(2015) 3 NIBLeJ 22
The Remington Rand Affair
Bob WESSELS*
Introduction: A 30 Year Old File
1 Around a year ago, early 2014, I received a package of documents of some 10
centimetres (3 inches), wrapped with an elastic band, with a white cover sheet,
containing the hand written words De Remington Rand zaak, the Dutch indication
for: “The Remington Rand case”. It was handed over to me by Hon. Justice Mr
Theo Ariens (ret.), and contains papers and documents concerning the aftermath of
the bankruptcy liquidation, opened on 26 May 1981 by the District Court of ‘sHertogenbosch, against Remington Rand B.V., the Dutch subsidiary of Remington
Rand Corporation Inc. (“Remington”).1 Mr Ariens gave me the file, with the idea
that someone should find an opportunity to lift the veil over this case, which he
calls a spectacular novel with a Dutch trustee in a contempt of court situation in the
USA and a biased American court with a peculiar view on what “comity” requires
of Dutch courts dealing with bankruptcies.2 I had heard about the case3 in the early
* Bob Wessels is the Emeritus Professor of International Insolvency Law at the University of Leiden.
1 Remington Rand was originally named E. Remington & Sons and produced sewing machines and
weapons. In 1873 it produces the first series of 25 typewriters, using the QWERTY-keyboard. In 1886
the company was sold and in 1920 its name was changed to Remington Typewriter Company, merging
in 1927 with Rand Kardex Company, as of then named Remington Rand. In the early 50s the company
became a part of the Sperry Rand group.
2 Justice Ariens has been a supervisory judge in bankruptcy cases in the District Court of Zwolle from
1988–1992. At the 64th Annual Meeting of the National Conference of Bankruptcy Judges (NCBJ), in
Chicago, 7-10 November 1990, Ariens presented a paper with a summary of the bankruptcy laws of
The Netherlands, Germany, Italy and France.
3 Reading the draft of this contribution, Ariens recalled that former partner of one of the larger law
firms at that time served as special counsel for the attorney of Kilbarr advising about Dutch law, facts
in The Netherlands and documents is Dutch. This person (I have corresponded with him and respect his
wish to remain anonymous) had to work from his memory (as a former partner he would not have
access to files of the firm, which most probably also – after some two decades – would have been
shredded). He explained that in the USA there were two cases pending parallel in which Remington
Rand was involved. These were the insolvency case (further discussed in this contribution), in which he
was not involved, and a case regarding the question of who had to bear the losses and costs caused by
and after the insolvency and several transactions connected with it. In the latter case in the USA the
Second Circuit had jurisdiction. According to my source both cases are connected (and demanded
much time and energy) in that the key legal terms were understood and interpreted differently in the
USA and on the European continent, more specifically The Netherlands. These terms include “data”,
“assets”, “equities”, “goods”, “constructive trust” and “comity” (he added: for legal comparators
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and mid-90s, but my knowledge was limited, because as far as I know the Dutch
judgment has not been published.4
2 Let’s go back some 30 years in history. My guess is that senior lawyers generally
will know the composition of a (hard copy) file, built up in a pre-email period (with
documents from around 1984 until 1994). It contains handwritten and typed letters
of Mr Van Dijk (the trustee that succeeded the originally appointed trustee Mr
Banning), bankruptcy reports covering 1987 and 1988, copies of several American
judgments, either in original or in the West publishing version and a Dutch
judgment of the District Court of ‘s-Hertogenbosch, dated 14 November 1990
(indirectly responding to the a judgment of the U.S. Court of Appeals, Third Circuit
of 5 October 1987). The file probably is not complete, but I am quite confident that
it contains sufficient information to reconstruct and describe the case with
judgments of the U.S. Court of Appeals, Third Circuit from 1987, the District
Court’s-Hertogenbosch from 1990 and again the Third Circuit from 1993. I will
then comment on three questions: the meaning of “comity” in this case and the
position the Third Circuit took in this regard; the matter of “contempt of court” of
the first appointed trustee; and which solution would follow from present Dutch
law, ending with some words for the Honorandus.
U.S. Court of Appeals, Third Circuit, 5 October 1987
3 In 1978, the Kilbarr Corporation, a Delaware incorporated company, previously
called Remington Rand Corporation (“Remington”), enters into a licenceagreement with its Dutch subsidiary, Remington Rand B.V. (“Remington BV”).
The licence covers the use of data of the SR-101, an electronic typewriter.5 In
March 1981 in the Netherlands, Remington BV enters into reorganisation
proceedings (surseance van betaling), on 26 May 1981 converted into bankruptcy
liquidation proceedings (faillissement) by the District Court of ‘s-Hertogenbosch.
