Nearly three months after filing Chapter 11 of the United States Bankruptcy Act, the lawyer representing Mercon Coffee Group in court confirmed to the judge that it is almost impossible to get the Nicaraguan government to cooperate with the restructuring. Then, to pay your debts you will focus on selling the assets you have in Vietnam and the specialty coffee business. This implies that the four Nicaraguan banks, with which the Group has debts, will be left out of the payment plan that the judge will endorse, in addition, they lost their guarantees because the State stayed with them when the company seized.
This leaves open a door for the Dutch bank Rabobank, Mercon’s main creditor and holder as a guarantee of the assets of the twelve companies that make up the Group, to sue the State of Nicaragua in international courts in future.
Mercon Coffee Group’s majority shareholder is Sunloved Java Holding LLC (SJH), which in June 2023 acquired 70 percent of the shares. In December, after the Group filed for bankruptcy and took advantage of Chapter 11 of the U.S. Bankruptcy Act, the General Revenue Authority (DGI), alleging an alleged debt of $30 million in taxes, seized all the assets and assets of Cisa Exportadora and Mercapital, both Mercon’s subsidiaries in Nicaragua.
DGI charges Mercon $30 million
In addition, a Nicaraguan judge endorsed the intervention of the offices and all the infrastructure used by Cisa to collect, process, store and export, each year, about half of the total coffee harvest produced in Nicaragua, which in recent years has been around three million quintals per production cycle. Since then, the offices, collections and benefits of Cisa have been taken by police officers, without the State of Nicaragua having so far explained what it will do with these properties.
Mercon operates with 12 companies in nine countries: Nicaragua, Guatemala, Honduras, Panama, Brazil, Vietnam, the Netherlands, the United States and Spain; and only the two of Nicaragua remain paralyzed. In the rest of the countries, creditors and the authorities respected the benefit of continuing to operate normally and suspend the validity of the guarantees granted by Chapter 11 of the credits granted by Chapter 11, while with the judge’s endorsement new investors are sought or assets are sold and then establish a mechanism for payment of the debts according to the priorities established by law.
According to the New York-based website, Law360, which specializes in legal news, at the court hearing in the last week of February, attorney Paul Keenan, a partner at law firm Baker McKenzie, who is taking the reception process to Chapter 11, told bankruptcy judge Michael E. Wiles – that the Nicaraguan government has indicated that it will not cooperate with Mercon’s effort to sell its subsidiary there (in Nicaragua), and that they fear running out of cash to finance the case, so they decided to focus their efforts on selling other assets, including those in Vietnam and the special coffee business.
Embargo takes Nicaragua out of the process
The decision of the Government of Nicaragua to refuse to lift the embargo for Mercon to restructure and fulfil its commitments leaves the four banks, BAC Nicaragua, Lafise, BDF and the state-owned, to which the Group owes a total of $30.43 million. But between 4,000 and six thousand producers, who had a relationship with Cisa, are also unprotected. The company granted them financing for the management of their plantations, and they paid with their crops; others only hired the beneficiary and export service for deliveries agreed in future contracts.
Although the Group initially denied the $30 million debt that the DGI charged them for unpaid taxes, it then made many efforts to secure a payment arrangement that would allow it to lift the embargo, so that the two companies they have in Nicaragua, Cisa and Mercapital, would participate in the restructuring process that is being followed. However, the efforts before the Nicaraguan authorities were unsuccessful.
According to Law360, lawyer Keenan explained to Judge Wiles that they made a lot of effort to “persuade the controller” to cooperate with the sale process under Chapter 11. Initially, the Nicaraguan Government did not respond to the calls of the interlocutors and then gave some indications that it will not cooperate with the process.
Nicaragua exposed to international demands
Therefore, they decided not to continue waiting for the support of the Nicaraguan tax authorities to realize the sale of the operation in Nicaragua, which have several potential buyers. They will now focus their efforts on selling the assets they have in other countries, to implement the restructuring. Although if they see any possibility of “realistic” cooperation from the Nicaraguan authorities, they will take advantage of it.
In early January, in the face of the embargo and intervention carried out by the Government of Nicaragua, the partners of the firm Baker McKenzie explained to LA PRENSA that there was a possibility that Nicaragua would be left out of the restructuring process, since official cooperation was indispensable when the companies were intervened.
They also warned that this left open the possibility for Dutch bank Rabobank to use international courts to recover the assets of Cisa Exportadora and Mercapital it has as collateral for the loans it granted to the Group. According to the lawyers, these lawsuits can be filed within one, ten or fifty years, since no matter how long the bank spends it will continue to own those assets it received as collateral.
Price Volatility prevented paying debts
Mercon took advantage of Chapter 11 of the U.S. Bankruptcy Act for failing to pay a cumulative debt of about $340 million distributed among 34 creditors in 12 countries. Much of that debt is to the Dutch Rabobank who is owed more than $200 million. But this bank is also the one that has in its possession much of the $240 million that the Group gave in guarantee in exchange for that financing.
According to the company, a number of obstacles prevented them from meeting their financial obligations, mainly the supply problems caused by the closure of ports and the paralysis of water transport during the pandemic, the volatility of the international price of coffee on the international market and the effects of climate change on plantations.
This article has been translated from the original which first appeared in La Prensa NI