Leiden University Advocates Legislative Change Post Co-Med Bankruptcy’s Social Fallout

Last Friday, a court in Maastricht declared Co-Med bankrupt, after weeks of turmoil among employees and patients. In the end, Co-Med closed its own doors after healthcare insurers had stopped making payments to the GP chain. The result? Around 50,000 patients were affected, staff were not paid and insurers had to seek alternative medical care for patients.

Difficult task for bankruptcy trustees

The turmoil surrounding Co-Med shows how bankruptcy can involve major societal interests, such as access to medical care. The focus of bankruptcy trustees, however, should primarily be on the interests of the joint creditors when resolving a bankruptcy. But this principle is not always so simple in practice, says Assistant Professor Jessie Pool.

Imagine being one of Co-Med’s patients and having no idea where you stand

‘On paper, the task of bankruptcy trustees seems reasonably clear. They look at how to pay creditors by distributing the assets of a bankrupt company. This is done according to an order of precedence among the creditors. But sometimes major societal interests are at stake, like in the case of Co-Med, which means this ranking is no longer set in stone. In such situations, conflicts can arise between the interests of the creditors and those of other parties affected by the bankruptcy.’

Balancing societal interests

Bankruptcies where other parties besides creditors are affected, like in the case of Co-Med, clearly illustrate these conflicts of interest. ‘There’s a huge outcry when these types of companies run into financial difficulties,’ says Pool. ‘Imagine being one of Co-Med’s patients and having no idea where you stand.’

The role of arbitrariness

Current insolvency law does provide bankruptcy trustees with the freedom to balance interests. They must also consider societal interests when settling bankruptcies. But the law offers no specific guidelines on how this should be done. This inevitably creates differences in decision-making, which can lead to uncertainty and unrest among those involved, as was the case with Co-Med.

The law offers no specific guidelines on how to balance interests

Pool: ‘No bankruptcy trustee would ever say: I’m not interested in the interests of this group of patients and leave them to their fate. Everyone will agree, for example, that seriously ill patients should receive acute care. In some situations, however, this balance of interests isn’t so clear-cut. Bankruptcy trustees must then decide when a particular interest is more important than that of the creditors. They have no legal framework that sets out how that consideration can be made.’

Legal guidelines needed

In recent years there has been more room within insolvency law to consider both the interests of creditors as well as societal interests, such as the provision of care. Societal interests now receive more attention in bankruptcies.

However, empirical research conducted by Jessie Pool and fellow researchers suggests that how the bankruptcy trustee considers these interests may depend on the person. The problem is that trustees are allowed to make their own ‘trade-offs’. They might prioritise societal interests, or they might not. They also decide at their own discretion when and how to put societal interests before those of creditors. Without clear legal guidelines, this balancing act remains subjective and to some extent arbitrary.

Pattern of bankruptcies that affect society

As Assistant Professor of Company and Insolvency Law at Leiden University, Jessie Pool conducts research on how trustees settling a bankruptcy can include the interests of vulnerable parties such as consumers, patients and employees, but also the environment. In recent years, she has witnessed other bankruptcies that have led to social unrest. For example, the bankruptcies of the MC IJsselmeer hospitals and MC Slotervaart. Or bankruptcies where a certain type of consumer was affected, such as the bankruptcies of bicycle manufacturer Van Moof, Intertoys, Big Bazar and V&D.

Review insolvency law

Insolvency law does not yet seem equipped for bankruptcies in which major societal interests play a role, as in the case of Co-Med’s bankruptcy. Jessie Pool argues for a review of insolvency law to ensure a more balanced approach, protecting the rights and interests of all parties involved in a balanced way.

She proposes legislation that is aimed at ensuring that the trustee has a social role in a bankruptcy case involving significant societal interests. This would include allowing the bankruptcy trustee time and funds to resolve these complex issues. Such legislation should also ensure that the tasks related to societal interests need not lead directly to a positive outcome for the joint creditors. It should also ensure that bankruptcy trustees cannot be blamed for this at a later stage.