Mercon Coffee Corporation and some of its international subsidiaries entered Chapter 11 in New York in December 2023, while its Netherlands-registered arm Mercon BV, the parent to some of the group debtors, launched WHOA proceedings in Amsterdam.
With the New York court, Mercon drafted up a protocol based on the JIN Guidelines with some special provisions applicable to the case, to ensure a controlled liquidation of its assets worldwide. But when it moved to get the protocol approved in Amsterdam, the Dutch judges declined to do so. The case was covered in GRR on 18 March. Just a day earlier, the District Court of Amsterdam had issued it judgment dated 27 February 2024.
Flipping through the judgment, I noticed five elements worth mentioning.
(1) The court was asked to use its power to apply Article 379 of the Dutch Bankruptcy Act (DBA) (the “Tailor made” provision). A recent WHOA evaluation report published in December 2023 made the observation that, in the first 2.5 years of the WHOA from 2021 to July 2023, judges have been reluctant to grant requests by the debtor and/or the restructuring expert to apply this provision. The text of Article 379 and its aligments to a similar provision in Dutch suspension of payments proceedings (“surceance van betaling”, Article 225 of the DBA) has resulted in the courts taking the view that the tailor-made provision has a limited scope and only offers the court the authority to take disciplinary measures for the benefit of all creditors during the proceedings, which serves to protect the interests of the joint creditors.
The Amsterdam court’s conclusion in Mercon nevertheless was rather promising: “Declaring the Protocol applicable – the JIN Guidelines, JIN Modalities and the ‘special provisions’ included by the American court – could be a provision that fits within the context of Article 379 DBA”.
(2) For over 200 years, the Netherlands has been a civil law jurisdiction. Legislation has been applied in a rather open and pragmatic way, nevertheless, the Dutch “love the law”. However, in Mercon the court decided in the way it did without any basis in legislation. Rules to regulate cross-border international insolvency cases in the Netherlands (outside the EU’s Insolvency Regulation) were drafted in 2007, but the proposals have not even been presented by the Dutch Minister of Justice to the Dutch Parliament. The current legislature is completely silent on cross-border insolvency: it dictates no “narrow” approach by the court, no trace of “territorialism”. The Dutch judiciary has been completely dependent on itself to make decisions, and in quite complex cases too, such as in Yukos Oil with Russia, Jet Airways with India (leading to a protocol) and Oi Brazil Telecommunications.
(3) The court in Mercon stated first and foremost that it recognises the importance of court-to-court communication in the case of parallel proceedings. It also said it was certainly prepared to communicate with foreign courts regarding the procedural nature of requests in both procedures and to make coordination agreements about this, which is a welcome attitude. One might wish that courts in other civil law jurisdictions, in Europe and beyond, would be inspired to consider the same position…
(4) The court had no objection in principle to declaring the JIN Guidelines and JIN Modalities applicable in Mercon’s parallel proceedings. However, it found parts 10 and 11 of the US-approved protocol related poorly to the rules of Dutch civil procedural law. “The court does not appreciate the sending of a multitude of documents while there is no request based on it and the importance for any requests that may still be submitted in the WHOA procedure has not been proven,” it said rather straightforwardly. Where Mercon explained that these parts of the protocol are mandatory provisions and cannot be amended at this stage of the procedure, the court’s decision was clear: “… the Protocol cannot be declared applicable and no ‘Facilitator’ will be appointed. The court will reject the request.”
I haven’t seen the protocol. Isn’t it that a protocol always is a flexible instrument? Does it contain a section with “binding” and “non-binding” paragraphs? Has the “binding” nature of parts 10 and 11 been documented? On 18 March 2024, Mercon’s counsel made mention in the GRR story of plans to submit a revised version of its request to address the court’s concerns.
(5) The court’s willingness to apply the JIN Guidelines in the Netherlands is not so much of a surpise. If you know where to find the website (and the specific location of the guidance on it, see also the references below) you will see that for some eight years already, the Netherlands has taken 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. The words of the guidance are rather similar to those of recital 48 of the EU Insolvency Regulation. For the EU, best practices have resulted in EU Cross-border Insolvency Court-to-Court Cooperation Principles and Guidelines (“JudgeCo” Principles and Guidelines).
In October 2016 the Judicial Insolvency Network held its inaugural conference in Singapore, which concluded with the issuance of the JIN Guidelines. There seems to be one Dutch district court (not Amsterdam) that adopted the JIN Guidelines on 1 May 2019, the District Court of Midden-Nederland, which adopted them “… for the purpose of communication and cooperation amongst courts outside of the European Union”.
And the other courts? There are a lot of advantages in using well-settled soft law instruments. In practice there will be limitations and disadvantages too. Individual standard-setting organisations usually present their instruments on a website and/or in print, but there is no continuously maintained central repository or database available to retrieve relevant soft law instruments in the area of international insolvency law.
Are soft law instruments up-dated regularly enough? Are soft law documents in line with the newest reforms, especially the wave of restructuring proceedings that have been included in legislations of many countries in recent years?
A lot of questions to think about.
References
District Court of Amsterdam 27 February 2024, ECLI:NL:RBAMS:2024:1154.
https://www.rechtspraak.nl/English/Pages/International-Insolvency.aspx
https://www.rechtspraak.nl/SiteCollectionDocuments/jin-guidelines-midden-nederland.pdf
This is a slightly adapted version of a regular column Bob Wessels is writing for Global Restructuring Review (GRR) on the topic of cross-border restructuring and insolvency in a European context. GRR is a subscription-only publication and the column appeared in GRR on 21 March 2024. See www.globalrestructuringreview.com