Two weeks later the appointed bankruptcy trustee, Mr Banning, sells the factory to
Business Systems Incorporated B.V. (BSI BV). Included in the sale is the
knowhow to produce the SR-101. In the USA in August 1981 Remington (itself in
Chapter 11 proceedings) starts proceedings with a trade-secret misappropriation
claim. Plaintiff Remington Rand US requested equitable relief against BSI BV.
Both the Bankruptcy Court as well as the District Court of New Jersey – Newark
decided to impose a worldwide constructive trust, i.e. a trust on the assets of the
defendant located in the USA as well as elsewhere in the world (so including The
“superb delicacies”!). I thank Mr Ariens and the anonymous source for their comments on my draft and
for additional information provided. Any errors in the contribution are mine.
4 For some comments on the Remington Rand case, based on study of the American judgments, see B.
Wessels, International Insolvency Law (3rd ed) (2012, Kluwer, Deventer), at paragraphs 10049 and
10050.
5 On eBay, this type of typewriter is still for sale.
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403
Netherlands) as a remedy for the misappropriation.6 The legal consequence of this
decision is that a preference position is created for the beneficiary (Remington)
compared to the position of the unsecured creditors in the bankruptcy of BSI BV.
4 In addition to BSI BV, also its American parent, BSI US, is included in the
proceedings. Moreover, BSI BV was subject to reorganisation proceedings in the
Netherlands since 17 August 1981. Trustee Banning (among many other defences)
was of the opinion that he only would be influenced by the American court’s order
after it had went through a recognition procedure in The Netherlands and that he, as
court appointed trustee, was in charge of the estate.7 He considered the extraterritorial control over BSI’s assets outside the USA ineffective, and asserted too
that the security interest in BSI’s inventory by Dutch banks to be superior to that of
unsecured creditors, such as Remington. A gruesome insolvency conflict is born.
5 BSI does not act according to the New Jersey judgment for which reason on 6
February 1985 both BSI BV and Banning are subject of an order from the District
Court of New Jersey – Newark of “civil contempt of court”, i.e. (generally) a
criminal refusal to follow up on the instructions of the District Court. A week later,
BSI BV is subject to bankruptcy proceedings. BSI appeals. On 5 October 1987, the
U.S. Court of Appeals for the Third Circuit decided in this case. 8 The Third Circuit
observes that the case:
“… presents substantial equities on both sides. We view this to be a very difficult case.”
6 The Court presents the interests that are at stake:
“From Remington U.S.’s, an American court has resolved a dispute after the defendant
voluntarily submitted to jurisprudence over here. Realistically, the only certainty of recovery
on a judgment lies in levying against the funds located in this country and subject to the
constructive trust, which acts essentially as a security device.”9
On the other hand there is BSI BV’s perspective that the judgment represents at least in part
an unsecured debt, and the constructive trust grants a preference to Remington Rand US
over the other unsecured creditors. The Court observes:
‘To the extent that the judgment is entitled to priority as the equivalent of an administrative
claim (boedelschuld in the meaning of Article 249(1)3° Dutch Bankruptcy Act; Wess.),
6
D.C. Civil No. 84-0261.
This is still standing practice. Compare e.g. District Court Amsterdam 4 April 2012
(CalPERS/Bankruptcy trustees van der Moolen Holding N.V.) in which California Public Employees’
Retirement System (“CalPERS”) claims the verification of their claim (of over EUR 34 million) with as
a reference a judgment from a New York court. The trustees refuse verification, rightfully, so the court,
because: “… even in case the decision of the New York court would be recognised, the sole recognition
– given the undetermined contents of the New York court decision – would not lead to granting the
claim.”
8 In consolidated cases Nos. 86-5587, 86-5588, 86-5589, 88-5590, 88-5591 and 86-5750. Remington
Rand Corporation – Delaware vs. Business Systems Inc. and others, 830 F.2d 1260.
9 Ibid., at 1270.
7
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satisfaction of Remington U.S.’s claim by means of the attached funds in the United States
without considering others in the same category offends notions of fairness …’”10
7 Recognising that the defendants were really arguing for the benefit of the
creditors not involved in the dispute at hand, the Third Circuit has to decide on the
way to solve the controversy. The Court observes:
“… the path to solution of this vexing problem lies in general precepts of transnational
business affairs, especially those that apply to commercial reorganizations of
bankruptcies.”11
8 After considering American court cases, literature and the Congressional history
of § 304 U.S. Bankruptcy Code,12 the Court applies “these somewhat conflicting
precepts” to events as they stood on September 1984, when the District Court
entered its constructive trust order. How to achieve this? The Court decides
(footnotes omitted):
“… Having obtained a judgment on liability, it follows that Remington will obtain a money
damage award at the re-trail of the assessment proceedings and that this award will be
reduced to judgment. What then should be done about the judgment that Remington is due
to receive? The proper procedure is described in the famous early English case, Solomons v.
