CONFLICTING INTERESTS IN CURACAO INSOLVENCY LAW (part 4)
The receiver and personal interests
The duties of the receiver are to represent the interests of others. When his personal interests are affected he must observe extreme restraint and openness. If there is a conflict of interest or if a semblance of it has been created, he ought to withdraw as the receiver. The receiver is not allowed to sell goods forming part of the estate to himself, even if this would have been allowed by the supervisory judge (direct conflicting interest). Even bidding in a public auction he has organized is in my opinion not compatible with the independence with which a receiver ought to operate.
Neither is the receiver allowed to do a kind turn by selling assets of the estate at a too moderate price to a company for which he has been acting for many years as its advocate and with the managing director of which he has a business and personal relationship. In my opinion it generally applies that a sale at a give-away price is not allowed. On the other hand a sale to a friendly relation is allowed, provided it is at a realistic price and it is a reasonably established fact that no higher price could be stipulated from third parties.
Suppose that shares in a company limited by shares (N.V.) or private company with limited liability (B.V.) form part of the bankrupt estate. The receiver then exercises the controlling rights attached to these shares. Can he appoint himself or any of his law firm colleagues as the managing director of a non-bankrupt subsidiary in order to bring about via that route that the management of the subsidiary keeps in line with his management as the receiver of the holding? It is not the duty of the receiver to conduct the management of companies: he conducts the management of the estate in order to achieve (apart from a composition with the creditors) the liquidation of the assets. If he appoints himself as a managing director then this will in any event be in a different capacity from that of receiver. Even if he would be an unsalaried managing director such an appointment certainly appears to me to be undesirable. Apart from the unnecessary conflicts of interests which can arise, particularly because the subsidiary is an independent entity, I doubt whether it is right to serve the capital interest of the holding by the receiver himself becoming managing director. In addition, the liability policy of the advocates/receivers will usually not cover their acts as a managing director of a subsidiary. Therefore the receiver should better refrain from such an appointment.
There are regularly doubts about the remuneration of receivers, namely on the basis of a fixed hourly rate. This system would give the wrong incentive because a receiver would then have an interest in drawing out the winding-up as much as possible. Empirical research to substantiate this assertion is not available. It is also difficult to determine in how many cases this wrong incentive is given way to, but the practice does not give rise to assume that this is structurally prevalent although there are no doubt bankruptcies in which the receiver gives at least the impression of such a semblance. However, I would not want to change the system of a fixed hourly rate. But it would not be wrong for the supervisory judge to exert stricter supervision on all the acts of a receiver (including his speed of working) while creditors themselves can also initiate action via a creditors’ committee or as the case may be by obtaining an order from the supervisory judge. It could be considered to oblige the receiver to provide in his periodical report some insight into the speed of the winding-up process and what the necessary period for it is expected to be. This could have an inhibiting effect on the creation of unnecessary delay. However, meddling with all the acts of the receiver including the speed at which he works, should not lead to detracting too much from the discretionary power of the receiver.
The smaller bankruptcies are often dealt with by trainee advocates because they are appointed as receivers by the Court or because the receiver leaves the winding-up to a younger law firm colleague. Dealing with such a bankruptcy is part of his training. A major part of these bankruptcies involve an ’empty’ estate and the receiver will not receive remuneration. Therefore there can be a financial argument to engage one of the firm’s colleagues with a lower hourly rate. Thereby the receiver serves his own interest. That does not alter the fact that the winding-up should be carried out with the necessary input and speed. For that matter the question is generally whether it should not be provided by law that certain training and experience requirements must be met before an appointment as a receiver can take place. Qualities other than legal are usually of major importance.
It is sensible to examine whether in connection with a review of the Bankruptcy Decree periods should be included for the receiver to perform certain acts, although I doubt that much can be expected from this. It does not appear to me desirable to have a legally determined concrete time span when there are possibilities to continue the bankrupt’s business in whole or in part after it has been sold. That would not do justice to the great differences existing between bankruptcies. On this point the supervisory judge would have to fulfill a more active role and should be able to impose periods of time. For that matter, the question of the speed with which the receiver acts should (to a certain extent) be considered separately from generating the maximum proceeds on sales. Sometimes the impression wrongly exists that receivers hesitate too much or act with too little effect and therefore prejudice the estate. Empirical research into the speed with which bankruptcies are wound up, distinguished by size, type and/or region, might be sensible, if only because receivers could attempt to be in line with that.
Karel Frielink
Attorney (Lawyer) / Partner
(4 January 2013)
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