On 29 August, Global Restructuring Review (GRR) reported that the Zeeland-West-Brabant District Court in the Netherlands had given its reasons for granting a “worldwide stay” (“Dutch court issues reasons for unprecedented Ch11-style stay”). To avoid confusion, what the Dutch court granted is a stay in the meaning of the local legislation of the WHOA (“afkoelingsperiode”). It is not an “automatic stay” as the US bankruptcy system presents its stay-tool, with its (claimed) worldwide effect. It is a local (Dutch) stay, however it may have effect outside the Dutch territory. The fact that the restructuring plan in that case before the Dutch court was not the subject of a public restructuring procedure (“openbare akkoordprocedure buiten faillissement”), but a non-public proceeding (“besloten akkoordprocedure buiten faillissement”), means that the stay will only have effect within the European Union based on rules of private international law, which do not have their basis in the EU Insolvency Regulation. The “besloten akkoordprocedure” is, after all, not listed in the Regulation’s Annex A.
Since the case was a non-public proceeding, the court was bound by the anonymisation rules of Dutch procedural law. Consequently, a (naive) Dutch reader that does not follow GRR would not know which debtor/debtors is/are involved because the parties are not known by name. Indeed, reading the judgment requires some James Bond skills…
One party, referred to in the judgement as “applicant sub01” (“[verzoekersub01]”), is the sole shareholder and director of “applicant sub02” (“[verzoekersub02]””). The latter applicant is a holding company of a group of Dutch and foreign subsidiaries. These parties together with the subsidiaries form a group, which operates a shipping company with a worldwide operating fleet of approximately 100 ships. These latter words were the court’s judicial description of the debtor.
In order to avoid questions from foreign courts as much as possible and to remove ambiguities, both applicants, sub01 and sub02, asked the court to authorise their (indirect) directors, both individually and jointly, to propose a private WHOA-agreement on their behalf and to represent the subsidiaries “…in accordance with the requirements set by the so-called Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (italics in the judgment) for a foreign representative.”
Applicants sub01 and sub02 substantiated their request by putting forward arguments that a large number of the subsidiaries are located abroad or have assets abroad. In view of this, they assumed that if their request for a cooling-off period was granted, they would have to seek recognition in other jurisdictions.
The court reflected: “In such a case, they are expected to have to deal with the so-called Model Law, which makes it possible for foreign representatives [italics in the judgment], as referred to in the aforementioned law, to have a comparable cooling-off period relatively easily announced in countries where the law has been implemented. Based on the literature cited by them, applicants sub01 and sub02 assume that the Model Law also applies to proceedings such as the present in which no trustee or administrator is appointed, but the debtor remains competent.”
The italics indicate the sheer uniqueness of a Dutch court being asked to express any views on the Model Law. The Netherlands have not enacted the Model Law, let alone any other efficient framework for cross-border insolvency law (except for being a member state for the Insolvency Regulation). After a period of some 30 years of denial, a few years ago, the initiative was taken to start the process of enacting the Model Law, but since then, no progress has been made and it still remains an initiative.
For now, I will leave the assumption that the WHOA is a foreign proceeding under the terms of the Model Law, undiscussed. The fact a WHOA can be a private (“besloten” or “closed”, i.e. not publicly published) composition procedure outside the scope of the EU’s Insolvency Regulation, does not help the feasibility of this assumption. Note too that the procedure is called “private settlement procedure outside bankruptcy” so a non-Dutch court may wonder: if it is a proceeding “outside bankruptcy”, how can it be regarded as a “foreign proceeding” in restructuring or insolvency cases? On the other hand, the text of the entire WHOA system is parked in the Dutch Bankruptcy Act (DBA). … anyway, back to the main matter.