Ross. There, a Dutch trustee in bankruptcy claimed assets in London, which has been
attached there by an English creditor after the debtor had become insolvent. Following proof
that Dutch law recognized foreign and domestic creditors on the same footing, the English
court held in favour of the Dutch trustee.”13
9 The Court continues:
“… In a similar vein, before the district court makes a final decision on damages and
equitable relief, Remington should request assurances from the Dutch courts that any
judgment rendered by the district court in its favour will be recognized in The Netherlands.
In this respect, because the unusual circumstances present here, we believe that comity has
to be a two-way street. Although reciprocity is no longer an absolute condition precedent to
comity …, it is always a permissible consideration …, and here we believe it to be a
consideration of extreme importance.”14
10
Ibid., at 1271.
Idem.
12 Section 304 was repealed in 2005 when it was replaced by Chapter 15 U.S. Bankruptcy Code.
13 In the margin of the judgment a nameless person wrote: “A case of 1764!” Solomons v. Ross is one of
the earliest cross-border landmark decisions (in an England-Dutch case), see I. Fletcher, “Ancient and
Modern: Meditations on the Anglo-Dutch Dimension in the Evolution of Cross-Border Insolvency Law,
in B. Santen and D. van Offeren (eds), Perspectives on International Insolvency Law: A Tribute to Bob
Wessels (2014, Kluwer, Deventer), at 55ff.
14 In Hilton v. Guyot, 159 US 113, 40 L.Ed.95, 16 S. Ct. (1895) the term comity is explained: “Comity,
in the legal sense, is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and
good will, upon the other. But it is the recognition which one nation allows within its territory to the
legislative, executive or judicial acts of another nation, having due regard both to international duty and
convenience, and to the rights of its own citizens, or of other persons who are under the protection of its
laws”. The cited words have been repeated in In re Maxwell Communications Corp., 93 F.3rd 1036, at
11
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10 The Court concludes that “that the solution to this very difficult problem” must
be followed by four discrete steps:
1.
BSI goods that are located in the USA must continue to fall under the scope of the
constructive trust for the benefit of Remington, whilst the court should decide on the
amount of damages to which it is entitled;
2.
Remington must reduce any damage award it receives from the district court to
judgment. Then follows:
“It must carry this judgment across the sea to the Dutch bankruptcy court and
seek a declaratory judgment as to whether the Dutch court will properly
recognize the American judgment in the claim against the bankrupt’s estate. The
declaration should state that the American judgment has the same force and
effect as a judgment obtained in The Netherlands.”
3.
“If the Dutch court does not timely rule on Remington U.S.’s request or fails to accord
the district court’s judgment proper respect, the district court is free to reconsider a
proper remedy.”15
4.
If the Dutch court giving full force and effect to the judgment, then the district court
after hearing will have to decide “… under concepts of equity, what, if any, portion of
the constructive trust imposed on BSI assets in the United States should be forwarded
to the Dutch court for distribution.”
11 The Third Circuit expresses that the chosen solution affords appropriate
protection to an American creditor but yet acknowledges that the Dutch court
would have the primary role in equitably distributing the available funds. It adds
that the District Court’s order for sanction and the finding of contempt will be
vacated.
District Court ‘s-Hertogenbosch 14 November 1990
12 As a result of step 1, in 1988 the District Court of New Jersey decides on
Remington motion for summary judgment, which is granted, and the court enters
judgment for damages (over USD 220,000,000). 16 This judgment is affirmed on 23
January 1989 by the U.S. Court of Appeals for the Third Circuit.
13 On the basis of step 2, Remington was instructed to obtain a declaratory
judgment from the Dutch court:
“… whether the Dutch court will properly recognize the American judgment in the claim
against the bankrupt’s estate.”
1046 (2nd Cir. 1996), resulting in a limitation of the applicability of Chapter 11, as this would thwart
English insolvency proceedings.
15 Here the anonymous wrote in the margin: “For crying out loud!!”
16 Civil Action No. 84-261.
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14 Its Dutch representative sends in the request, nearly verbatim following the
words chosen in the court’s judgement. The District Court of ‘s-Hertogenbosch
decides, after hearing BSI BV’s bankruptcy trustee Van Dijk (who succeeded
Banning), that, based on existing law,17 Remington’s request should be disallowed,
which the applicant recognises, but it has submitted that in this case the request can
be complied with based “on the international law principle of ‘comity’”.
