• • •  Archives  ISA DAISYTEK SYNTHESIS

By Daniel VALDMAN
Administrateur judiciaire

INTRODUCTION / HISTORY
The company ISA DAISYTEK FRANCE was a French company registered at the clerk’s office of the Pontoise Commercial Court.

ISA DAISYTEK was in the business of negotiating consumable data processing. The company achieved an annual turnover of approximately 100 million euros and employed 150 staff.

ISA DAISYTEK was part of an Anglo-Saxon group whose total entities were involved in an insolvency proceedings. The principle dates are as follows:


Chapter 11 for the company of the group situated in the United States – the grandparent company of ISA DAISYTEK FRANCE.

Judicial reorganization of the British company - the mother company of ISA DAISYTEK FRANCE.

16 May 2003: ‘Administration order’ by the Leeds High Court of Justice: commencement of a British judicial reorganization for 14 companies, including ISA DAISYTEK FRANCE and two German law firms.
The company PRICEWATERHOUSE COOPERS UK was appointed as judicial administrator. A team from PRICEWATERHOUSE COOPERS was sent to ISA DAISYTEK in France.


23 May 2003: Declaration of the suspension of payments of ISA DAISYTEK FRANCE filed with the Pontoise Commercial Court.

26 May 2003: Commencement of a French judicial reorganization proceedings on behalf of the company ISA DAISYTEK FRANCE: Maitre Daniel VALDMAN, Judicial Administrator; Maitre Yannick MANDIN, Creditors’ Representative.

1 July 2003: Pointoise Commercial Court rejects third-party opposition by PRICEWATERHOUSE COOPERS to the French judicial reorganization of ISA DAISYTEK.

16 July 2003: Order by the Pontoise Commercial Court confirming the reorganization of ISA DAISYTEK by selling the company for the profit of two distinct buyers: one for the activity of direct sales, the other for the activity of indirect sales.
Maître Daniel VALDMAN was appointed by the Court as Administrator.


4 September 2003: Order by the Versailles Court of Appeals invalidating the order to commence the judicial reorganization proceedings.



An appeal against this order was filed at the Supreme Court of Appeals by the Public Prosecutor ‘in the direct interest of the law’. It is currently in progress.


The order of the Versailles Court of Appeal raised complex legal (I) and practical (II) issues regarding the concrete situation of the case. Various solutions have been proposed (III).









Maître VALDMAN synthesizes the unfolding of the case hereafter:




I – COMPLEX LEGAL CONSEQUENCES OF THE ORDER OF 4 SEPTEMBER 2003

1) Consequences for the sale


Does the invalidation of the court order for the commencement of judicial reorganization proceedings automatically imply the invalidation of the court order to sell the company?


The price had already been settled when the sale contract was signed. Can we consider the sale as perfect?


There was also the problem of the ability of the representative to sell the companies once his initial mission was challenged.


2) Legal consequences on acts carried out by the Judicial Administrator during the judicial reorganization


Should the acts passed by the judicial administrator be challenged because of the cancellation of his initial mission?


3) Social aspect


Within the framework of a reorganization plan, the judicial administrator placed an employee scheme in place covering a little less than 100 employees.


As a result of the invalidation of the order to commence judicial reorganization, is the judicial administrator retroactively able to carry out the employment scheme? There was a risk that the case would be brought before the industrial court (Prud’hommes) and that the plan would be cancelled.


Furthermore, the representative waited for the decision of the Labor Inspector for the dismissal of the seven privileged (in terms of seniority) employees. After the order by the Court of Appeals, the Inspector refused to allow me to lay off the employees, stating my lack of rights to make the decision. Who should instigate the legal proceedings for the dismissals and on what grounds?



4) Problems with the AGS


The dismissal indemnities had not yet been settled by the AGS – the French unemployment insurance fund. Would this association have dealt with the indemnities if, within the framework of the British judicial reorganization, the employees’ claims were no longer considered to be super-privileged?


