1. Principle of automatic recognition of insolvency judgments within the EU

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1 Bob Wessels, The Comity Principle, in: Amice, Rutgers-bundel (Opstellen, op 26 april 2005 aangeboden aan prof. mr. G.R.Rutgers ter gelegenheid van zijn afscheid van de Rijksuniversiteit Groningen), Kluwer, 2005, pp Bob Wessels 1 The Comity Principle 1. Principle of automatic recognition of insolvency judgments within the EU The EC Insolvency Regulation, which came into being on 31 May 2002, 2 applies to collective insolvency proceedings, which entail the partial or total divestment of a debtor and the appointment of a liquidator, see art. 1(2) Insolvency Regulation (InsReg). Two annexes (A and B) to the Regulation determine the national insolvency proceedings, which are covered by the Insolvency Regulation. A third Annex (C) determines the persons or bodies that act as liquidator. These Annexes form an integral part of the Insolvency Regulation. As a consequence of being listed in Annexes A, B and C, proceedings and liquidators 3 fall within the scope of the Regulation. The proceedings are eligible for automatic recognition under the provisions of the Regulation and the liquidator s appointment and powers will be automatically recognised in a Member State other than the one in which the respective insolvency proceedings were opened. Since 1 May 2004, the EU Insolvency Regulation applies to 81 types of insolvency proceedings and 93 types of persons/bodies (acting as liquidators ) in 24 countries. 4 What has been referred to above as automatic recognition is laid down in art. 16(1) InsReg. Recital 22 explains: Recognition of judgments delivered by the courts of the Member States should be based on the principle of mutual trust. (author s italics). The question arises as to what is meant by these words. The 1 Professor of Commercial Law, Vrije University, Amsterdam; Adjunct Professor and Visiting Scholar at St. John s University School of Law, Queens, New York, USA. I am indebted to professor Jay L. Westbrook, Benno C. Schmidt Chair of Business Law, University of Texas School of Law, for his comments on an earlier draft. 2 Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings, OJ L 160 of 30 June For the Netherlands these proceedings are: faillissement (bankruptcy liquidation), surseance van betaling (moratorium or suspension of payments), and schuldsaneringsregeling natuurlijke personen (debt discharge natural persons). The term liquidator captures both the curator and the bewindvoerder in these proceedings. 4 The Regulation originally applied to fourteen Member States. Denmark is not bound by it, nor is it subject to its application, which is in accordance with Art. 1 and Art. 2 of the Protocol on the position of Denmark, annexed to the Treaty on European Union and the Treaty Establishing the European Community. In all, the Regulation applied to 52 types of insolvency proceedings and 58 types of liquidators in 14 countries (Denmark excluded). The entry of 10 new Member States into the European Community added 29 types of proceedings and 35 types of liquidators. See art. 20 of the Act of Accession, OJ L 236 of 23 September 2003 (Annex II, par. 18, A(1)). It should be noted that the neutral term Member State in the Insolvency Regulation does not include Denmark either, see Customs & Excise v. Arena Corporation 12 December 2003, [2003] EWHC 3032 (Ch); [2003] All ER (D) 277 (Dec.).

