/Schmit Report (1996), nr. 212 and nr. 262. The ECJ in Eurofood, however, held with regard to the EIR 2000: ‘In that respect, it should be noted that Article 38 of the Regulation must be read in combination with Article 29, according to which the liquidator in the main proceedings is entitled to request the opening of secondary proceedings in another Member State. That Article 38 thus concerns the situation in which the competent court of a Member State has had main insolvency proceedings brought before it and has appointed a person or body to watch over the debtor’s assets on a provisional basis, but has not yet ordered that that debtor be divested or appointed a liquidator referred to in Annex C to the Regulation. In that case, the person or body in question, though not empowered to initiate secondary insolvency proceedings in another Member State, may request that preservation measures be taken over the assets of the debtor situated in that Member State. That is, however, not the case in the main proceedings here, where the High Court has appointed a provisional liquidator referred to in Annex C to the Regulation and ordered that the debtor be divested.’
As a result – although some German authors disagree – it has been concluded that a provisional liquidator is eligible to invoke Article 29(a) EIR 2000. In such a case the provisional liquidator has an autonomous power and it does not need an instruction from its court. It seems that the Rotterdam court is of the same view, based on its own building up of the facts that COMI is in Germany. The other view (the provisional liquidators acts based on a ‘power of attorney’ of the German court) would have as a consequence to decide whether it can be characterised as a ‘judgment deriving directly from the insolvency proceedings and is closely linked with them’, in the meaning of Article 25 EIR 2000. With its ‘autonomous’ power to file for secondary insolvency proceedings, the e-mail of the director of the GmbH is a nice piece of scenary, his agreement has no legal value.
3 Establishment
Although the result of the Rotterdam’s court decision is justified, it is not correct as to the question of recognition. It should have drawn the logical and necessary consequence from its view (under 1) that the German proceedings are main insolvency proceedings. I haven’t seen a case in which the element of Article 27 EIR 2000 ‘… without the debtor’s insolvency being examined in that other State’ has played a role in a case with similar circumstances. The only reason is that the court is inconsequent. If the foreign proceeding is (to be regarded as) a main proceeding recognition should follow automatically (Article 16 EIR 2000). The principle of mutual trust does not allow a court to scrutinize the other court’s decision.
For two reasons it is to be regretted that the court is so short on ‘establishment’. The court should ex officio assess whether indeed such an establisment in present in the Netherlands. Of course, that seems rather obvious, with 59 employees active. The court lost, however, its chance to give some guidance on which definition to use. Article 2(h) EIR 2000 says that an establisment is ‘any place of operations where the debtor carries out a non-transitory economic activity with human means and goods’. This vague notion has been made thicker and promoted to a more substantial one in the Interedil case (CJEU 20 October 2011 C-396/09), providing that the term ‘establishment’ within the meaning of Article 3(2) EIR 2000 must be interpreted as requiring the presence of a structure consisting of a minimum level of organisation and a degree of stability necessary for the purpose of pursuing an economic activity. The presence alone of goods in isolation or bank accounts does not, in principle, meet that definition. And in para 63: ‘…. in order to ensure legal certainty and foreseeability concerning the determination of the courts with jurisdiction, the existence of an establishment must be determined, in the same way as the location of the centre of main interests, on the basis of objective factors which are ascertainable by third parties.’ Without this explicite determination, the court seems to be a follower of the vague notion (which by the way also is represented in the EIR (recast) 2015, where the Interedil definition has not been included).
4 Reasons for request
There is also an interest to open insolvency proceedings, the Rotterdam court determines. In literature it has been debated whether someone that files a request for opening secondary proceedings indeed has to demonstrate such an interest. The prevailing opinion is that such a requirement does not exist. For the persons mentioned in Article 29(b) EIR 2000 with a right to request the opening of secondary proceedings such a requirement does not exist either, e.g. the right of the creditors to bring about proceedings is not limited by the requirement of a specific interest, see Virgós/Schmit Report (1996), nr. 227. No doubt, however, that indeed ‘local interests’ (secondary proceedings serve to protect these, see recital 19) are at stake.
Bob Wessels
Professor em. International insolvency law University of Leiden