In theory, an order by the Supreme Court of Appeals has just found a solution to this problem: the AGS must deal with the dismissal indemnities of a company located in France when the company is subjected to an insolvency proceedings in a foreign country (Supreme Court of Appeals, 3 June 2003).


However, would the AGS have challenged the employment scheme carried out by the French judicial administrator and/or would it have accepted the continuation of the employment scheme for the privileged employees to be carried out by the British judicial administrators?


5) Consequences for the creditors


What happened to the declaration of claims by the Creditors’ Representative? Should the creditors have renewed their declaration with the British judicial administrators? Within what time frame?


Could the claims in the retention of title carried out by the suppliers legitimately be kept by the English judicial administrators, when the law of 1895 did not apply any longer?


6) The situation of funds preserved at the Deposit and Consignment Office


Article L 627-1 of the Commercial Code states that ‘no manner of objection to or ‘enforcement proceedings’ on amounts paid to the Deposit and Consignment Office shall be admissible’.


These provisions are found to apply within the framework of insolvency proceedings commenced according to the provisions of the law of 25 January 1985. What happened when the initial reorganization proceedings were cancelled?


There is a serious risk that the following amounts held at the Deposit and Consignment Office will be seized: the sale price, amounts held in view of the retention of title clauses, etc.


II – PRACTICAL DIFFICULTIES




1) Meeting with the English side


The order of the Versailles Court of Appeals resulted in the recognition of the competence of PRICEWATERHOUSE COOPERS UK.


A transfer of power is required to their profit. A first meeting was therefore organized at my law firm.


However, the meeting did not go well. Indeed, the English administrators were very aggressive because they have been worried about their liability since the beginning of their mission (16 May 2003) to oversee the judicial reorganization of ISA DAISYTEK FRANCE.


They request the transfer of the full amount of funds available in the account at the Deposit and Consignment Office.


I refuse to do this. Indeed:



- How can they expect me to transfer the amount of the sale of the companies when the contracts are not settled and when there is a risk that the sales may be cancelled?


- How can I transfer the funds which I had blocked in order to observe the clauses of retention of title if I have no guarantee that the English administrators will deal with them?


- What will happen to my fee and those of my colleagues?


- What will happen to the ‘Article 40’ law?


Furthermore, it seems to me that the aggressiveness of the English side is caused by the very palpable distress on their part about what attitude to take, in particular with regard to the sales carried out and in relation to the buyers who have already taken possession of the companies.


2) Radically different concepts about judicial reorganization


The ideal situation would be to make the English judicial administrators ratify the acts carried out by the French judicial administrators.


However, this clashes with the radically different vision of insolvency proceedings.


The obsession of the English judicial administrators is to compare the situation of the assets and liabilities of the company prior to reorganization with the assets and liabilities situation when reorganization is closed (at the moment the buyers take possession). Indeed, they endeavor to check if new liabilities have not emerged, for which they could be held responsible, and which can have an impact on their fee.


Their vision is centered solely on recovering and refunding creditors’ claims and not, as in France, on the reorganization of the company and the maintenance of employment.


The duration of the reorganization - less than three months – which is considered short for French standards for a company of this size, seems surprisingly long to the English administrators. By way of comparison, the ISA DAISYTEK proceedings lasted one week, at the end of which the company was sold.



3) The employees’ scheme


How do we dismiss privileged employees?


How can we get the English administrators to ratify the employee scheme that was put in place to decide which employees will be affected by the dismissals?


As a simple example of the difficulties involved, PRICEWATERHOUSE COOPERS refuses to sign the ASSEDIC (unemployment agency) papers drawn up for employees already dismissed.


The situation is thus very highly strung.


The English judicial administrators are ordering me to transfer the funds to them. My answer to them is that I am still the court-appointed administrator. Consequently, they have filed a third-party opposition against the order of the Pontoise Commercial Court which confirmed the sale as part of the reorganization plan.








