CONFLICTING INTERESTS IN CURACAO INSOLVENCY LAW (part 7)

Conflicting interests in connection with consolidated business operations

When multiple companies of the same group go bankrupt, it can be of major importance for a creditor of one of these companies to know how the winding up is developing of one or more of the other companies. Particularly when a consolidated bankruptcy is involved, the creditors will have to be alert. In connection with a consolidated bankruptcy, there will in actual fact be one single joined estate. If this is the case, in the various bankruptcies one single joint creditors’ meeting must be held of which all the creditors of the companies involved will be informed and where they can exercise the powers accruing to creditors. Such a consolidation, a pre-eminent identification, for which there is no justification other than the interest to wind up interrelated estates in an orderly manner, is only possible when this is not (foreseeably) in contravention of the interest of the joint creditors of each of the bankrupt companies. Only very occasionally is a consolidated wind-up exclusively possible, for instance when only one single set of joint accounts are kept for the different companies or their respective activities, money flows and the like are completely intertwined and can no longer, or only at very great cost, be separated.

Before requesting the consent of the supervisory judge for a consolidated wind-up, the receiver must ask himself whether there are conflicting interests between the (creditors of the) different companies such that a consolidated wind-up is not possible before a solution to this is found. This means that a receiver must first map the inter-company relationships. In this connection questions come up such as: How has the group been financed? Are there mutual recourse actions if third parties are levying execution on securities? With a view to the bankruptcy have fraudulent acts towards the creditors taken place between these companies? What are the consequences of consolidation for the creditors of the individual companies? The receiver must be aware that a consolidated wind-up might have been anticipated and that therefore improper use of it is intended.

The Bankruptcy Decree does not provide for a consolidated wind-up. Such a wind-up is just as artificial and can also lead to unfairness as an attempt, after the various bankruptcy orders, to separate what operated before the bankruptcy as a materially consolidated group (as a financial unity), so that each of the creditors will only submit his claim in the bankruptcy of ‘his’ company. After all, on what ground would a creditor have to put up with having his possibilities for recovery thwarted by a consolidated wind-up? And why would another creditor be allowed to profit from such a wind-up?

The fact that a group has been operating as a unit is not in itself sufficient for it to have a consolidated wind-up carried out after being declared bankrupt. It is not for nothing that a group consists of various independent carriers of rights and obligations. Third parties usually do not contract with ‘the group’ but with one or more group companies. The fact that some creditors, in particular the financiers, are often able to bind (practically) all the companies to them is in itself no justification for a consolidated wind-up. The strong position of these creditors is anyway a fact in intra-group financing as well as individual financing, and for as long as it is allowed by law it must also be accepted that during a bankruptcy they will try to levy optimum execution on their securities. Moreover, consolidation appears to be problematic if only some of the companies of a group are declared bankrupt and even impossible insofar as companies also established outside Curacao are involved. Therefore in my opinion consolidation is an ultimum remedium and should not be allowed too soon.

Karel Frielink
Attorney (Lawyer) / Partner

(25 January 2013)

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