2 Virgós/Schmit Report (1996), no. 147, 5 submits that the (current) Regulation is based.. on the principle of community trust and on the favor recognitionis, so that national borders are no obstacle to the efficient administration of international insolvency proceedings throughout the Community. In the recitals the principle of mutual trust has been translated in Dutch as vertrouwensbeginsel, which term misses the mutuality reflected in English, German ( auf den Grundsatz des gegenseitigen Vertrauens ) and French ( sur le principe de la confiance mutuelle ). The principle is presented mainly to be decisive in cases of precedence with regard to concurrence of international jurisdiction. If I see this correctly, the recitals do couple the reliance to trust on the (otherwise automatic) recognition. It is submitted that a form of (international) delineation and operation of a judicial authority cannot be derived from a rule with regard to recognition (of a judgment opening proceedings), but should derive from a rule that exists prior to the judgment, in my opinion the existence of the judicial authority itself. Within the context of the principle of automatic recognition of art. 16 InsReg, the Regulation permits direct, unilateral realisation of international jurisdiction by the court opening main insolvency proceedings. Therefore, the partial or total divestment of the debtor and the appointment of a liquidator take place from that moment. In theory, due to its universal effect (within the Community), this means that in a case in which two courts, with alleged jurisdiction, collide, the court in Member State C, which receives a filing for the opening of insolvency proceedings later in time than the court in Member State D, which has already opened main proceedings, the proceedings filed in Member State C do not qualify as insolvency proceedings within the meaning of art. 1(2) InsReg. Some German authors hold the same approach, 6 as does German international insolvency legislation. 7 Within this context it is understandable that the question whether the debtor is 5 This report was issued by Professor Miguel Virgós and Etienne Schmit to serve as an interpretative guide to the Insolvency Convention of 1995, which never received legal force and which Convention five years later became the EU Insolvency Regulation, with nearly the same content as the Convention. Although the Virgós/Schmit Report was never finalized or approved by the EC Ministers of Justice, it is seen both in literature and in court decisions as an unofficial guide for interpretation. The Recitals preceding the Regulation contain an unsystematic selection of several parts of the Virgós/Schmit Report, in several cases (quite) literary, which seems to affirm the interpretative value of the Report. In several court cases judges have found interpretive guidance in the Virgós/Schmit Report, see Wessels, International Jurisdiction To Open Insolvency Proceedings in Europe, in Particular Against (Groups of) Companies, Institute for Law and Finance, Johann Wolfgang Goethe-Universität, Frankfurt, Working Paper No. 17, 2003 (<< In the Netherlands as early as 1996 a court made references to the report, see Court of Haarlem 17 September 1996, NIPR 1996, 438. Also, the Netherlands Supreme Court 9 January 2004, in the Dutch journal Jurisprudentie Onderneming & Recht (JOR) 2004/87, with commentary by Wessels, refers for interpretation to the Virgós/Schmit Report. 6 See Lüke, Das europäische internationalen Insolvenzrecht (The European International Insolvency Law), in: Zeitschrift für Zivilprozessrecht (ZZP) 1998, 280, and Kolmann, Kooperationsmodelle im Internationalen Insolvenzrecht. Empfielt sich für das Deutsche internationale Insolvenzrecht eine Neuorientierung? (Models of Cooperation in International Insolvency Law. Does German International Insolvency Law need a recommendation towards a new orientation?), Schriften zum Deutschen und Europäischen Zivil-, Handels- und Prozessrecht, Bielefeld: Verlag Ernst und Werner Gieseking (2001), 274, indicating that the Regulation.. der verfahrensrechtliche Anerkennungsbegriff zugrundeliegt. (is founded on the principle of procedural recognition). 7 Court of Düsseldorf 3 March 2004, ZIP 13/2004 ( ISA ) interprets the given facts such that the judgment of the High Court Leeds 16 May 2003, has to be recognised and the pending Insolvenzverfahren should be discontinued according to Art. 102, par. 4, sec. 1, first sentence, of the Introductory Act to the German Insolvency Statute because of the fact that the former judgment was opened prior in time. For the High Court of Justice (C.D.) Leeds 16 May 2003 decision, see [2003] BCC 562, and Jurisprudentie Onderneming en Recht (JOR) 2003/ 287, with my commentary.

