Enterprising trustees are burden to creditors of bankruptcy estate

The trustee of a bankrupt company is tasked with distributing the estate to the various creditors. The assets or the ongoing business are sold and the money distributed. The trustees of Crown van Gelder, a large paper mill, found another very unusual option. The estate they are managing has become a shareholder in the ongoing company. Due to setbacks within this company and discord between the trustees and the major shareholder, it remains to be seen what this equity stake will bring creditors.

Background

Crown van Gelder’s oldest legal predecessor was founded in 1896, as Pieter Smidt van Gelder. After a turbulent existence, including a three-decade listing on the Damrak stock exchange, the factory went bankrupt in January 2023. The trustees then sold the company in March to an American party, EPAC technologies (EPAC). Crown van Gelder then continued in a new company, Crown van Gelder International (CVGI). Interestingly, in addition to a purchase price of EUR 15 million, the trustees also held about 20 percent of the shares in the new company. These shares would represent a value of EUR 9.5 million, and should eventually be sold to satisfy creditors as much as possible. This construction, in which the trustees become shareholders, is very rare.

Legal battle

After taking over the shares, EPAC provided another loan to CVGI at 15 percent interest. Only EPAC was willing to provide that credit facility, given its financial difficulties and recent bankruptcy.
The trustees and EPAC do not have a happy partnership. The stumbling block seems to be that the trustees receive less information about the company they are participating in than desired. Thereby, the loan is also a thorn in the side of the trustees. They allegedly were not informed of the loan until months after it was taken out and find the 15 percent interest rate inexplicably high.
The issue has escalated so much that the trustees have filed a case with the business court. EPAC has also taken the gloves off. Two of the three trustees and several lawyers supporting the trustees have been held personally liable. These parties must answer in a U.S. court in the state of California.

Is selling the equity stake the solution?

The solution suggested at the hearing by Aernout Vink, chairman of the Enterprise Chamber, was obvious: Why don’t the trustees sell the stake to EPAC? Then they can satisfy the creditors as much as possible and the parties can part ways.
At the same time, this is likely to be a hard sell for the creditors. That EPAC had to provide millions more in so-called distressed debt to CVGI will not have done the value of the company any good. The question that arises is what part of the EUR 9.5 million can the trustees still distribute to the creditors if they are bought out now.

Trustees have personal interest in deal

The curious situation also arises that the trustees have to negotiate with EPAC on behalf of the estate, while they themselves have been found liable. The question is to what extent the trustees are then still objective. In order for the process to be as clean as possible, it would be wise for this negotiation process to be conducted by the third trustee, who has not been held personally liable.

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