15 The District Court of ‘s-Hertogenbosch observes that indeed the case is
extremely complex, including the question whether the judgment should be
recognised. In addition, in The Netherlands BSI BV is bankrupt and by way of law
(the court refers to Article 119 of the Dutch Bankruptcy Act) creditors have the
right to contest the verification of claims of other creditors, among which
Remington. This right would be frustrated by allowing and sustaining Remington’s
request. The ‘s-Hertogenbosch court disallows the request, which also means:
“… that the question as to the effect of comitas, which she has to present to the Dutch
court via the appropriate way, does not have to be discussed further. Because BSI BV
is bankrupt, this appropriate way is either the lodging of the claim in the bankruptcy
estate, possibly followed by a verification dispute, or file a suit against the bankruptcy
trustee, in case the claim would be seen as an administrative expense”, the court
concludes.18
U.S. Court of Appeals, Third Circuit 9 March 1993
16 Remington does not appeal this decision in The Netherlands, but moves directly
to the district court in New Jersey to reinstate equitable remedies vacated in the
decision of the Third Circuit of October 1987. The District court of New Jersey
denied the motion as Remington has not appealed the Dutch court’s decision. In
appeal the Third Circuit found that the Dutch court had not been given a reasonable
opportunity to state its position regarding the American judgment of October 1987:
“Step two of our mandate directs Remington to take its judgment to the Dutch
bankruptcy court and seek determination of whether the judgment would be
recognized and enforced by that court. The express purpose of this requirement is to
allow the Dutch court to give same effect to Remington’s judgment as it would a
judgment entered in The Netherlands, in which event reciprocity would preclude a
world-wide trust for Remington’s sole benefit. The issue now before us is whether the
Dutch court has had a fair opportunity to do so. We conclude that is has not.”
17 The Third Circuit holds that its submission that comity must be a “two-way
street” means that the Dutch court should assure that the New Jersey district court’s
judgment would not be ignored:
17
18
The court refers to Articles 431 and 985, Dutch Code on Civil Proceedings.
District Court ‘s-Hertogenbosch 14 November 1990, rekest nummer 82/90.
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“The district court is entitled to have that assurance come from, or denied by, a court
of The Netherlands, not by a court appointed trustee in bankruptcy.”
18 The Third Circuit therefore holds that to satisfy step two of its mandate:
“… Remington must return to The Netherlands and follow the proper procedure for
verification of a claim.”19
19 The Third Circuit is mindful that the controversy is over twelve years old.
However, as the court has stressed:
“… the issue on which this appeal focuses is a serious and sensitive one that will have
ramifications far beyond the private interests of the parties before us. If Remington
had but taken van Dijk’s treatment of its claim letter before the supervisory judge, the
present record suggests that it and the New Jersey district court would already have
the answer they seek. Its failure to do so will not justify a failure on our part, in the
name of expediency, to give the courts of The Netherlands a fair chance to speak.”
20 It is here, that the information in the file stops.20
Comity
21 One may wonder why the Third Circuit court was so committed to a requirement
of reciprocity. In the context of the UNCITRAL Model Law it can be noted that
several countries have indeed included the requirement of reciprocity. Although it
was rejected as an approach during the negotiations of the Model Law in the mid90s, a number of countries have adopted provisions applying the Model Law on a
reciprocal basis, although the nature of these reciprocity provisions varies, see e.g.
British Virgin Islands, Canada, Mexico, Romania and South Africa. I have
submitted that the concept of reciprocity is quite outdated in terms of cross border
insolvency issues concerning business undertakings, which is the focus of the
Model Law. Moreover the Model Law’s neutral, procedural nature respects a
State’s political and legal integrity, whilst ensuring cooperation among courts
allowing the administration of international insolvency cases to be dealt with
effectively, equitably and efficiently. Furthermore, Article 6 Model Law, if enacted
literally, allows a domestic court to refuse to take action if such an action would be
manifestly contrary to the public policy of the domestic State.21
19
Kilbarr Corporation v. Business Systems Inc. 990 F 2nd 83 (3rd Cir. 1993), also holding (at 89), that,
pending the final determination of the Dutch courts on whether Remington’s judgment will be
enforced, the Third Circuit will vacate that portion of the of the district court’s order imposing a
constructive trust on assets beyond the territorial limits of the United States.
20 In a press-clipping of the Dutch newspaper Trouw, 21 November 1995, it is stated that two banks
(ABN Amro and MeesPierson) have settled with Remington for an unknown amount.
21 See Wessels, above note 3, at paragraph 10385.
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22 Should “comity” have the urgent and pervasive effect that the Third Circuit has
in mind? It might be instructive to point at a mirror situation, in which Dutch
trustees try to create certain legal effects in the USA, based on “comity”. The case
relates to a claim of the joint trustees in KPNQuest22 against four defendants for
damages based on:
“… fraud, deceit, corporate mismanagement and other misconduct of the Defendants.”
23 The joint trustees submit that jurisdiction of the court in the USA flows from a
general rule of international private law that the court of the residence of at least
one defendant will have jurisdiction. The defendants’ motion, on the contrary, is
that the American court is a “forum non conveniens”. The US court follows the
latter submission.
