The Remington Rand Affair

Transcription

1 (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 s- Hertogenbosch, 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 case 3 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 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

2 402 Nottingham Insolvency and Business Law e-journal 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- 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 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 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 and On ebay, this type of typewriter is still for sale.

3 Wessels: The Remington Rand Affair 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 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 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 , , , , and Remington Rand Corporation Delaware vs. Business Systems Inc. and others, 830 F.2d Ibid., at 1270.

4 404 Nottingham Insolvency and Business Law e-journal 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 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 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 Ibid., at 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

5 Wessels: The Remington Rand Affair 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 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 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 (2 nd 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

6 406 Nottingham Insolvency and Business Law e-journal 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 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 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 The court refers to Articles 431 and 985, Dutch Code on Civil Proceedings. 18 District Court s-hertogenbosch 14 November 1990, rekest nummer 82/90.

7 Wessels: The Remington Rand Affair 407 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 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 mid- 90s, 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 Kilbarr Corporation v. Business Systems Inc. 990 F 2 nd 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

8 408 Nottingham Insolvency and Business Law e-journal 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 KPNQuest 22 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.).

9 Wessels: The Remington Rand Affair 409 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, 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 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, 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 and 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.

10 410 Nottingham Insolvency and Business Law e-journal 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 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 Netherlands 26 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.

11 Wessels: The Remington Rand Affair 411 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 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: 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 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.

12 412 Nottingham Insolvency and Business Law e-journal 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 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 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.

13 Wessels: The Remington Rand Affair 413 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 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).

14 414 Nottingham Insolvency and Business Law e-journal 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 subject 32 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 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: < or < weblog, Archive , document 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 See for the latest developments: < (search for JudgeCo).

15 Wessels: The Remington Rand Affair 415 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.

16 416 Nottingham Insolvency and Business Law e-journal [this page is intentionally left blank]