Two weeks ago I published ‘The US-approved Mercon protocol and the Dutch courts / Part One’, see https://bobwessels.nl/blog/2024-04-doc3-the-us-approved-mercon-protocol-and-the-dutch-courts-part-one/. It was the text of my column of some 4 or 5 weeks earlier in Global Restructuring Review (GRR), the world’s only daily news and analysis service on cross-border restructuring and insolvency law. See https://globalrestructuringreview.com/.
As a refresher, Mercon Coffee Corporation and some of its international subsidiaries entered Chapter 11 in New York (Southern District) in December 2023. The Netherlands-registered arm Mercon BV is the parent company to some of the group debtors. The BV launched WHOA proceedings in the District Court of 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. The Amsterdam court, in its judgment of 27 February 2024 declines to approve this Protocol. Four the arguments, see my 2024-04-doc3 blog. The core argument is that two provision in the ‘Cross-Border Court-to-Court Communications Protocol’ insufficiently align with the rules of Dutch civil procedural law. The court, referring to paras 12-14 and 17 regarding the submission and sending of written reports to 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’.
On 15 April 2024 the New Your Court – upon motion by the debtor and the debtors in possession provides another ‘Order Approving and Implementing Modified Protocol For Cooperation and Direct Communication with Foreign Courts’. In this case the Protocol is included as a separate Appendix A (‘Mercon Coffee Corporation et al. Debtors Amended Cross-Border Court-to-Court Communication Protocol’). In paragraph 11 it is clear that the New York Court has listened to the Dutch Court. It provides: ‘Paragraphs 12-14 and 17 [regarding submission of written reports to courts] do not apply in respect of the Dutch Court in the Dutch WHOA Proceeding. Any Reports (as defined herein) or documents filed in any of the other proceedings shall not be submitted to the Dutch Court in the Dutch WHOA proceeding other than as an annex to, or in the context of, a petition filed with the Dutch Court in the Dutch WHOA Proceeding upon the determination of counsel for the filing party that such Reports are relevant to the Dutch Court’s consideration of the subject petition.’
At the moment of writing this blog I have not seen published the District Court of Amsterdam’s ‘response’ to the New York Court’s Order.
Again, just like the earlier blog (Part I), just a few remarks. Note, that I had some exchange of views with Ilya Kokorin (assistant professor Leiden Law School) about the Mercon protocol (we wrote a book together about the subject (Edward Elgar Publ. Ltd, 2021, see https://bobwessels.nl/blog/2021-05-doc2-cross-border-insolvency-protocols/). Ilya is very knowledgeable about the subject and he is the ambassador of the repository of 50+ protocols available via the III-site, see https://www.iiiglobal.org/initiatives/iii-insolvency-protocols/ and see my blog https://bobwessels.nl/blog/2023-08-doc2-lost-and-found-database-of-insolvency-protocols/.
(1) We wondered: how burdensome is the receipt of written reports in practice would for the Amsterdam court. Is it proportionate to outright reject the Protocol on such a (seemingly narrow, rather a convenience-based) ground? Or have the procedural rules (of the Dutch Insolvency Act; or the Dutch Civil Procedural Code?) been regarded as purely mandatory law? Has the Amsterdam District Court considered to approve the Protocol with the exception of the problematic provisions, and thereby amending these? Guideline 14 of the JIN Guidelines contains a mechanism for amending and modifying. However – strange enough – the ‘first’ Protocol seems to prohibit such an amendment in the para. 17.
(2) JIN Guideline 1 (amongst others) says that the courts should encourage administrators in Parallel Proceedings to cooperate in all aspects of the case, including the necessity of notifying the courts at the earliest practicable opportunity of issues present and potential that may (a) affect those proceedings; and (b) benefit from communication and coordination between the courts. The result is that the Guideline promotes the provision of information to courts, but only (a) issues that may affect the proceedings, and (b) that benefit from communication and cooperation between courts. The ‘first’ Mercon Protocol goes further than that as it refers to all written reports. As a result, it may well be argued that the Amsterdam court was acting in line with the JIN Guidelines by refusing to approve the Protocol.
(3) The New York Court in its latest Order refers to the ‘New Protocol’ and the ‘Amended Cross-Border Court-to-Court Communication Protocol’, creating confusion about the legal character of the ‘first’ Protocol, the one that was submitted to the Amsterdam Court for approval.
(4) In the New Protocol provision 19 reads (among others): ‘This Protocol shall be deemed effective upon its approval by two or more courts. This Protocol shall have binding or enforceable legal effects only on Court that have been approved the Protocol and may not be amended except with prior notice to the Debtors and Notice Parties, as well as the approval of the Court that have approved the Protocol.’
The envisaged mechanism is not fully clear. Amendment is possible with the only condition that notice is given to debtors and Notice Parties. Where the protocol is limited to cross-border court-to-court communication the necessity of notice to others may be questioned (although seams careful in providing then the ‘full set’ of rules applicable to any proceeding). Query: which parties are bound by it, just the parties and/or the courts also? And what about the position of creditors?
(5) Initially Mercon asked the Amsterdam court to appoint the registry of the Insolvencies Team of the Amsterdam District Court as Facilitator. We have seen that the Amsterdam court rejected the Protocol, so (and therefore) no Facilitator was appointed. The appointment of a Facilitator is provided for in the JIN Modalities of Court-to-Court Communication, covering a definition of such a person, its designation, its role in communications, etc. Just curious whether after to New York Courts order of 15 April 2024, the Amsterdam District Court indeed has designated such a Facilitator, and on what basis. The JIN Modalities? A pragmatic interpretation of e.g. the WHOA legislation?
Potential conflicts seem to loom. Will creditors be informed about the Protocol? Will they have a right to comment or even to object? The position of (unsecured) creditors seems rather poor to us. Moreover, JIN Guideline 3 provides e.g. that the Protocol should address the coordination of requests for court approvals of related decisions and actions when required and communication with creditors and other parties. We wonder whether this is now sufficiently guaranteed. More generally – just a message from two scholars who have studied dozens of insolvency protocols – we believe that what the ‘Protocol’ reflects is rather bare. Although the protocol, according to its heading, limits itself to court-to-court communication, the drafters could have looked with a slanted eye at the (15) recommendations that Kokorin and I have formulated for Protocols in group insolvencies in our 2021 book.