DECLARATION OF BORIS K. FREDERIKSEN IN SUPPORT OF VERIFIED PETITION FOR RECOGNITION UNDER CHAPTER 15 AND FOR ADDITIONAL RELIEF UNDER 11 U.S.C.

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1 Pg 1 of 11 DENTONS US LLP D. Farrington Yates Oscar N. Pinkas 1221 Avenue of the Americas New York, New York Tel: (212) Fax: (212) Counsel for Boris K. Frederiksen, in his capacity as bankruptcy trustee of IT Factory A/S UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: IT FACTORY A/S, Debtor in a Foreign Proceeding. Chapter 15 Case No (MG) Recognition Request Pending DECLARATION OF BORIS K. FREDERIKSEN IN SUPPORT OF VERIFIED PETITION FOR RECOGNITION UNDER CHAPTER 15 AND FOR ADDITIONAL RELIEF UNDER 11 U.S.C I, Boris K. Frederiksen, pursuant to 28 U.S.C. 1746, hereby declare under penalty of perjury under the laws of the United States of America that the following is true and correct: 1. I am a natural person over the age of 18, a citizen of Denmark, and, if called upon, could testify to all matters set forth in this declaration. 2. I submit this declaration in support of the Verified Petition for Recognition Under Chapter 15 and for Additional Relief Under 11 U.S.C (the Petition ) filed concurrently herewith, in my capacity as the putative foreign representative and duly authorized and appointed trustee ( Trustee ) of the bankruptcy estate of IT Factory A/S ( ITF or the Company ), which was placed into bankruptcy proceedings in Denmark, bearing Case No. B 1997/08-A, K

2 Pg 2 of /08-A (the Danish Bankruptcy Proceeding ) on December 1, 2008 (the Danish Petition Date ). 3. Matters stated in this declaration that are statements of fact and that are based upon my personal knowledge are true and correct. Matters stated in this declaration that are statements of fact and that are not based upon my personal knowledge but that are derived from documents or information supplied to me are true to the best of my information and belief. The Declarant 4. I am an attorney licensed to practice law in Denmark and specialize in corporate workouts, bankruptcy, and other insolvency matters. I am a partner and the chairman of the board of the law firm Poul Schmith and, since 2008, have served as the head of the firm s insolvency practice group. I have been practicing law in Denmark for 25 years, providing domestic and foreign clients with legal advice on restructurings and liquidations, preparing insolvency plans, assisting in insolvency plan proceedings, and handling out-of-court liquidations. 5. I hold the title of Certified Insolvency Lawyer in Denmark. This certification requires an attorney to have been admitted to practice law for at least five years, to have spent an average of 500 billable hours per year practicing insolvency law, and to stay abreast of current developments in the field by participating in insolvency related courses for more than nine hours per year. I am also a member of the association Danish Insolvency Lawyers (Danske Insolvensadvokater), which counts 227 Danish insolvency lawyers as members, and I have been a board member since Commencement and Purpose of Chapter 15 Proceeding 6. This Declaration is submitted in support of the Petition, which is being filed herewith, by and through, Dentons US LLP. The purpose of this chapter 15 proceeding is to - 2 -

3 Pg 3 of 11 identify, realize, and administer ITF s assets within the territorial jurisdiction of the United States for distribution in the Danish Bankruptcy Proceeding, as well as to conduct discovery to investigate additional U.S. assets or creditors. BACKGROUND ITF s Founding and Business 7. ITF is a stock corporation, which was originally organized under Danish law (an Aktieselskab, A/S) on January 15, 2003 under the name GFKJURA 955 A/S. On August 21, 2003 the Company changed its name to ITF A/S, and on July 27, 2006, it was changed to its current name, IT Factory A/S. 8. As of the Danish Petition Date, ITF s registered address and corporate headquarters were located at Jægersborg Allé 164, DK-2820 Gentofte, Denmark. 9. ITF was established to develop and market software products and offer consulting services in connection therewith. ITF was authorized to engage in all activities and to take all measures in furtherance of its economic purpose, including, but not limited to, the establishment of branch offices and participation in other business entities. During the years 2003 through 2004, ITF's main activities according to annual reports were development and marketing of various software products. The Trustee has no knowledge of the actual activities during these years. 10. In 2008, members of ITF s board of directors discovered certain irregularities in relation to the Company s leasing contracts. Thereafter, commencing on November 28, 2008, the ITF board members conducted a thorough examination of ITF s books and records. This investigation revealed that the majority of ITF s revenues from 2005 through 2008 were derived from a fraudulent software license-leasing scheme. Pursuant to this scheme, ITF sold nonexistent software licenses to various companies, at least three of which were located in the - 3 -