24 Furthermore, the joint trustees submit that a “Dutch bankruptcy court’s decision
is entitled to comity and deference”, referring to the Dutch court’s approval for the
joint trustees to file a claim in the USA. The US District Court dismisses this
argument:
“[I]n Anglo-American law, the extension of comity to another nation is viewed as an
unilateral decision of the forum, not as an act required by a rule of the public international
system … [I]t could be relevant only to such matters as legislative acts, executive orders or
dispositive judicial rulings … No ‘authorization’ to sue in the foreign forum is subject to the
discretionary considerations of the comity doctrine, and such authorization certainly cannot
be read as a mandate to deny defendant’s Motion.”
25 After an extensive explanation of the principle of comity and its meaning, the
Court draws its conclusion:
“[T]his Court finds Plaintiffs’ arguments based on Chapter 15 and the concept of comity
without merit and irrelevant to this Court’s balance of private and public interest factors.”
26 In the KPNQuest case indeed the facts are different. “Comity” as a legal norm
has the advantage of being elastic, allowing courts in each individual case to
provide the content of this norm. Obviously, the disadvantage is that the concrete
content of “comity” itself cannot be anticipated. Sometimes its specific meaning in
a given case can be determined only in lengthy and costly proceedings for which
the Remington Rand affair is exemplary.
22
US District Court of New Jersey 17 October 2006, JOR 2007/23 (Curatoren KPNQwest Windt and
Meijer vs. Qwest Communications International Inc., et al.).
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Contempt of Court
27 On 6 September 1984, the U.S. District Court of New Jersey determined that
BSI BV and its US affiliate BSI Office Equipment Inc. (BSI US) were liable to
Remington for misappropriating Remington’s trade secrets. The same day an order
was issued imposing the constructive trust mentioned earlier. On Remington’s
application, dissatisfied with the degree that BSI BV and BSI US complied with
September 6 order, the district court issued an order, on 15 October 1984, to both
companies commending them:
“… to show cause why a citation of contempt should not be entered, against
defendants for failure to comply with this Court’s Order of September 6, 1984…”
28 I note that Banning, the trustee of BSI BV, was not mentioned by name or title
in the order. On 21 January 1985 – oh, horror – the district court held Banning in
contempt of the September 6 order and on 6 February 1985 the district court
ordered:
“… that a warrant be issued for Banning’s arrest and that he be held liable with BSI
for attorneys’ fees incurred by Remington seeking to enforce the September 6
order.”23
29 It is evident that this order raised commotion in the (rather small at that time)
insolvency community in The Netherlands. Banning appeals and challenges the
contempt citation and the order holding him and BSI BV liable for $ 86,685.20 in
attorney’s fees. In his appeal Banning is assisted by the Government of the
Kingdom in the Netherlands, which presented an “amicus curiae”.24 The reason
follows from its Motion for Leave to File an amicus curiae (the Court permits to
file the Brief amicus curiae). The Government’s main argument is whether it is
appropriate for a US court (i) to purport to create summarily in favour of an
American judgment creditor a security interest in the Netherlands assets of a Dutch
judgment creditor, without determining whether and to what extent such an interest
is permitted under Dutch law, and (ii) then to bypass the requirement of Dutch law
that Dutch courts are to recognise, and if so to what extent recognition shall be
given to a foreign judgment, by seeking to coerce a Dutch trustee in bankruptcy
with the threat of imprisonment when he declined to comply with an order which
23
During a conference in Toronto (I was there too; we believe it was 1994), Ariens had a conversation
with (now) Lord Hoffmann regarding the Remington case. Ariens recalls that Lord Hoffmann has said:
“Yes, I know the case. The Americans behaved outrageously.”
24 Facts and citations are taken from cases Nos. 86-5587 and 86-5750. US Court of Appeals for the
Third Circuit 5 October 1987 (Remington Rand Corporation – Delaware vs. Business Systems Inc. and
others, J.A.M. Banning, Appellant). An amicus curiae as a production in proceedings is hardly known
in the Netherlands. Literally it means “friend of the court” and it can be regarded as a legal opinion,
delivered by someone who is not a party to a case, but who offers information that bears on the case,
independently, not solicited by any of the parties to assist a court, to make sure that a court will decide
not solely on the arguments of the parties directly involved in the case.
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violated his strongly felt duty to administer such assets for the benefit of all
creditors pursuant to the dictates of Dutch law and under the supervision of the
Dutch courts. It is a very serious matter, as in the Motion for Leave to File the
amicus curiae, the Dutch Government adds:
“These matters are not only matters of vital concern to the Kingdom of The
Netherlands – whose court-appointed trustee faces arrest and imprisonment – but also
gravely impact amicable relations between nations generally. Accordingly, the
Government of the Kingdom of The Netherlands, a sovereign member of the
community of nations with many important and friendly ties to the United States,
seeks this opportunity to present to this Court its perspectives as to the important
principles of international comity that ought to have barred the District Court’s
action, and otherwise assist the Court in its decision in this proceeding.”25
30 With its 42 pages amicus curiae “a panoply of defences to the contempt order”
is raised, which the Third Circuit hardly addresses, for it considers the failure to
name Banning as a respondent in the order to show cause to be dispositive of his
appeals. Banning is not a named defendant. To Remington’s assertion that oral
notice is sufficient to forewarn that someone is in jeopardy of being held in
contempt, the Court replies that a notice must inform one that he personally is
threatened with contempt:
“Because whatever oral notice Banning may have received never included the critical
element that would alert him that he personally was in jeopardy, it is not sufficient.”
