In a ground-breaking decision, the Dutch Supreme Court recently found that a foreign bankruptcy trustee may in principle exercise the powers conferred on him under the lex concursus (the law governing the bankruptcy) in the Netherlands as well. Such powers can include the management and disposal of assets located in the Netherlands at the time of the foreign bankruptcy order. Although the Supreme Court still describes its treatment of foreign bankruptcies under Dutch law as governed by the territoriality principle, the rules it adopted bear a closer resemblance to those based on the universality principle: in principle a foreign bankruptcy trustee can exercise all of his powers in the Netherlands without the requirement of a recognition procedure.
In the above decision, dated 13 September 2013, the Dutch Supreme Court considered the position of the Russian trustee in the Yukos bankruptcy and whether or not he was authorised to sell and transfer shares in a Dutch BV that under Russian law formed part of the bankruptcy estate. According to the Supreme Court, the Russian trustee was authorised to do so if Russian insolvency law allowed this. In the Supreme Court's view, the only exception is where the foreign bankruptcy order violates Dutch public policy. Whether or not the bankruptcy order in the Yukos case violates Dutch public policy must still be decided by the lower court.
The Dutch Bankruptcy Act ("DBA") contains no provisions dealing with the recognition of a foreign bankruptcy. According to the drafters of the DBA, which dates from 1893, it was thought undesirable to include rules that would allow the recognition of bankruptcies from any country in the world. Consequently, the Supreme Court developed the territoriality principle in its case law. This principle entails that a bankruptcy from a country with which the Netherlands has no treaty does not include any assets in the Netherlands and cannot be invoked insofar as this would negatively affect the position of creditors. The European Insolvency Regulation, which is based upon the European Union Treaty, is considered a treaty in this sense. However, it is the only such treaty now in force to which the Netherlands is a party.
According to the Yukos decision, the following rules for bankruptcies outside the EU apply:
- The foreign bankruptcy freeze does not affect assets located in the Netherlands at the time of the bankruptcy order. This means that those assets may still be attached by individual creditors. If the foreign trustee sells or otherwise disposes of such assets, prior attachments made by individual creditors must be respected.
- The foreign bankruptcy trustee is authorised to manage as well as sell or otherwise dispose of assets located in the Netherlands provided that this is allowed under the lex concursus. Therefore, the foreign bankruptcy trustee may, for example, exercise voting rights on shares in Dutch companies, and may sell such shares to third parties and distribute the proceeds in the foreign bankruptcy in accordance with the rules of the lex concursus if so permitted by those rules.
- The only exception to the above authority is where the foreign bankruptcy order violates Dutch public policy. Under the Yukos decision, however, the foreign bankruptcy trustee is not required to obtain a court decision that the bankruptcy order is lawful before exercising his powers in the Netherlands. In other words: the foreign bankruptcy trustee can exercise these powers unless and until an interested party convinces a Dutch court to issue an injunction.
- Effects of the foreign bankruptcy that lead to a deterioration of the position of individual creditors will not be recognised. Thus, if, for example, under the lex concursus the end of the bankruptcy proceedings brings about the extinction of all unpaid debts, this will not be recognised in the Netherlands and an individual creditor can still take recourse in the Netherlands for the part of his claim that has remained unpaid.
As a consequence of this decision, foreign bankruptcy trustees can effectively exercise their powers in the Netherlands provided they act within the scope of the lex concursus and such exercise does not lead to a deterioration of the position of the creditors. When exercising their powers, they must respect all then existing attachments on Dutch assets by individual creditors. No prior court decision on recognition or relief (such as is required under the UNCITRAL Model Law), or exequatur (such as is required under the laws of some countries) is necessary. If an interested party believes that a foreign bankruptcy order violates Dutch public policy, it is up to that party to prevent the foreign bankruptcy trustee from exercising his powers by initiating court proceedings in the Netherlands.
The Yukos decision of the Supreme Court has effectively opened the door to foreign bankruptcies to an extent that is normally found in countries adhering to the universality principle in international insolvency law. This may in practice prove to be very useful for foreign representatives from non-EU countries that wish to include Dutch assets in the foreign insolvency.
NautaDutilh acted in this case for the Yukos management, who argued for a more restricted application of the territoriality principle. They contended (among other things) that Dutch law should provide protection against the effect of foreign bankruptcies from countries in which the rule of law is insufficiently developed. According to the Yukos management, this determination can only be made by the Dutch legislature through its decision as to whether or not a treaty should be entered into with a particular country. In the view of the Supreme Court, such protection is granted through the public policy exception. The question of whether that exception applies in the Yukos case is still pending before the Amsterdam Court of Appeals, where the proceedings will now continue.