Article 42 of the Dutch Bankruptcy Act (Faillissementswet) contains the bankruptcy pauliana (faillissementspauliana). The bankruptcy trustee (curator) can annul, for the benefit of the estate, any legal act that the debtor performed before the bankruptcy without being obliged to, if the debtor knew or ought to have known that it would prejudice the creditors.
Table of contents
What are the conditions?
Four elements must be present. The act was a legal act of the debtor, performed before the bankruptcy order. The debtor was not legally obliged to perform it. The act prejudiced the creditors, for example because assets left the estate below value. The debtor knew or ought to have known that prejudice would result. If the act was performed for consideration, the counterparty must also have known or ought to have known this. For gifts, the debtor’s knowledge is sufficient (Article 45 Bankruptcy Act).
How does the trustee annul the act?
By an extrajudicial declaration, without first going to court. If the counterparty disputes it, the trustee must prove the conditions in proceedings. Under Article 43 Bankruptcy Act, knowledge is presumed for certain acts performed within one year before the bankruptcy, such as transactions with related parties, security for debts that were not yet due, and contracts where the debtor’s obligation was considerably higher than what it received. The counterparty must then rebut the presumption.
Which transactions carry the most risk?
Quick sales of assets to a friendly party, transfers of real estate, and new security rights granted to existing lenders shortly before bankruptcy. The other party can be confronted with annulment even if it acted in good faith, if it should have recognised the prejudice. A market-level price, an independent valuation and good documentation reduce the risk in restarts and asset deals. Article 42a Bankruptcy Act protects transactions the court authorised in advance during a WHOA procedure.
Frequently asked questions
What happens after annulment?
The counterparty must return what it received to the estate. What it gave in return is repaid if the estate has benefited from it (Article 51 Bankruptcy Act).
Is there a time limit?
Article 42 sets no fixed period, but the presumptions of Article 43 only apply to the year before bankruptcy.
Related terms
- Actio pauliana
- Article 47 Dutch Bankruptcy Act (pauliana for payment of a due debt)
- Asset deal
- Bankruptcy
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