31 The Third Circuit reverses the order of contempt and attorney’s fees to the
extent they apply to Banning. On its merits, what could have become a fierce
debate did not come off the ground.
The Solution According to Present Dutch Law
32 The Netherlands26 long have been deemed to embrace the so-called territorial
principle, in insolvency matters generally shielding assets located in the
Netherlands from foreign interference. I have challenged this view and have
submitted that in questions of private international insolvency law the principle is
to be viewed in the narrow context of garnishment. With regard to garnishment a
distinction has to be made between questions relating to the seizure of the estate to
which the foreign insolvency proceedings relate, and questions concerning
individual claims and the recourse that creditors in The Netherlands can take. For
this reason, I have argued, that “territorial effect” should be considered to be less
25
Although the file is silent on its authors, my sources recollect that they are Hon. Justice Sonja
Boekman (retired member of the Netherlands Supreme Court) and Professor J.C. Schultz, professor of
private international law University of Leiden.
26 What follows is based on the presumption that Articles 431 and 985, Dutch Code on Civil
Proceedings do not apply.
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broad than sometimes has been suggested. In relation to this discussion, I would
hold that (i) on the one hand, assets of the estate are not subject to foreign
insolvency proceedings; however, (ii) on the other hand the foreign liquidator is
indeed authorized to act in The Netherlands and has the power to dispose of goods
or assets. This is because the foreign insolvency proceedings (where garnishment is
concerned) do not have exclusive effect as garnishments in the Netherlands do not
expire, and, individual actions of execution, after the date of the opening of foreign
insolvency proceedings will continue to be possible in the Netherlands. When I see
this correctly the Netherlands Supreme Court does hold this view in its decision of
13 September 2013.
33 The Netherlands Supreme Court had to decide in the matter of the insolvency of
the Russian oil giant Yukos, and it clarified that the appointed Russian trustee (Mr
Rebgun) may in principle exercise the power to sell the debtor’s assets located in
the Netherlands, which has conferred on him under the foreign (Russian) lex
concursus. The Supreme Court considers:27
“3.2.1. The Supreme Court in its judgment of 19 December 2008, ECLI:
NL:HR:2008:BG3573, held that, insofar as has not been decided otherwise in
pursuance of an international regulation that is binding to the Netherlands, a
bankruptcy declared in a different country has territorial effect, not only in the sense
that (a) the bankruptcy attachment levied on the assets does not also include the assets
situated in the Netherlands, but also in the sense that (b) the legal consequences of the
bankruptcy law of that other country be attached to bankruptcy cannot be invoked in
the Netherlands in so far as they might result in unsatisfied creditors no longer being
able to take recourse – either during bankruptcy or after the bankruptcy – against the
assets of the (former) bankrupt, that are situated in the Netherlands. (c) The principle
of territoriality does not obstruct the operation in the Netherlands of other
consequences of a bankruptcy proceeding opened abroad.
3.2.2. These rules, in which the decision of three previous judgments is repeated
(Netherlands Supreme Court 2 June 1967 …, Netherlands Supreme Court 31 May
1996 …, Netherlands Supreme Court 24 October 1997), imply with respect to a
bankruptcy opened abroad (assuming that judgment was not established in a manner
which is contrary to Dutch public policy) that the trustee in that bankruptcy in
principle also with respect to the assets situated in the Netherlands and belonging to
the bankruptcy estate – but which are not encumbered by the bankruptcy attachment
– can perform acts of administration and disposal, provided that the trustee is
empowered to do so under the laws of that other country (lex concursus) (line (c)).
Accordingly, the foreign trustee can, if he derives the power to do so from the lex
concursus, alienate the assets located in the Netherlands and have the proceeds
benefit the bankruptcy estate, on the understanding that by rule (a) attachments levied
up to the moment of transfer must be respected, as those assets do not fall under the
bankruptcy attachment. Rule (b) does not stand in the way to the above. In order to do
justice to that rule it is sufficient that, as long as during or after the bankruptcy assets
belonging to the (former) bankrupt are situated in the Netherlands, unsatisfied
creditors can take recourse against them.
27
Netherlands Supreme Court 13 September 2013, ECLI:NL:HR:2013:BZ5668. The translations are
mine.
