Making a Dual U.S.Dutch Insolvency Process Work

Making a Dual U.S.Dutch Insolvency Process Work

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The specter of trying to coordinate a bankruptcy case of related corporate entities, with different bodies of creditors at different levels of a complex corporate structure, can be intimidating to the most seasoned of bankruptcy professionals. Add the international presence of various assets and companies in the corporate chain in the United States, The Netherlands, Canada, Germany, South Africa and the United Kingdom, and the challenge facing lawyers trying to structure multiple, concurrent insolvency processes to maximize return to creditors while minimizing procedural morass becomes further complicated.

In the course of less than eight short weeks, from the U.S. chapter 11 petition date of Aug. 20, 2001, to the final sale hearing on Oct. 26, 2001, Derby Cycle Corp. (DCC), an international bicycle manufacturer, sold its U.S. assets to Cycle Bid Co., a management buyout group led by DCC founder Alan Finden-Crofts. But the bankruptcy sale, as approved by Judge Roderick McKelvie in the U.S. Bankruptcy Court for the District of Delaware, was only the last step in a long and winding road for DCC's creditors, a road that began months earlier in The Netherlands.

DCC, the Delaware corporate parent of this complex, multi-border chain of subsidiaries, was a leading designer, manufacturer and marketer of bicycles and parts and accessories via its numerous operating subsidiaries located throughout the world. DCC acted as both a holding company for the subsidiaries and also the U.S. operating company.

Confronted with drastic cash-flow problems, internal management concerns, competition on multiple fronts, a dwindling market for bicycles in the United States, United Kingdom and Canada, and a global recession, the need to either restructure or liquidate DCC's assets became increasingly and alarmingly apparent. DCC's secured creditors, consisting of a bank group owed approximately $72 million in debt, with a lien on substantially all of the company's assets and oversecured by most calculations, were steadfastly pushing to immediately liquidate DCC's profitable Netherlands Gazelle subsidiary, a well-known brand name in The Netherlands.

Faced with clear defaults in the bank group's facility, the trick for the bond-holders was to arrange either for a refinancing of the bank group or manage a sale process in such a controlled manner as to avoid destroying the residual value in DCC's crown jewel—Gazelle—and preserving the value of the remaining assets for the benefit of the bondholders and other creditors. Working against this was a diverse international bank group's desire for a fire sale of the Gazelle assets, regardless of the effect of such a sale on the value of the remaining assets and the negative impact on recoveries to remaining creditors. Furthermore, Dutch insolvency law is extremely secured-creditor friendly, which required that the bondholders present sufficient arguments/obstacles to the bank group in order to convince them to cooperate and not seek to foreclose on the Gazelle assets in such a manner as to destroy the residual value in such assets for the bondholders.

After prospects for a global refinancing dimmed, from the bondholders' perspective the sale process of DCC worldwide had to be a coordinated and controlled two-step process designed to pay out the bank group with the proceeds of a sale of Gazelle (an attractive business that had several suitors), while preserving the value of the remaining assets. The first step was the non-bankruptcy going-concern sale of Gazelle, which required the consent of a majority of the bondholders pursuant to the terms of the relevant indentures. This consent was obtained, and the sale closed in July 2001 at an aggregate transaction value of E$142.5. Proceeds were used to fully pay down the bank debt, with the residue, net of fees, expenses and "other liabilities" used to provide a partial recovery to the bondholders and to fund the U.S. insolvency proceeding.

At the same time that the orderly Gazelle sale process was being undertaken, the bondholders, working at all times with DCC's management and professionals, acted to sell substantially all of DCC's other worldwide assets. The likely stalking-horse for DCC's remaining worldwide assets, the Finden-Croft Group, was very concerned with maintaining the value of the remaining assets as a going-concern business, an absolute prerequisite to their willingness to participate in the sale. As such, the Gazelle sale process, the information released in relation thereto, and the coordination and maintenance of the remaining assets were crucial steps to preserving a sale with the Finden-Croft Group.

A further complication in this second stage was the urgency to close on the sale created by the quickly approaching fall season, a time when DCC's cash needs would increase and before any potential purchaser would likely want to have already gained control of the assets in order to maximize returns during this crucial bicycle-selling season.

After the Gazelle sale closed, the bondholders and DCC moved quickly to the second step of the multinational realization process—fast-paced marketing of DCC's remaining assets and finalizing the purchase and sale agreement with the Finden-Croft Group for a purchase price of $40 million, including the assumption of $17 million in liabilities—and filed the U.S. bankruptcy proceeding in order to implement a ß363 sale and the liquidation of the remaining assets of the company. After closing the U.S. sale and confirming the DCC liquidating chapter 11 plan of reorganization, the professional's focus shifted to maximizing the distributions to the creditors. A plan administrator has since been appointed and will serve to wrap up the bankruptcy estate and distribute the proceeds.

After negotiations and discussions with multi-national banks as potential refinanciers, two separate purchasers and their counsel, professionals in the United Kingdom, The Netherlands and the United States, the indenture trustee and its counsel, foreign and domestic directors and their representatives at various subsidiaries, the various relevant bond-clearing agencies (DTC and Euroclear), and various other parties such as landlords, trade creditors, litigation claimants and the like, substantial distributions have now been made to the creditors. The coordination of the various actors' activities in what became a global, many-act performance, crossing multiple time zones and numerous national borders, was a daunting task accomplished through cooperation between and among the many professionals involved and an understanding of the insolvency laws of each of the relevant countries. In the end, the Derby Cycle matter only further proves what any bankruptcy practitioner has been forced to accept during the recent tumultuous economic times—many businesses no longer operate in a single jurisdiction, and the professionals that service these businesses must be ready, willing and able to broaden their own horizons past the borders of this country. We now live in a global economy, and bankruptcy practitioners must become global practitioners in order to properly service their clients.


1 Mr. Silverman is a partner of Bingham Dana LLP in New York, where his practice focuses on multinational financial restructuring and insolvency proceedings. Mr. Kirshner is an associate in the New York office of Bingham Dana LLP, where his practice focuses on financial restructuring and insolvency proceedings. Return to article

Journal Date: 
Monday, April 1, 2002