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A new potential for reaching debtors' property

 

08 June 2010

The implications for enforcement proceedings of the recent Koehler case.  

Enforcement against Chinese parties has long been a challenging process for foreign businesses. This is due to the fact that in most circumstances, the property sought after in enforcement proceedings is located in China, where local interests may fiercely oppose enforcement. The New York Court of Appeals' recent ruling in Koehler v Bank of Bermuda Ltd has introduced the possibility of initiating enforcement proceedings in the State of New York, even if the property, judgment creditor and judgment debtor are all located outside the US.

On 4 June 2009, the New York Court of Appeals held that in order to satisfy a New York judgment, a New York court may order any bank (over which it has personal jurisdiction) to turn over to the court any property held on behalf of the judgment debtor and located outside New York. At the same time, however, the Koehler decision could potentially place international banks in breach of the New York court's turnover order or subject them to claims from their customers for breach of mandate. Given the policy implications and controversial reasoning of the Koehler decision itself, it remains to be seen to what extent the case could aid enforcement efforts against Chinese companies.

Background to the Case

The facts underlying the judgment on enforcement proceedings in Koehler were entirely unrelated to New York. More than 16 years ago, Mr Lee N. Koehler (the Judgment Creditor), a citizen of Pennsylvania, obtained a default monetary judgment to the value of US$2 million from the United States District Court of Maryland (the Maryland Judgment) against his former business partner, a resident of Bermuda (the Judgment Debtor).

It was only when the Judgment Creditor came to enforce this Maryland Judgment in New York against the Judgment Debtor that the New York courts became involved. At the time of the Maryland Judgment, the Judgment Debtor owned stock in the Bermudan corporation of which he and the Judgment Creditor had been shareholders. The Judgment Debtor had pledged his shares in the Bermudan corporation to the Bank of Bermuda Limited (BBL) as collateral for a loan. Crucially, there was a subsidiary of BBL incorporated in New York.

Having converted the Maryland Judgment into a New York judgment (as required by New York law), the Judgment Creditor filed a petition against BBL's New York subsidiary in the District Court for the Southern District of New York (the District Court), seeking "payment or delivery of property of judgment debtor" in accordance with Article 52 of the Civil Practice Law Rules of New York (CPLR). Section 5225(b), which is known as a "delivery order" or "turnover order", authorises a court to order the delivery of property that belongs to a judgment debtor but is not in his possession.

Please read our article "A new potential for reaching debtors' property - the implications for enforcement proceedings of the recent Koehler case" for the full story.

 

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