3 also insolvent in another Member State does not have to be examined when the court in the latter State opens secondary insolvency proceedings. With regard to the meaning of the principle of mutual trust, the literature on the subject contains repeated references to the words quoted in the Virgós/Schmit Report. Only a few authors provide somewhat more insight into what mutual and trust mean. The Dutch author Berends 8 for instance is of the opinion that the principle of mutual trust refers to Member States knowing each other s procedures (because they appear in the Annexes) and therefore knowing in advance which proceedings must be recognised. Omar submits that the principle of mutual trust as a theory.has acceptance in the United Kingdom, where it is referred to as the comity principle (author s italics), although lately court have also begun to refer to a doctrine of obligation Section 304 of the US Bankruptcy Code At first sight, indeed, there seems to be a connection between what in general can be understood by mutual trust and what is called comity in the American and English legal domain. Let me briefly explain. Several countries in the world permit foreign administrators or liquidators to request a form of recognition of the insolvency proceedings in which they are involved. When recognition is granted (before or after the appointment of a local administrator or liquidator), access to the jurisdiction of that respective State is given to enable, e.g., the transfer of the insolvent debtor s goods that are located in that jurisdiction to the foreign insolvency proceedings. The Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency (1997), no. 15, 10 distinguishes different methods of bridging the absence of a convention between States or the absence of specific rules in a certain State for recognising foreign insolvency measures. The Guide mentions four methods, the first one being judicial application of the comity doctrine, which the Guide recognises as quite common in jurisdictions of common-law countries. 11 Admitting that a model of (pure) universality would be unfeasible without the support of a worldwide treaty, 12 in the last quarter of the 20 th century some States created their own regulations, based on models that have in common an open attitude towards the existence of foreign insolvency proceedings. By enacting unilateral legislation of this kind, these States have introduced a system that combines, on the one hand, the extraterritorial effect of the respective State s own insolvency law and, on the other hand, legislative rules 8 Berends, Grensoverschrijdende insolventie (Cross-border Insolvency), Amsterdam: Nederlands Instituut voor het Bank- en Effectenbedrijf, 1999 (NIBE Bankjuridische Reeks, no. 57), Omar, European Insolvency Law, Ashgate, Aldershot, England (2003), See for a review of the UNCITRAL Model Law on Cross-Border Insolvency including references to the 2002 version of Chapter 15 (draft) of the US Bankruptcy Code: Wessels, Current Topics of International Insolvency Law, Kluwer Legal Publishers, Deventer, the Netherlands (2004), Chapter II. 11 The other methods mentioned in the Guide are (i) to make available an exequatur, which is a concept in use only in civil-law countries, (ii) the execution of foreign insolvency law orders and measures based on legislation that does not provide for the regulation of execution, and (iii) other methods, e.g. the use of letters rogatory via embassies or consulates, in which legal assistance is requested. In general on systems of recognition of judgments opening insolvency proceedings, see the literature mentioned in footnote 5 above. 12 I am supportive of Fletcher s plea that the Hague Convention should become active here, see Fletcher, The Quest For Global Insolvency Law A Challenge For Our Time. Inaugural lecture at University College London, delivered on 24 January 2002 (on file with author).

4 that provide support or assistance for, or collaboration with, foreign insolvency proceedings. The most well known examples are section 304 of the US Bankruptcy Code (1978) and section 426 of the UK Insolvency Act Section 304 of the US Bankruptcy Code provides a wide gateway into the USA for a number of foreign insolvency proceedings (a) reads: A case ancillary to a foreign proceeding is commenced by the filing with the bankruptcy court of a petition under this section by a foreign representative. With the presence of an ancillary case, recourse by creditors with respect to assets located in the US can be prevented. Furthermore it is possible to arrange the transfer of those assets of a foreign insolvent debtor to its insolvency proceedings. Section 304 was in essence already implied in the US Bankruptcy Act of The provision in the Code of 1978 follows the problems encountered during the insolvency of several European credit institutions in the 70s: the German (Cologne) Herstatt Bank, the Israel-British Bank (London) and the Banque de Financement of Switzerland. 