4 Pg 4 of 11 U.S. and each of which was located outside of Denmark. These companies, in turn, resold the nonexistent licenses to innocent Danish companies, which then leased them to ITF. 11. Stein Bagger ( Bagger ), ITF s CEO, upon information and belief, was at the center of the fraud and for years had executed contracts on behalf of ITF to lease software licenses that did not exist. Upon commencement of the investigation, Bagger absconded to Dubai. 12. The Trustee is not aware of evidence that fraudulent activity occurred prior to 2005 and the Company s annual reports indicate that its activities during this time were primarily the development and marketing of various software products. 13. The Trustee is aware of a wholly owned U.S. subsidiary of ITF IT Factory, Inc ( ITF, Inc. ). The Trustee, however, has limited knowledge of the activities conducted by ITF, Inc., including whether there is any value to its equity or whether there are any claims against it. Commencement of the Danish Bankruptcy Proceeding and Appointment of the Trustee 14. Upon discovery of the massive fraud, ITF s board members filed a bankruptcy petition on behalf of the Company. On December 1, 2008, the Bankruptcy Division of the Maritime and Commercial Court in Denmark (Sø- og Handelsrettens Skifteafdeling) ( the Danish Court ) issued an order (konkursdekret) (the Bankruptcy Order ) declaring ITF bankrupt under Section II of the Danish Bankruptcy Act and appointing Mr. Boris K. Frederiksen as the Trustee (kurator) of ITF s bankruptcy estate. A true and correct copy of the Bankruptcy Order with an English translation is attached hereto as Exhibit A. Additionally, a true and correct copy of a certification by the Danish Court evidencing the institution of the Danish Bankruptcy Proceeding and appointment of Mr. Frederiksen as Trustee, dated February 1, 2013, is attached hereto as Exhibit B

5 Pg 5 of 11 Danish Insolvency Law 15. Under Danish law, upon the institution of the Danish Bankruptcy Proceeding, ITF was prohibited from: (i) disposing of any assets and making any payments and (ii) keeping its business open for contact with its customers. 16. Section 17 of the Danish Bankruptcy Act provides that a debtor who has ceased to pay debts as they become due shall be declared bankrupt by court order on the petition of the debtor or one or more of its creditors. A Danish company may commence a Danish bankruptcy proceeding under chapters IA and II of the Danish Bankruptcy Act. Once commenced, the proceedings are supervised by a Danish insolvency court. 17. Generally speaking, a Danish bankruptcy proceeding similar to chapter 7 under the Bankruptcy Code serves to preserve and liquidate the assets of the debtor for the benefit of all creditors, wherever located, and to treat all creditors equally, subject to the priorities of their claims. Similar to property of the estate under section 541 of the Bankruptcy Code, pursuant to section 32 of the Danish Bankruptcy Act, the Danish Bankruptcy Proceeding concerns the entire estate of ITF as of the Danish Petition Date, including any assets located abroad and those ITF acquires during the bankruptcy. Furthermore, pursuant to section 29 of the Danish Bankruptcy Act, upon appointment of the Trustee, ITF s management was divested of the right to operate the Company or control or dispose of its assets, and that power is solely vested in the Trustee, much like the appointment of a trustee under chapter 7 of the Bankruptcy Code. Under sections of the Danish Bankruptcy Act, as ITF s duly appointed Trustee, I am vested with the power to administer the assets of ITF, to dispose of any of the assets contained in the bankruptcy estate, and to take discovery in furtherance of this process, without additional approval or permission from the Danish Court

6 Pg 6 of The Trustee s duties under the Danish Bankruptcy Act include: Assuming immediate possession and management of all assets of the Company, pursuant to section 110 of the Danish Bankruptcy Act; Compiling a list of all creditors according to the Company s books and records, pursuant to section 130 of the Danish Bankruptcy Act; Liquidating and monetizing the Company s assets with an eye toward maximizing value for distribution, pursuant to section 38 of the Danish Bankruptcy Act; Exercising all legal rights available to the Company or the Trustee to contest claims against the estate; Defending the estate against unjustified claims; and Investigating and, where appropriate, pursuing claims against third parties, including but not limited to avoidance actions under Danish law, pursuant to chapters 8 and 17 of the Danish Bankruptcy Act. Notice of the Danish Bankruptcy Proceeding and the Claims Process 19. Upon initiation of a Danish bankruptcy case, the Danish Court publishes a notice on a public website located at In this case, the notice was published on December 4, Additionally, on December 4, 2008, the Trustee mailed letters to all known creditors of ITF, notifying them of the Danish Bankruptcy Proceeding and of their right to file a claim, pursuant to section 125(1) of the Danish Bankruptcy Act. During the administration of a bankruptcy case the Trustee must periodically report on the status of the case pursuant to sections 125(2) and 125(3) of the Danish Bankruptcy Act. These reports become part of the record with the Danish Court and are available for inspection by creditors. 20. Under Danish bankruptcy law, all creditors of ITF are entitled to file their respective claims against the bankruptcy estate, which claims are subject to any enforceable nonbankruptcy rights of preference, priority, or security, similar to the Bankruptcy Code. Under Danish bankruptcy law, the claims of secured creditors are generally not affected by a - 6 -