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Rule (b) does not extend so far that those assets would have to be kept fully out of the
normal settlement of the foreign bankruptcy. The territoriality principle does not
preclude that the power to dispose of the debtor transfers to the foreign liquidator, so
he can also liquidate the assets located in the Netherlands – respecting the
attachments levied thereupon in the meantime – for the benefit of the joint creditors.”
33 The result of the Supreme Court’s decision is that – outside the scope of the
Insolvency Regulation – a foreign insolvency office holder (“IOH”) can effectively
exercise its powers in the Netherlands, provided that his actions follow from the lex
concursus and these respect all existing individual creditors’ attachments on assets
located in the Netherlands. The foreign IOH can act without prior court decision on
for instance recognition of its foreign proceeding or relief (as is required under the
UNCITRAL Model Law), or for instance an exequatur. The only defence interested
parties have is the submission that an action of the foreign IOH is against Dutch
public policy. The Yukos judgment therefore results, for non-Dutch colleagues (but
for many Dutch too!) probably surprisingly, in its effects in universality: the
Netherlands is open for foreign insolvency proceedings.28 With the judgment it
should be rather easy for foreign IOH’s to include Dutch assets in the foreign
insolvency. In a Code loving nation as the Netherlands it is wondered whether the
radical judicial rule is the best option. I submit that our legislation should be made
globalisation-proof with an Act, based on the draft of 2007, which was received by
foreign experts quite positive. Legislation as in the draft Act would be in line with
the systems of the countries surrounding us (UK, Belgium and Germany) and with
recently included systems in, for example, Poland, Rumania and Greece. Presently,
The Netherlands follows a retrograde and isolated policy.
34 Assuming BSI BV also had assets outside of The Netherlands, the American
decision to establish a constructive trust covering all the debtor’s assets, wherever
they are located, may find an obstacle in Article 203 of the Dutch Bankruptcy Act.
This provision, already included in the Act in 1896, provides:
“A creditor who after the declaration of bankruptcy has recovered his claim separately,
either in whole or in part, from goods situated abroad of a debtor declared bankrupt in the
Netherlands, which are not subject to a priority right in his favour, must pay the amount so
recovered into the estate.”
35 The term “priority right” has been assessed on its meaning by the Netherlands
Supreme Court in its decision of 11 July 2014.29 In the case at hand, Seacastle
28
The Dutch Supreme Court’s decision clearly goes much further than the system included in the predraft of a new Bankruptcy Act for The Netherlands, published in 2007, which includes a system of over
30 articles on international insolvency (beyond the EU Insolvency Regulation), with a system of
recognition, to be decided by one court (The Hague). See B. Wessels, “International Insolvency Law in
the Netherlands: The Pre-Draft of Title 10” (2008) 17(2) International Insolvency Review 143-162.
The pre-draft is politically dead; the Minister of Security and Justice has decided (on unconvincing
grounds) not to use the pre-draft as a basis for new legislation.
29 Netherlands Supreme Court 11 July 2014, ECLI:NL:HR:2014:1630.
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Container Leasing (USA) concludes in 2006 a lease contract concerning sea
containers with Europe West-Indië Lijnen B.V. (“EWL”). EWL does not pay. On
24 June 2008, the New York court permits a so-called “Rule B Attachment”
(“RBA”). With its order of 18 August 2008, the New York court allocates USD
472.592 to Seacastle (via the RBA the amount was attached under two NYC
banks). However, by a decision of the District Court of Rotterdam of 9 July 2008,
EWL was subject to reorganisation (surseance van betaling), on 14 July by the
same court “converted” in bankruptcy liquidation (faillissement), with the
appointment of Mr Peters as trustee. Peters claims that under Article 203 of the
Dutch Bankruptcy Act Seacastle should pay the amount recovered (its equivalent of
EUR 298,222) to the estate. Both the District Court of Rotterdam as the Court of
Appeal The Hague decides in favour of Peters, and Seacastle appeals to the
Netherlands Supreme Court.
36 The Supreme Court decides, denying cassation, that:
“Pursuant to Article 203 of the Bankruptcy Act a creditor who after the declaration of
bankruptcy has recovered his claim separately, either in whole or in part, from goods
situated abroad of a debtor declared bankrupt in the Netherlands, which are not subject to a
priority right in his favour, must pay the amount so recovered into the estate. It is clear from
the legislative history that the legal basis of the reimbursement obligation referred in Article
203 lies in the fact that the creditor who recovers property of the bankrupt located abroad
infringes the principle of equality of creditors … In the present case, the central question of
priority as provided in Article 203 exists if the creditor invokes a right of priority under
foreign law. To answer this question it must be assessed, given the object and purpose of
Article 203, whether that right results on the basis of foreign law to a priority position and
whether that preferential position given its content or meaning can be equated with a Dutch
priority right.30 The opinion of the Court of Appeal means that the RBA is a measure of
attachment and, according to Dutch law an attachment does not create a priority right. The
Court of Appeal has rightly concluded that the right on which the plaintiff relies, cannot be
considered a right of priority in the sense of Article 203.”