15 To be able to institute an ancillary case under the umbrella of US jurisdiction, a foreign proceeding must be filed by a foreign representative. The Code defines these terms 16 in a way that indicates that section 304 applies in general to a vast group of varied foreign proceedings, such as a supervisory action based on the banking laws of Peru 17 and proceedings under the Polish Arrangement Proceedings Act. 18 The model of ancillary proceedings tries to bridge universality and territoriality, while attempting to uphold the idea of unity, meaning one leading universal insolvency proceeding: So long as one jurisdiction is the principal location of the bankruptcy proceeding, other jurisdictions can be seen to be in aid of or secondary to that principle place and available to deal with lesser problems, in the words of Felsenfeld. 19 The unilateral provisions in certain national legislations are based on the notion that the proceeding they provide for are supportive to the foreign primary or main insolvency proceeding. Subject to the provisions of section 304(c), 13 For the latter see Fletcher, footnote 6 above, at 822ff. 14 This model is referred to as modified universalism, see Transnational Insolvency Project, International Statement of United States Bankruptcy Law (2003). 15 Trautman / Westbrook / Gaillard, Four Models for International Bankruptcy, in: American Journal of Comparative Law 1993, 609, and Wessels, A Glance Through the Legal Principles and the Key Issues of Multinational Bank Insolvency, in: Current Topics of International Insolvency Law (2004), Chapter XI. 16 Foreign proceeding means. proceeding, whether judicial or administrative and whether or not under bankruptcy law, in a foreign country in which the debtor s domicile, residence, principle place of business, or principal assets were located at the commencement of such proceeding, for the purpose of liquidating an estate, adjusting debts by composition, extension, or discharge, or effecting a reorganization. A foreign representative.. means duly selected trustee, administrator, or other representative of an estate in a foreign proceeding (section 101). The concept of the foreign representative has turned since the Singer case in 1999, see Flashen and Plank, The Foreign Representative: A New Approach to Coordinating the Bankruptcy of a Multinational Enterprise, in: 10 American Bankruptcy Law Review 2002, 111ff. 17 In re Caldas, 274 B.R. 583 (Bankr. S.D.N.Y. 2002). 18 This foreign proceeding according to said Polish Act (replaced by the Polish Insolvency and Restructuring Act in October 2003) entails a judicial process to adjust the debtor s debts and effects its restructuring, which was pending before a Polish court where the debtor is domiciled and has its principle place of business, see In re Netia Holdings S.A., 277 B.R. 571 (Bankr. S.Y.D.N. 2002) and 278 B.R. 344 (Bankr. S.D.N.Y. 2002). 19 Felsenfeld, International Insolvency, New York, Juris Publishing (2000), 4-2. See also Burman, Harmonisation on International Bankruptcy Law: A United States Perspective, in: 64 Fordham Law Review 1996, 2550.

5 the US Bankruptcy Court may if a party in interest does not controvert the petition in a timely manner or after trial enjoin the commencement or continuation of certain actions, order the handover of (the proceeds from the sale of) property to the foreign representative or order other appropriate relief (see section 304(b)). 20 Section 304 provides.. a mechanism for the courts of this country to aid foreign courts and to accommodate the increasing number of foreign insolvency proceedings having extraterritorial effects within the United States. 21 It should be noted that an ancillary proceeding is not a plain bankruptcy proceeding. It does not create an estate, the stay does not apply and the debtor does not have all the rights available to a debtor in a plenary case: What it does is lend a helping hand to the foreign court where the main or primary proceeding is pending by enabling the foreign representative to take action in the United States to prevent piecemeal distribution of assets.by means of legal proceedings initiated in domestic courts by local creditors. 22 The foreign court..presiding over the original proceeding is in a better position to decide when and where claims should be resolved in a manner calculated to conserve resources and maximize assets. 