Short Reads

Supreme Court: Fraudulent conveyance; knowledge of prejudice

Supreme Court: Fraudulent conveyance; knowledge of prejudice

Supreme Court: Fraudulent conveyance; knowledge of prejudice

02.08.2017 NL law

In a recent judgment, the Supreme Court ruled that both the debtor and any counterparty performing the legal act have knowledge of prejudice to creditors if, at the time of performing the legal act, the bankruptcy of the debtor and a shortfall in the bankruptcy estate is foreseeable. This judgment confirms the Supreme Court's decision of 22 December 2009 (ECLI:NL:HR:2009:BI8493).

Supreme Court 7 April 2017 (ECLI:NL:HR:2017:635).

After a graphic design company ran into financial difficulties, a reorganization was carried out to avoid a bankruptcy. As one of the company's creditors was not willing to accept a postponement of payments, one of the company's shareholders arranged for this creditor to receive a bank guarantee. In return, the shareholder was provided with a counter guarantee from the company. In addition, the shareholder was provided with a surety (borgtocht) from the company's financier for the performance of the obligations of the company under the counter guarantee and the company, its financier and the shareholder entered into a security surplus arrangement (overwaarde-arrangement). A few weeks later, the company was declared bankrupt. The creditor claimed under the bank guarantee. The financier of the bank guarantee had recourse against the shareholder. In turn, as the company was unable to pay, the shareholder claimed from the company's financier under the security surplus arrangement. The company's financier enforced its security over the assets of the company. This financier also invoked its right of recourse against the surplus security proceeds under the security surplus arrangement.

The bankruptcy trustee (curator) declared the legal acts of entering into the security surplus arrangement to be void under Section 42 of the Bankruptcy Act (Faillissementswet) on the basis of fraudulent conveyance (faillissementspauliana). In the legal proceedings that ensued, the bankruptcy trustee requested the court of first instance to rule, among other things, that these legal acts had been legally voided, which was rejected by the court. The Court of Appeal confirmed this judgment. It considered that the company and the shareholder (who, indirectly and in return for security under the security surplus agreement, provided the credit) did not have to reasonably foresee that the bankruptcy of the company was inevitable and that it could not be concluded that the reorganization was doomed to fail. Therefore, the Court of Appeal held that at the time of performing the legal acts the parties had no knowledge of prejudice within the meaning of Section 42 of the Bankruptcy Act.

The bankruptcy trustee lodged an appeal in cassation. The Supreme Court decided that the Court of Appeal had applied an incorrect standard to determine whether the parties to the security surplus arrangement had knowledge of prejudice. The Supreme Court ruled that the correct standard is whether at the time the parties entered into the security surplus arrangement, the bankruptcy of the company and a shortfall in the bankruptcy estate was foreseeable with a reasonable degree of probability. Furthermore, the Supreme Court confirmed that this standard equally applies to legal acts performed by parties seeking to avoid a bankruptcy through a financial reorganization.

The judgment serves as a reminder to borrowers and lenders taking measures to avoid bankruptcy. Legal acts performed by a company in financial difficulties and its counterparties may be scrutinized not only at the stage when bankruptcy of the company is inevitable but also at the stage when such bankruptcy is foreseeable with a reasonable degree of probability.

Team

Related news

17.10.2019 NL law
Objective indicator high-risk third countries repealed as of 18 October 2019

Short Reads - The Implementation Decree for the Wwft 2018 has been amended. As a result, as of 18 October 2019 institutions subject to the Dutch Anti-Money Laundering and Anti-Terrorism Financing Act will no longer have to report transactions solely on the basis that this transaction relates to an individual residing, or a legal entity having its registered office in, a high-risk third country.

Read more

25.09.2019 NL law
The long arm of regulation – Dutch chapter by Roderik Vrolijk and Senna Leentjens

Articles - The continued global scrutiny of financial services firms, alongside the sustained pressure on those charged with regulating them to deliver tangible results, continues to drive financial services regulators to seek assistance from their overseas counterparts when investigating issues. This trend shows no signs of abating, and questions such as how and when regulators interact with each other and with firms across borders, how firms are expected or required to respond, and whether duplicate proceedings can be brought in different jurisdictions are more pertinent than ever.

Read more

27.09.2019 NL law
Stibbe is attending the IBA's annual conference in Seoul

Conference - The annual conference of the International Bar Association (IBA) is currently taking place in Seoul. There are fourteen partners from Stibbe attending the event. Several of them have speaking slots on a wide range of legal topics and will take part in various panel discussions.

Read more

06.09.2019 NL law
Supervision of crypto services

Short Reads - On 3 September 2019, De Nederlandsche Bank ("DNB") published a press release in which DNB points out to providers of crypto services that they should prepare for imminent DNB supervision. Companies facilitating the exchange of crypto currency for normal money and companies that offer crypto wallets will have to comply with a registration obligation from the beginning of 2020.

Read more

Our website uses functional cookies for the functioning of the website and analytic cookies that enable us to generate aggregated visitor data. We also use other cookies, such as third party tracking cookies - please indicate whether you agree to the use of these other cookies:

Privacy – en cookieverklaring