To Conclude
37 I do recall my first meeting with Ian, which happened to be – if I remember
correctly – one of the first occasions that academics specifically involved in
insolvency met (INSOL International conference New Orleans, 1994) lying the
foundation for what later became the INSOL Academics group, chaired by Ian. Our
friendly contacts developed over the years in a much appreciated and amicable
collaboration in the area we both are affected to: international and comparative
insolvency law. Since 2005, we have worked on several projects of which I would
mention the initiative (by some 10 international scholars, including Ian) taken in
Brisbane (University of Southern Queensland) in 2005 to develop a worldwide
training for lawyers, which has evolved successfully in the INSOL Global
30 At
this juncture the Court refers to its decision of 14 December 2001, JOR 2002/70 (Sisal II).
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Insolvency Practice Course. Since its start, over 100 lawyers and accountants have
followed this training and are now INSOL Fellows. At the request of the American
Law Institute (“ALI”) and the International Insolvency Institute (“III”) we drafted –
being advised by some 100 consultants from over 30 jurisdictions and having had
discussions in e.g. Berlin, Rome, New York, Washington and Paris – the Global
Principles for Cooperation in International Insolvency Cases. The Global Principles
include as an integral part a set of Global Guidelines for Court-to-Court
Communications in International Insolvency Cases.31 We also published on this
subject32 as we did with the hot topic (even until 10 years ago a taboo) of
harmonisation of insolvency laws in Europe in a report, presented to the Dutch
Association of Civil Law and discussed in a meeting in 2012 in the building of the
Netherlands Supreme Court in The Hague.33 Since early 2013, we have
collaborated (myself as drafter, Ian chairing a 40+ Review & Advisory group) in
the “JudgeCo-project”, sponsored by the European Union. It will result in a Report
containing EU Cross-Border Insolvency Court-to-Court Cooperation Principles as
well as EU Guidelines for Court-to-Court Communications in Cross-Border
Insolvency Cases, a European focused reworking of the Global Guidelines. It is
expected in January 2015.34
38 Over the whole period Ian has been a real international colleague. True relations
between colleagues are built on mutual faith and trust, working for benefit of all
involved in our field of interest: practitioners, academics and judges. For instance,
in the near future within the EU judicial cooperation and communication will be a
cornerstone in the efficient and effective administration of insolvency cases. Recital
45 in the Amended European Insolvency Regulation stresses, as the European
Insolvency Regulation does, the importance close cooperation between insolvency
practitioners in concurrent insolvency proceedings. The Amended European
Insolvency Regulation will require courts to cooperate in cross-border cases:
“… In their cooperation, insolvency practitioners and courts should take into account best
practices for cooperation in cross-border insolvency cases as set out in principles and
guidelines on communication and cooperation adopted by European and international
31
See for the full text: <http://www.iiiglobal.org/component/jdownloads/finish/557/5932.htm> or
<www.bobwessels.nl, weblog, Archive 2006-2013, document 2012-06-doc1>. The black letter text of
the Global Principles for Cooperation in International Insolvency Cases is published as Annex in I.
Fletcher and B. Wessels, “A Final Step in Shaping Rules for Cooperation in International Insolvency
Cases”, in International Corporate Rescue – Special Issue, (2012), 13pp, and by I. Fletcher, “Editorial
Notice: Documentation – Transnational Insolvency: Global Principles for Cooperation in International
Insolvency Cases; Global Guidelines for Court-to-Court Communications in International Insolvency
Cases” (2014) 23 International Insolvency Review 221ff.
32 See I. Fletcher and B. Wessels, “A Final Step in Shaping Rules for Cooperation in International
Insolvency Cases” (2012) 9(5) International Corporate Rescue 283ff; I. Fletcher and B. Wessels,
“Global Principles for Cooperation in International Insolvency Cases” (2013) 4(1) International
Insolvency Law Review 2ff.
33 I. Fletcher and B. Wessels, Harmonization of Insolvency Law in Europe, Preadvies 2012 uitgebracht
voor de Vereniging voor Burgerlijk Recht, (2012, Kluwer, Deventer), at 135.
34 See for the latest developments: <www.tri-leiden.eu> (search for JudgeCo).
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organisations active in the area of insolvency law, and in particular relevant guidelines
prepared by UNCITRAL.”
39 Our JudgeCo Principles and Guidelines may contribute to effective and efficient
coordination of cases.
40 In all our work I feel Ian and I have been united: yes, differences in what we eat
or enjoy, in language, legal terminology and legal culture, but united in the further
development of international insolvency law. This article I dedicate to one of the
most prominent scholars worldwide in international insolvency law on the occasion
of his farewell as Chairman of the INSOL International Academic Group, to whom
so much is owed, especially by this author.
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