23 Furthermore, the ancillary proceedings model has the advantage that it precludes the need for full proceedings, with all their priorities and other legal effects accorded by local law. In relation to foreign main insolvency proceedings, this could quite easily result in legal conflicts, increasing costs and probably hindering a reorganisation plan Comity The last subsection of section 304 provides the points of view the court must be guided by in granting relief under section 304(b). The court will be guided.. by what will best assure an economical and expeditious administration of such estate, consistent with. Six points of view then follow. These are: (1) just treatment of all holders of claims against or interests in such estate, (2) protection of claim holders in the United States against prejudice and inconvenience in the processing of claims in such foreign proceedings, (3) prevention of preferential or fraudulent dispositions of property of such estate, (4) distribution of proceeds of such estate substantially in accordance with the order prescribed by this title, (5) comity; and (6) if appropriate, the provision of an opportunity for a fresh start for the individual that such foreign proceeding concerns. These points of view or factors are to be seen as guidelines designed to give the court maximum flexibility in handling ancillary cases: Principles of international comity and respect of judgments and laws of other nations suggest that the court be permitted to make the appropriate 20 In re Washmuth, 272 B.R. 766 (Bankr. M.D. Fla. 2001) it was held that section 304(b) does not include a suit (by a German foreign representative) to utilise state law to recover money or property even though the transactions under consideration occurred in the State of Florida and even though the defendants are residents and citizens of Florida. 21 In re Rubin, 160 B.R. 269, at 274 (Bankr. S.D.N.Y. 1993). 22 In re Board of Directors of Hopewell International Insurance Ltd, 238 B.R. 25 (Bankr. S.D.N.Y. 1999) and affirmed, see 275 B.R. 699 (Bankr. S.D.N.Y), citing In re Koreag, 961 F.2nd 342. See further Collier on Bankruptcy, 304-4ff. 23 In re MMG LLC, 256 B.R. 544, at 549 (Bankr. S.D.N.Y. 2000). 24 In this way: Westbrook, A Global Solution to Multinational Default, Michigan Law Review 2000, 2278ff.

6 orders under all of the circumstances of each case, rather than be provided with inflexible rules. 25 The fifth point of view 26 for the court is comity. What is comity? In relevant literature one nearly always finds a reference to a quotation from a court case in 1895 in which the US Supreme Court defined comity as follows: "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. 27 The norm of comity is used because the USA is not a party to any international insolvency treaties (not even with Canada) and with the aim of determining whether a foreign representative can get hold of parts of the estate that is subjected to a foreign proceeding, but which parts are located in the USA, or of determining to make use of his powers in another way. 28 Comity, however, is applied furthermore in cases of conflict, when substantial rules of two different States provide conflicting rules for or simply exclude a uniform solution. 29 Comity as a legal norm has the advantage of being elastic, which allows courts in every individual case to provide the content of the norm. Obviously, the disadvantage is that the concrete content of comity cannot be anticipated. Sometimes its specific meaning in a given case can be determined only in a lengthy and costly proceeding. See e.g. the case of Remington Rand versus Business Systems Incorporated (BSI), established in s-hertogenbosch (the Netherlands), in which case, according to a US Court of Appeals after twelve years of litigation comity brings about a certain solution. 30 Not without reason did Homan characterise.. comity as something of a wild card to be played at any time in US Chapter 11 proceedings in Applying comity could lead a court to order appropriate relief (section 304(b)) on a case by-case basis. In determining whether to grant relief a court must consider whether the foreign insolvency proceeding is 25 In re Kojima, 177 B.R. 696, at 701 (Bankr. D. Colo. 1995), citing the US Bankruptcy Code s legislative history. See also Lee, Ancillary Proceedings Under Section 304 and the Proposed Chapter 15 of the Bankruptcy Code, 76 Am. Bankr. L.J., 115. The same words are used in In re Garcia Avila, 296 B.R. 95 (Bankr. S.D.N.Y. 2003). 