Case Study: Mercon Coffee - Ch.11 Bankruptcy
How a well defined process, preparation and a global network can bring about a better outcome for stakeholders.
How to apply the discipline of trading to the chaos and unpredictability of a bankruptcy:
Make a Decision
If the decision is wrong, iterate, incorporate the learnings and keep moving forward
In bankruptcy there are no perfect solutions and the simplest solution is sometimes the best
Executive Summary
When one of the largest coffee traders goes into a Ch.11 bankruptcy, it unleashes chaos within the company, with clients, suppliers and most of all it’s employees.
Having a global footprint adds many levels of complexity to what were previously simple negotiations. Through this fog of uncertainty the process must move forward. To do this you need to make decisions quickly with the available information at hand. You will never have perfect information and each party to the negotiation will not want to concede.
However, the best compromise in these situations is one where neither side is happy. It suggests both gave something up to reach a decision.
In a bankruptcy of a commodity trading business, you have many decisions of this nature happening each day. Some operational and some highly strategic, you have to ensure that each has the right time allocated to it, the appropriate analysis and for the outcome that delivers a balance of certainty and speed.
During a bankruptcy you face many external challenges that you cannot control:
Staff are frustrated and confused
Clients are scared and reactive
Suppliers and service providers suddenly want to get receive prepayment
Legal advisors err on the side of caution, slowing the pace of decisions down
Meanwhile the market moves on and you have to manage the creditors, the debtors counsel, the commodity risk position, communicate to clients and most important, keep the team onside to ensure what assets remain can be sold effectively
Solution Overview:
Key Results: Quantify benefits (e.g., "20% cost reduction" or "Improved processing speed by 2x").
Keep this concise to grab attention.
Background
A mid-sized coffee trading firm faced, Mercon Coffee Group, filed for Bankruptcy in December 2023. With extensive sourcing operations in Nicaragua, Vietnam, Brazil, Guatemala as well as a distribution network throughout North America and Europe, Mercon was a complex business for its size. Having been in the business for generations, the company had many long standing relationships that were upended by the Bankruptcy
The biggest challenge was the lack of available capital as the court failed to approve any significant DIP facility which would have allowed more flexibility to the company. As such, GSX had to make the best use of the assets Mercon had:
Foremost its people and
Secondly the relationships that had been build with customer across the globe
Unfortunately, some of the “best” customers behaved the worst, making an already challenging situation more complex. However, in a true display of “show me the incentive and I will show the you the outcome” it took a lot of negotiation, legal tactics as well as a personable approach to discussions to resolve almost all cases successfully.
Solution and Implementation
For the first 90-days of the engagement, GSX chaired regular calls with the sales and trading teams to ensure that any coffee that could be sold was turned into cash. Many contracts had to be executed upon, and given the idiosyncrasies of a Ch.11 bankruptcy, there were layers of complexity to decisions that in the normal cause of business would be done in minutes.
Secondly, we took a collaborative approach with staff and clients to establish what commitments that may not be delivered as per initial specifications, with alternative coffee. This avoided costly and drawn out arbitrations and provided customers with much needed coffee in a very volatile market. It also provided much needed working capital to the debtor.
Finally, by sourcing a unique set of buyers, GSX was able to progress negotiations on all available assets faster than via traditional channels.
Results and Impact
→ Successful Asset Sales
GSX played a critical role in finalizing the sales of Mercafe Vietnam and Mercon Specialty. These transactions involved complex negotiations, legal coordination, and operational management to maximize returns for the estate.
Mercafe Vietnam:
Facilitated the bid process with Rothschild and legal
Managed the sale of Mercon-owned inventory that was a condition precedent to the transaction.
Ensured proper documentation and compliance with local representatives.
Resolved staff-related issues and negotiated external sales of non-Mercafe inventory.
Conducted extensive data analysis to determine asset value.
Mercon Specialty:
Validated inventory and accounts receivable values.
Analyzed market data to ensure competitive pricing.
Successfully negotiated accounts receivable settlements to maximize returns.
Coordinated buyer discussions, valuation adjustments, and legal documentation.
Brazil Barter Contracts:
Ensured competitive bidding for contracts, securing over 80% of advanced funds
Negotiated favorable terms on the third contract, positioning it for a positive outcome.
Effective Accounts Receivable Collection
GSX dedicated significant effort to securing outstanding payments, even though it was not directly responsible for this task. This included:
Successfully negotiated with major European roasters to settle unpaid balances.
Facilitated settlement agreements for 7 key roasters, ensuring payments were processed.
Managed complex contract washouts to determine net amounts payable to the estate.
Oversaw over 350 contracts across 30 clients, handling termination and cancellation agreements where necessary.
Prevented potential creditor liabilities by washing out supplier purchase contracts at little or no cost due to rising coffee prices.
Optimised Inventory Management
At the petition date, Mercon held over 500,000 bags of coffee inventory. GSX implemented a structured sales approach to maximize recoveries:
→ Sales and Optimisations:
78,000 bags sold post-petition.
84,000 bags had adjusted terms to ensure fulfillment.
Older, lower-quality inventory was managed to minimize losses.
Worked closely with local teams in Guatemala, Honduras, and Vietnam to resolve operational issues to get domestic stocks sold into local markets.
→ Operational Challenges Resolved:
Reinstated documentary collection services for exports.
Negotiated with warehouse providers who had halted shipments due to unpaid fees.
Managed logistics of Vietnam-based coffee split across multiple warehouses and shippers.
Coordinated re-bagging, transportation, and final sales of coffee out of several storage locations.
→ Significant Reduction in Outstanding Receivables
From filing through to July 2024 GSX successfully reduced accounts receivable from by nearly $30m
Conclusion
GSX’s work led to significant financial recoveries, operational efficiencies, and legal resolutions for the Mercon estate. Our efforts in asset sales, contract negotiations, inventory management, and accounts receivable recovery directly contributed to maximising returns for creditors and successfully progressing the liquidation process.
Lessons Learned
There is a role in companies before they go bankrupt, to review strategies, capital structure and the management team to ensure performance can be maintained through dynamic markets.
I would encourage those managing commodity trading businesses, to be honest about their performance, their team’s performance and how an external perspective might help them avoid getting into financial distress.
For those already in distress, thinking outside of the box and using an experienced, practical and hands on team might result in better results, faster recoveries, lower fees and an alignment of interests.