III – ATTEMPTS TO FIND SOLUTIONS




1) The negotiations


Taking into account the context, it seemed judicious to me that in order to negotiate with the English judicial administrators, I should resort to using an English lawyer based in France who had a colleague in Leeds.


The negotiations involved a meeting at the law firm in Leeds representing PRICEWATERHOUSE COOPERS UK.


Although the lawyer at this law firm was particularly aggressive, the trip was very interesting in that I was able to see how solicitors in two British law firms operated. ‘HAMMONDS’, PRICEWATERHOUSE COOPERS’ law firm and ‘WALKER MORRIS’, the firm I chose, are two of the most important law firms in Leeds.


The two law firms seemed to me to be very well organized, extremely well set-up and particularly expensive.


The negotiations were very difficult due to the approach of the English side, which was opposed to the insolvency proceedings.


Moreover, the ground chosen for the negotiation was British law, which is much more fastidious than French law when it comes to the drawing-up of contracts. The reasoning of the lawyers can also be quite different, focusing on very detailed agreements and the outlining of the liabilities of each party.


The negotiations required the following:


- 15 successive protocol plans;
- approximately 100 e-mails;
- meetings and telephone conferences that often went on until 2 or 3 AM;
- several audiences at the Pontoise Commercial Court concerning the third-party opposition to the order of the sale filed by PRICEWATERHOUSE COOPERS, which resulted in nothing more than the possibility of postponing the proceedings.




In the end, a final protocol was drawn up.


2) The protocol


The protocol concluded between the French and English judicial administrators provides for the following provisions:


- the withdrawal of the third-party opposition of the English judicial administrators against the sale order; - communication of the protocol to the Pontoise Commercial Court and the Court in Leeds; - continuation by the English judge and his authorization for the transfer of the funds of the French judicial administrator to the profit of the English judicial administrators; - retention by the French judicial administrator of the amount specified in advance, representing his fees and those of his colleagues; - commitment by the English judicial administrators to treat the retention of title clauses with the funds sequestered for this purpose; - the sequestering of funds arising from the sale of assets in the hands of WALKER MORRIS until the regularization of the sale contracts; - power of attorney given by the English judicial administrators to me in order to regularize the contracts; - recognition by the English judicial administrators of the claims lodged with the Creditors’ Representative of the French proceedings.











CONCLUSIONS: RADICALLY DIFFERENT PRACTICES


On the whole, these different events have allowed me to reveal the rift between English and French practices in insolvency proceedings.


The philosophy of judicial reorganization is basically different in the United Kingdom, where the sole goal sought after is the payment of creditors’ claims and/or where the creditors play a much larger role (Creditors’ General Assembly).


In addition, the proceedings are far less legalized in the United Kingdom. Once appointed, the judicial administrator has complete autonomy to sell assets, lay off employees, etc., with just the obligation of a debriefing in the end in front of the Court and the creditors. On the other hand, the judicial administrators are to answer to creditors for any increase in the liabilities during the period of judicial reorganization. It seems that if such liabilities appear the fees of judicial administrators diminish and their liability increases.


The English judicial proceedings seem assuredly more attractive to creditors, banking establishments and suppliers, since social and tax bodies will not be given priority over them.


The difference in the practice of judicial administrators is also important. Accounting firms send teams into companies to conduct audits, which allows for a thorough analysis. However, there is no ongoing follow-up when the teams leave. This can be explained not only by the very short duration in general of the insolvability proceedings, but also by the reasons of the analysis, primarily accounts-based and centered on the collection of claims. The legal aspects are dealt with by the ‘solicitors’.


Finally, the fees of the English judicial administrators are also very different. For the same case and similar work, for which my fees as a judicial administrator came to approximately 35 000 €, the English judicial administrators claimed and obtained from creditors the sum of 800 000 €!