26 On the mutual relationship between these factors and their meaning under Chapter 15 of the US Bankruptcy Code (draft), once enacted, see Gropper, Current Developments in International Insolvency Law. A United State Perspective, Paper presented at 4th Annual Conference of International Insolvency Institute, New York City, 7/8 June 2004, available at < 27 See Hilton v. Guyot, 159 U.S. 113 (1895). The cited words have been repeated in In re Maxwell Communications Corp., 93 F.3rd 1036, at 1046 (2 nd Cir. 1996). 28 See Collier on Bankruptcy, See Bufford et al, footnote 21 above, 37. The Maxwell case is a good example. See Flashen and Silverman, Maxwell Communication Corporation plc: The Importance of Comity and Co-operation in Resolving International Insolvencies, in: Leonard and Besant (eds.), Current Issues in Cross-Border Insolvency and Reorganisations, London: Graham & Trotman and International Bar Association 1994 (International Bar Association Series), 41ff. Comity will be denied in a case where there is no true conflict of laws, see Europe Movieco Partners Ltd. V. United Pan-Europe Communications N.V., No. 03 Civ (DC), 2004 U.S. Dist. LEXIS 223 (Bankr. S.D.N.Y. 8 Jan. 2004). 30 See the case description of Boshkoff, Some Observations on Fairness, Public Policy, and Reciprocity in Cross-Border Insolvencies, in: Ziegel (ed.), Current Developments in International and Comparative Corporate Insolvency Law, Oxford: Clarendon Press 1994, 677ff., and in the Netherlands by Bos, Juridisch Up to Date, November 1993, 7. In a broader context, see Westbrook, International Judicial Negotiation, Texas International Law Journal 2003, 574ff. 31 Homan, An Insolvency Practitioner s Perpective, in: Bridge and Stevens (eds.), Cross-border security and insolvency, Oxford University Press, London 2001, 253.

7 in line with the fundamental standards of procedural fairness. 32 Based on this rule, a court may refuse to accord comity: (i) when the aforementioned standards are not (sufficiently) met; 33 (ii) when recognition of foreign proceedings would be inimical to the interests of the US, not any particular creditor; 34 (iii) where a creditor has a claim under US law, but this claim is not verified in the foreign insolvency proceeding; 35 (iv) where the debt arises from collective bargaining or federal tax law, as both these types of debts are specific to US law; 36 (v) where a creditor s claim, based on two Dutch judgments, receives all respect, except for the timing of its payments, due to the confirmation of a Chapter 11 plan; 37 (vi) where the treatment of a creditor (although formally correct in applying foreign, in this case Belgian, law) would lead to conduct that would violate US law; 38 (vii) where the court finds clear evidence of maladministration or corruption in the foreign proceeding; 39 (viii) where the judgment of the foreign State is repugnant to the public policy of USA. 40 Although exceptions to comity should be..narrowly construed when the foreign jurisdiction is also a common law jurisdiction, 41 a court will not hesitate to refuse comity if..according comity is contrary or prejudicial to the interests of the nation called upon to extend its effects. 42 On the other hand, a US court is required under section 304 to undertake..a case-by-case balancing of the statutory factors, weighing each factor equally, in which activity comity is the ultimate consideration in determining whether to provide relief under section In re Matter of Thornhill Global Deposit Fund Ltd, 245 B.R. 1, at 16 (Bankr. D. Mass. 2000) (although limiting itself to foreign laws. of a sister common law jurisdiction with legal systems and general notions similar to ours ). These sister common law jurisdictions include England, Canada, Cayman Islands and the Bahamas. Comity, in addition, has been afforded to insolvency proceedings from Brazil, Sweden, Mexico and Hong Kong too, see Silverman and Pereira, Recent Developments in 304 Ancillary Proceedings, American Bankruptcy Institute Journal, June 2004, 24ff. 33 Cunard Steamship Co. v. Salen Reefers Servs. AB, 773 F.2d 452 (2d Cir. 1985). 34 Remington Rand Corporation-Delaware v. Business Systems Inc., 830 F.2nd 1260 (3rd Cir. 1987). 35 In re Papeleras Reunidas, S.A., 92 B.R. 584 (Bankr. S.D.N.Y. 1988). 36 Banco National de Obras y Servicios Publics, S.N.C., 91 B.R. 661 (Bankr. S.D.N.Y. 1988) and Overseas Inns S.A. v. United States, 911 F.2nd 1146 (5th Cir. 1990). 37 In re Travelstead, 227 B.R. 638 (D. Md. 1998). The District Court of Maryland added that..it would seem just and reasonable that the Dutch courts should to that extent extend their own comity to these bankruptcy proceedings. 38 Stonington Partners Inc. v. Lernout & Hauspie Speech Products N.V., 310 F.3rd 118 (3d Cir. Del. 2002). 