With regard to applicant sub01 and sub02’s request for a declaration that [name01] and [name02] are authorised to prepare and offer a composition on their behalf, and are also authorised to represent them (under Article 372(3) of the DBA) and express their views about their capacity as “foreign representatives” as referred to in the Model Law, the court said it was for the court of the requested state to determine whether they qualify as foreign representatives. The Dutch court said it cannot and will not comment – a rather obvious conclusion, as a national court can only have views on matters based on the applicable law, and if that law has not enacted the Model Law (as is still the case in the Netherlands), there is no legal basis for the court to decide on that matter.
The Zeeland-West-Brabant District Court, however, proceeded to declare that [name01] and [name02], under Dutch law and as long as no restructuring expert had been appointed in the proceedings (underlined in the judgment), were authorised to prepare and offer a composition on sub01 and sub02’s behalf, and to represent them as referred to in Article 372(3) of the DBA, both individually and jointly.
Is this declaration enough to qualify (in another state, where the Model Law is enacted) as a foreign representative? The explanation of the term “foreign representative” in the Model Law itself is, of course, not decisive. What would be decisive is the interpretation of the term “foreign representative” in the domestic enactment of the provision, inspired by the language of the Model Law.
Article 2 of the Model Law consists of important definitions and other interpretative criteria. Where the Model Law is to be embedded in national insolvency law, Article 2 only needs to define those terms that are specific to cross-border cases. Leaving aside now the definition of a foreign proceeding in Article 2(a) of the Model Law, Article 2(d) defines a “foreign representative” as a “person or body, including one appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor’s assets or affairs or to act as a representative of the foreign proceeding”.
The term “representative” should be seen as a neutral one and does not indicate the need for a legal qualification to perform the role. The word was also chosen to avoid terms like “receiver”, “curator” or “liquidator” that could be associated with specific legislation or with a description of the representative’s role in certain domestic legislations. (I.e. Does the respresentative represent the debtor? The creditors? Both? Or the “proceedings” themselves?)
Article 9 of the Model Law (on “Right of direct access”) states: “A foreign representative is entitled to apply directly to a court in this State”, being the state where the Model Law is enacted. The foreign representative has such a right, without any further requirements, conditions or formalities such as consular action, a certified notarial statement or permission that need to be obtained from embassies or other diplomatic intermediary channels. The provision removes – or at least lessens – many still existing barriers to jurisdiction, including whether an applicant has standing and the right to be “heard”. The Model Law fully acknowledges the need for a foreign representative to take action immediately.
Article 4 of the Model Law deals with the court’s competence in the enacting state for providing relief to the foreign representative. Article 19(1) of the Model Law states that the foreign representative may ask for relief at any time from the filing of an application for recognition until the application is decided upon. During this period the foreign representative has the right to ask for relief, and the right of direct access to the courts.
It could be argued that the foreign representative also has the right of direct access even prior to the application for recognition, including a right to direct access in the event that his first application for recognition of the “proceeding” is denied or refused, but where based on available new information he has an improved chance by applying for recognition for a second time.
Is the right of direct access to a court a personal right? Or may the representative transfer the entitlement to another person to act as his representative, via a power of attorney? The definition of “foreign representative” in Article 2(d) does not answer this.
Article 10 of the Model Law, which states that a foreign representative’s application does not make him subject “to the jurisdiction of the courts of this State for any purpose other than the application”, may indicate the personal character of the foreign representative in the eyes of the court in the enacting state.
The answer is also indicative, for instance, to the question of whether rules applicable to discovery proceedings in the enacting state would apply to the foreign representative. If these apply to the debtor itself, a manoeuvre could be to have an attorney or legal representative act as the foreign representative, instead of the debtor-in-possession (if allowed under the law of the enacting state).
Although there is a right of “direct” access, it is advisable and practical to engage a lawyer in the foreign state to assist, given the potential difficulty in understanding the language and the foreign legal and procedural system. For instance, regarding the question of which court a foreign representative can access (as Article 9 Model Law says), it is better to engage a local lawyer who knows the rules of relative competence for the courts in the given state, which is a matter of internal procedural law of that enacting state.
District Court Zeeland-West-Brabant 24 November 2022, ECLI:NL:RBZWB:2022:8629 (published 22 August 2023)