RESTRUCTURING, REFINANCING AND CREDITOR PROTECTION
Diligence is required
Especially in these times of global economic and financial turmoil, an international group of companies (or part thereof) might want to consider restructuring and refinancing its operations or may be already in the process of doing so. When considering or carrying out such plans, careful thought must be given to potential (legal) risks involved. For instance, in many jurisdictions specific statutory provisions exist regarding fraudulent preference actions, i.e. actions that prejudice (specific) creditors. Such provisions often also apply in full with respect to (individual companies belonging to) a group of companies, and should not be overlooked in (group) restructuring and refinancing operations.
Suppose, for example, that (the parent company of) a group may want to attract new funds, and that a bank (or group of banks) is willing to provide a (syndicated) loan facility provided that – let’s say – group company X (e.g. because this operating company holds ownership of valuable assets such as real estate or plant and machinery which may serve as collateral security) grants a security right. From a group (economic) point of view this may seem straightforward. However, such a transaction should also be considered from the (legal) perspective of an individual company.
As is the case in other jurisdictions, the laws of the Dutch Caribbean (Aruba, Bonaire, Curaçao, St. Maarten, St. Eustatius and Saba) provide for (strong) creditor protection tools, e.g. actio Pauliana, to declare void legal acts performed by a debtor which adversely affect the creditor(s). To stay with the example in the above: (successful) action for the annulment of granting security by group company X may be based on fraudulent preference if the individual creditor(s) or the bankruptcy trustee of X can prove (cumulatively) that the security was granted voluntarily, that the security decreased the possibilities of recourse of the creditor(s), and that X knew or should have known that as a result thereof the possibilities of recourse of its creditor(s) would be prejudiced.
As stated, transactions like the example should also be considered at (individual) group company level. If aforementioned group company X is not a party to the loan facility agreement, for instance, the granting of the security right may be considered a voluntary legal act even though one might say there exists a ‘group (or economic) obligation’ for X (that is to say: if X does not grant the security, then the group will receive no funding).
If a legal act is entered into for consideration, it may only be voided by a creditor if he can prove that both parties, thus in the example: not only X but also the bank(s), knew or should have known that the act would prejudice the recourse possibilities of one or more creditors, which of course depends on the facts and circumstances of the particular case. Knowledge that the transaction has prejudiced the creditor(s) is presumed by law in certain cases, e.g. when a right of security is granted (i) less than one year before its annulment is invoked and (ii) for debts which are not due and payable, but there is evidence to the contrary. It should be noted that the statutory provisions regarding fraudulent preference actions are different in bankruptcy.
Therefore, plan and act prudently: better to be safe than sorry!
Karel Frielink
(Attorney/Lawyer, Partner)
(22 September 2015)
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