39 Compañia General de Combustibles, S.A. v. HETCO, 269 B.R. 104 (Bankr. S.D.N.Y. 2002). 40 In re Hashim, 213 F.3d 1169 (9th Cir. 2000), in which case an English court award of costs and attorney s fees was not eligible for comity, because the amount was disproportional towards the debtor and therefore repugnant to the public policy of the USA. 41 In re Ionica Plc, 241 B.R. 829, at 836 (Bankr. S.D.N.Y. 1999). 42 In the Matter of Thornhill Global Deposit Fund Ltd, 245 B.R. 1, at 16 (Bankr. D. Mass. 2000). 43 In re Treco, 240 F.3rd 148, at 156 (2nd Cir. 2001), in which the court concluded that the bankruptcy proceeding the debtor was subjected to in the Bahamas met the criteria for comity. The judgment is criticised for its territorial effect by Westbrook, Outside Counsel: International Bankruptcy Approaches Chapter 14, New York Law Journal 23 August 2001, 1.

8 In literature it is acknowledged that the comity doctrine has many faces. See e.g. Felsenfeld, who states: It is a remedy based upon equitable concepts and utilized to honor the trust among nations From Mutual Trust to Comity Here the words trust among nations are used, which seems to indicate a similarity between comity and mutual trust, as the basis described for the system of recognition within the EU Insolvency Regulation. In the Kojima case (footnote 25), however, the (P)rinciples of international comity are presented next to respect of judgments and laws of other nations. In the Hopewell case (footnote 22) on the other hand both elements are brought together: Comity..is much more than a discrete element or factor to be considered as part of a larger analysis; it is a pervasive principle of international law which reflects that courts of one nation ought to respect the authority of another nation to legislate over, command or adjudicate issues concerning its own citizens. Recently the Dutch author Declercq submitted: Pursuant to the principle of territoriality a foreign insolvency proceeding has no effect in the Netherlands. 45 With the entry into force of the EC Insolvency Regulation (May 2002) and the accession of Central and Eastern European States to the EU (May 2004), in the Netherlands full and automatic recognition has to be given to judgments opening insolvency proceedings handed down by a court of one of the other twenty-three Member States to which the Regulation applies. The existence of national, geographical borders should not act as an obstacle to the efficient administration of international insolvency proceedings throughout the Community. Recognition is based on the principle of mutual trust, which in the EC legal framework is based on the principle of community trust, as defined in art. 10 of the EC Treaty. Within the context of the EC Insolvency Regulation this means that courts should act according to the rationale of realising the aims of an EC legal measure and should refrain from actions, which might endanger the realisation of the purposes of the EC-Treaty and of the Insolvency Regulation. It is submitted that in the Netherlands, according to the present state of Dutch private international law with regard to non-eu insolvency proceedings, the principle of territoriality is even more obsolete now than, say, three years ago. In foreign and Dutch literature the Dutch model of claiming universal effect for Dutch insolvency proceedings abroad and denying nearly all legal effects of foreign insolvency proceeding in the Netherlands itself has been severely criticised. 46 The point of view in Dutch case law, moreover, denies legal history. The principle of mutual trust not only acts within the confines of the Community. Both mutual trust and comity have their shared historic roots in the 17 th century Dutch doctrine of comitas gentium. 47 In the USA this doctrine of an unwritten legal principle has led to the 44 Felsenfeld (2000), Declercq, Netherlands Insolvency Law. The Netherlands Bankruptcy Act and the Most Important Legal Concepts, The Hague: T.M.C. Asser Press (2002), 15, referring to limited recognition models based on Conventions with Belgium (1925) and Germany (1962), which have been replaced by the Insolvency Regulation. I leave aside that the quoted point of view is in my opinion more balanced, see Wessels, footnote 5 above, par ff. 46 See Wessels, footnote 5 above, par , citing authors using qualifications as ambiguous, old-fashioned, undesirable and applying double standards. 47 More elaborate: Yntema, The Comity Doctrine, in: Festschrift (Liber amicorum) für Hans Dölle, Band II, Internationales Recht, Kollisionsrecht und Internationales Zivilprozessrecht, Europäisches Recht, Ernst Caemmerer et al., Tübingen 1963, 65ff.

