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

09.12.2019 NL law
Consultation to amend Dutch AML laws

Short Reads - On 2 December 2019, the Dutch Minister of Finance and Minister of Justice and Security published a consultation containing plans to amend Dutch AML laws and regulations. A short summary of these plans is set out below. For more information on the broader plans of the Dutch government to combat money laundering, we refer to our previous newsletters of 1 July 2019, 17 October 2019 and 15 November 2019.

Read more

08.11.2019 BE law
Interview with Wouter Ghijsels on Next Gen lawyers

Articles - Stibbe’s managing partner Wouter Ghijsels shares his insights on the next generation of lawyers and the future of the legal profession at the occasion of the Leaders Meeting Paris where Belgian business leaders, politicians and inspiring people from the cultural and academic world will discuss this year's central theme "The Next Gen".

Read more

15.11.2019 NL law
Het kerstmenu van de AFM: vijf gangen - Column Fondsnieuws

Short Reads - Vliegen de pepernoten, adventskalenders en kerstkransjes u alweer om de oren?  Nee, het aanmeten van een gezonde levensstijl wordt u aan het einde van het jaar niet makkelijk gemaakt. Gelukkig helpt het Voedingscentrum ons daar een handje bij; en wel met de 'Schijf van Vijf'. De AFM introduceerde vorig jaar iets vergelijkbaars voor de financiële sector.

Read more

07.11.2019 NL law
Banking & Finance 2019 Second Edition – The Netherlands and Luxembourg chapter

Articles - Maarten de Bruin, Rein van Helden, Rogier Raas and Robert Steeg have all contributed to the Chambers and Partners Banking & Finance 2019 Second Edition, providing the Netherlands chapter. The Luxembourg chapter was written by Gérald Origer, Jean-Marc Delcour, Steven Paridaens and Nicolas Pradel.

Read more

13.11.2019 NL law
A new Act on the Supervision of Trust Offices

Articles - Roderik Vrolijk and Soeradj Ramsanjhal published an article in the Dutch Financial Law Review as a follow-up on their article two years ago in the same journal. The authors specifically shed light on the customer due diligence and open norms of the new Act on the Supervision of Trust Offices 2018, that entered into force on 1 January 2019. 

Read more

31.10.2019 NL law
EBA Publishes Follow-Up Report on 2018 FinTech Roadmap

Short Reads - Building on its 2018 FinTech Roadmap, the EBA has issued a report focused on potential impediments to the cross-border provision of banking and payment services. In the 29 October 2019 report, the EBA identifies three regulatory areas in which the further integration of European banking and payment services markets can be improved.  The three areas the EBA addresses are authorisation and licensing, conduct of business and consumer protection requirements, and anti-money laundering ("AML") and countering the financing of terrorism ("CFT").

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