7 Pg 7 of 11 bankruptcy proceeding. 21. Under the Danish Bankruptcy Act, the Danish Court does not set a bar date for filing claims against the estate and claims may be filed at any time until the final meeting of creditors. Once a creditor has filed a claim, it will receive a letter from the Trustee acknowledging the filing. If there are sufficient funds in the estate, the Trustee will determine the claims and notify each creditor by mail, advising whether the Trustee disputes all or part of the claim. A meeting is then held at the Trustee s office, during which a creditor may present any proof supporting its claim. At the conclusion of the meeting, the Trustee will render his final determination of the claim. If a creditor disputes the Trustee s final determination, it may institute a declaratory judgment action before the Danish Court within four weeks of the conclusion of the meeting. 22. Once all filed claims have been determined, and all other administration related to the estate has been finalized, the Trustee files a distribution list with the Danish Court, an accounting of the receipts and costs incidental to the bankruptcy proceeding, and a report regarding the Trustee s administration of the case. After the Danish Court has reviewed those documents, it will set a date for the final meeting of creditors, and creditors may continue to file claims until that date. 23. Once all claims have been filed and processed and the Trustee has completed the realization and liquidation of the assets of the Company, the Trustee will distribute all assets subject to applicable priorities, pari passu, similar to a final distribution under chapter 7 of the Bankruptcy Code. Once administration of the estate and distribution is finalized, the bankruptcy estate ceases to exist and any claims that were not filed and administered through the bankruptcy will be legally barred, similar to chapter 7 of the Bankruptcy Code

8 Pg 8 of 11 The Trustee s Administration of the Estate 24. In satisfaction of his duties, the Trustee has, inter alia, (i) retained an accountant Erik Stener Jørgensen of PriceWaterhouseCoopers (formerly Grant Thornton) and prepared an inventory of assets of the bankrupt estate, (ii) compiled a list of creditors pursuant to the Company s books and records, (iii) sent notice to each known creditor of ITF, wherever located, of the Danish Bankruptcy Proceeding and of their right to file a claim, (iv) filed periodic reports with the Danish Court, (v) secured assets of ITF, (vi) sold assets, and (vii) conducted an investigation of fraudulent activity and investigated potential claims against third parties. Creditors and Center of Main Interest 25. ITF s main business operations were conducted in Denmark. The vast majority of ITF s known creditors are based in Denmark. As of March 15, 2013, 113 creditors have filed claims in the Danish Bankruptcy Proceeding 32 of which are pending determination. Of those, six creditors are located in European countries other than Denmark and one in China. There are no known creditors of ITF located in the United States. 26. ITF is a corporation organized and registered under the laws of Denmark. ITF s registered address and it s principal office were both located at Jægersborg Allé 164, DK-2820 Gentofte, Denmark. The majority of ITF s employees worked and resided in Denmark. The majority of ITF s assets are located in Denmark and its main bank account was in the Danish bank, Danske Bank A/S, Hovedvejen 107, DK-2600 Glostrup, Denmark. Corporate Ownership 27. ITF is collectively owned by three shareholders: Sølco ApS (5 %), a Danish stock corporation; JMI Invest A/S (50 %), also a Danish Stock corporation; and - 8 -

9 Pg 9 of 11 Realization of U.S. Asset Agios United S.A. (45 %), a corporation registered in the Seychelles, which entered insolvency proceedings in 2009 due to a claim by ITF. 28. The Trustee is currently aware of an asset of ITF located within the territorial jurisdiction of the United States a bank account in the name of the Company at Wells Fargo Bank, N.A. ( Wells Fargo ) bearing account number (the U.S. Account ). As of the statement dated February 29, 2012, the U.S. Account contained $186, The Trustee and his counsel have engaged in discussions with Wells Fargo regarding turnover of the funds to the Trustee for distribution through the Danish Bankruptcy Proceeding. Wells Fargo has not received any competing claims to the U.S. Account and does not dispute the Trustee s right to realize the funds therein and distribute them through the Danish Bankruptcy Proceeding. Nonetheless, due to its unfamiliarity with Danish bankruptcy law and out of an abundance of caution, Wells Fargo has requested that the Trustee obtain an order from a U.S. court authorizing and directing it to turnover the funds in the U.S. Account to the Trustee. As set forth in the Petition, the Trustee believes that such an order is appropriate as additional relief available under section 1521 of the Bankruptcy Code. Consequently, upon recognition of the Danish Bankruptcy Proceeding as a foreign main proceeding and recognition of the Trustee as the foreign representative, the Trustee seeks such language in the recognition order as additional relief under section 1521 of the Bankruptcy Code. 29. The Trustee also seeks the ability to engage in the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor s assets, affairs, rights, obligations or liabilities, pursuant so section 1521(a)(4) of the Bankruptcy Code in order to investigate the existence of additional U.S. assets or creditors. For instance, because the fraudulent licensing scheme involved at least three U.S. companies, there may be claims against - 9 -

10 Pg 10 of 11 those companies. Furthermore, the Trustee has limited knowledge of the activities conducted by ITF, Inc., and whether there is any remaining value to its holdings in the subsidiary. [Signature on Following Page]

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