9 present norm in section 304(c). 48 Within the European Community the additional value of creating an area of freedom, security and justice led to a model in which courts do not have the discretionary authority to recognise, but recognition is given automatically. 49 Towards non-eu countries in the Netherlands it seems that the Supreme Court upholds a concept that was characterised ten years ago by the Canadian Supreme Court as outmoded, while acknowledging the value of greater comity, where the Canadian Supreme court in 1993 considers.. the old common law rules relating to recognition and enforcement were rooted in an outmoded conception of the world that emphasised sovereignty and independence, often at the cost of unfairness. Greater comity is required in our modern era when international transactions involve a constant flow of products, wealth and people across the globe. 50 This rationale has in general led to a growing attitude in the last ten years of judicial cooperation, which gained momentum with the adoption of the UNCITRAL Model Law. 51 Holding on to territoriality denies these developments. Furthermore, the position of the Netherlands in its relations with non-eu countries in cross-border insolvency cases differs substantially from the laws of its neighbouring countries Belgium, which applies the principle of universality in a radical and unwavering way 52 and, since 2003, Germany. 53 Although one of the main principles of insolvency is to treat creditors equally, there is no reason to apply the same rule to countries insolvency proceedings. This means practising mutual trust with respect to insolvency proceedings opened by courts in EU Member States and treating insolvency proceedings from non-eu countries with the same respect ( comity ). 48 Gitlin / Flaschen / Grimes, American Report: United States Treatment of Foreign Insolvency Proceedings, in: Fletcher (ed.), Cross-Border Insolvency: Comparative Dimensions (The Aberystwyth Insolvency Papers), London (1990), argue:..broadly speaking, the subdivisions of section 304(c) are codifications of historical factors that have been weighed by various US courts when evaluating whether to accord comity to the decision of a foreign court. 49 Recital 1 and 2 of the Insolvency Regulation provide: The European Union has set out the aim of establishing an area of freedom, security and justice. The proper functioning of the internal market requires that cross-border insolvency proceedings should operate efficiently and effectively and this Regulation needs to be adopted in order to achieve this objective.. 50 See Farley, A Judicial Perspective on Cross-Border Insolvencies and Restructurings, in: International Business Lawyer (Special Issue: The Internationalisation of Insolvency), May 1996, 220, quoting the case (Hunt v. T&N). 51 As considered by the court in the Hopewell-case (footnote 22 above). See my (Dutch) publications: Nederlands insolventierecht internationaliseert (Dutch insolvency law internationalises), WPNR 6456 (2001), en Internationaal insolventierecht als motor van grensoverschrijdende coördinatie en samenwerking tussen rechters en curatoren (International insolvency law as an engine for cross-border coordination and cooperation between courts and liquidators), Tijdschrift voor Insolventierecht 2002, 21ff. 52 Torremans, Cross Border Insolvencies in EU, English and Belgian Law, Kluwer Law International, The Hague / London / Boston (2002), Providing in section 335 German Insolvency Act (unauthorised translation): Unless otherwise provided, the insolvency proceedings and their impact shall be subject to the law of the state in which the proceedings were opened.