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Creditor protection under Dutch law

Dutch law contains many provisions on creditor protection under Dutch law. In this blog, our Dutch attorneys discuss the so-called ‘Actio Pauliana’ under Dutch law for annulment, which can be used to contest transactions concluded to the detriment of one or more creditors. Under Dutch law, an act performed by a debtor can be declared null and void even though he was not obliged to do so and even though he knew (or should have known) that this act would prejudice the recourse of his creditors (Art. 3:45 Dutch Civil Code – Burgerlijk Wetboek – BW). Clients regularly contact MAAK Advocaten in situations where a debtor’s assets are transferred to a third party in order to make them inaccessible to creditors.

Any creditor who is adversely affected by such an act may request the annulment of that act. According to Dutch law, such an annulment by a creditor presupposes that the debtor and the persons with whom the debtor performed the legal act knew (or should have known) that the act would cause damage to the creditor.

If the act in question is based on an agreement without consideration, such as a gift, the debtor’s knowledge that the act is prejudicial to the creditors is sufficient to declare the act null and void. For example, if the debtor has given his assets to a friend to make them inaccessible to his creditors, it is not necessary that the friend was aware that the act would disadvantage the debtor’s creditors. The friend is therefore in principle not protected by the principle of good faith in this situation. However, the annulment of a legal act with consideration under Dutch law shall affect the rights of the beneficiary only if and in so far as he knew or ought to have known that the rights of creditors would be adversely affected.

The effects of the annulment in the Netherlands

Our Dutch attorneys often receive the question of the effect of an annulment of a legal transaction under Dutch law. It is important to note that the creditor can only claim annulment to the extent that his interests have actually been harmed. The effects of the annulment therefore do not go beyond what is necessary to remedy the adverse consequences for the creditor. As a result, the legal act remains valid in principle against all other creditors. Rights acquired by third parties as a result of an annulled act are not affected by an annulment.

Actio Pauliana in the Netherlands and the presumption of knowledge of the damage to creditors

A creditor wishing to annul an injurious act must, inter alia, prove the debtor’s knowledge of the injurious act and, if the act is not based on a transaction without consideration, the knowledge of the parties with whom the debtor performed the act. In practice, this burden of proof is usually difficult for the creditor to fulfil. In order to ease the burden of proof, Dutch law therefore contains presumptions regarding the parties’ knowledge of, for example, the damage. In such situations, the burden of proof would be reversed and the parties would have to rebut the presumption.

Creditor protection and the burden of proof in the Netherlands

If such an adverse legal act was performed within one year prior to the claim for annulment, Dutch law presumes that the debtor and the third party knew (or should have known) that the legal act would be detrimental to one or more creditors. The debtor or the third party would have to rebut this presumption accordingly.

Such a presumption (to be rebutted) is also referred to where the debtor has entered into a contract in which there is a significant imbalance in the consideration or where the debtor pays or provides security for an obligation that is not yet due, for example a debt that is not yet due.

Actio Pauliana in Dutch insolvency law

Especially in insolvency law, the so-called Actio Pauliana/annulment is of great importance. For this reason, our English-speaking Dutch attorneys often hold discussions on this issue, especially in insolvency situations. In the case of insolvency, Dutch insolvency law grants the insolvency administrator the right to claim nullity if the person/company declared insolvent has attempted to withdraw his assets from the insolvency before the day of insolvency in order to prevent the insolvency administrator from taking action. The insolvency administrator then has the possibility to declare legal transactions null and void. Our English-speaking Dutch specialist attorneys in insolvency law based in the Netherlands will be happy to help you with any questions you may have in this regard.

Thus, with the Actio Pauliana, the creditor can, in principle, contest legal transactions carried out by a debtor and which have the effect of limiting the creditor’s recourse. This possibility of challenging legal acts is particularly relevant in insolvency situations, as the insolvency administrator has a far-reaching instrument at his disposal to protect the interests of creditors.

Dutch specialist attorney specialised in contract law

Do you have questions about Dutch contract law or do you need specific legal advice in Holland on the subject of Paulian rescission action under Dutch law? Our experienced English-speaking attorneys in the Netherlands will be happy to help you.

T:  +31 (0)20 – 210 31 38