Date: Oct. 19, 2017
Modified November 14, 2023
Reading time: +/- 2 minutes
The Supreme Court ruling of Feb. 6, 2015[1] viewed more closely in light of the WSNP
"Reducing the bankruptcy of the natural person" is one of the objectives of the Statutory Debt Rescheduling Arrangement for Natural Persons ("Wsnp") introduced in 1998. In 1927 the Supreme Court formulated the starting point that the bankruptcy of a vof automatically leads to the bankruptcy of its partners.[2] This starting point and the aforementioned objective do not seem to relate well to each other. After all, if the partners are automatically declared bankrupt, this does not contribute to the reduction of bankruptcies of natural persons. This now seems to have changed. Earlier this year, the Supreme Court ruled that the bankruptcy of a general partnership no longer necessarily results in the bankruptcy of the partners. In this article we discuss how the judgment of the Supreme Court relates to the aforementioned objective of the Wsnp and whether this judgment does justice to it.
We will first discuss the old premise and its impact on practice, in particular the so-called concurrency issue. We will then discuss the Supreme Court ruling of February 6, 2015 and list its advantages and disadvantages. We conclude with a consideration in which we address the question whether the objective of the Wsnp is (better) safeguarded with this judgment.
Ever since 1892,[3] the bankruptcy declaration of the vof has been the subject of Dutch case law. Already in that year, the Supreme Court ruled that the bankruptcy declaration of the vof is the bankruptcy declaration of the partners.[4] Almost a decade later, in 1901, the Supreme Court ruled that the bankruptcy declaration of the company includes that of the partners.[5] When the Supreme Court was again presented with a similar case in 1927, it ruled that:
"...the law permits the declaration of bankruptcy of a general partnership, which bankruptcy then necessarily results in the bankruptcy of the members of the partnership."
The Supreme Court, like the Attorney General for that matter, devoted few words to this opinion at the time other than that "the law permits this construction. The reason for this is that, although the vof has separate assets from those of the partners on the basis of art. 18 WvK, each of the partners is jointly and severally liable for the obligations of the vof, which, according to the Supreme Court, had to lead to the bankruptcy of the partners.
At the time, the Supreme Court seemed to see no reason to address the issue described by the annotator of this judgment that "practice has shown great diversity and uncertainty when it comes to the question of who in a general partnership should be declared bankrupt: the partners or the partners and the company". Nor do we see that described diversity and legal uncertainty. After all, the Supreme Court has been clear since 1927 (or actually since 1892): bankruptcy of the general partnership necessarily results in the bankruptcy of the partners.
What we do see is that as of December 1, 1998 - when the Wsnp was introduced - another complicating factor made its appearance. That complication relates to the concurrence between a request to declare the vof bankrupt and a request by the partner to be admitted to the Wsnp. In case both requests are filed (almost) simultaneously, these requests often run together, which can lead to problems in certain cases. This is, very aptly, called "concurrence problems". In the following paragraphs we will discuss these concurrent problems in detail.
In case the bankruptcy of a vof is requested, this implies - if done correctly - the request for the bankruptcy of the partners.[6] In that case, those partners then have the possibility to opt for the Wsnp by virtue of article 3 paragraph 1 Bankruptcy Act (hereinafter: "Fw"). That article prescribes that, if it concerns the petition for bankruptcy of a natural person and this person has not submitted a petition for the application of the Wsnp, the clerk of the court will immediately notify the debtor (in this case one or more partners) by letter that this person can submit a petition for admission to the Wsnp within fourteen days after the day of dispatch of the letter. If the partner avails himself of this possibility, two applications are then pending simultaneously, namely the petition for bankruptcy and the petition for admission to the Wsnp. The question is then how these simultaneous requests should be handled. The above can be described as "concurrence problems.
The concurrence between the two aforementioned requests sometimes leads to practical problems. Noordam identified and described this problem in 2007,[7] concluding, based on case law research, that courts treat such concurrence requests differently. For example, one court may, under circumstances, declare only the vof bankrupt and not the partners,[8] while another court again rules that "once the application for application of the debt rescheduling arrangement with respect to one or more partners has been granted, there is no more room for declaring the vof bankrupt."[9]
Van Vugt and Verschoof[10] examined how the various courts deal with concurrence of a petition for bankruptcy of the vof and a petition for admission to the Wsnp of the partners. They also concluded that courts handle both applications filed in very different ways. For example, there are courts that suspend the handling of the application or declaration of bankruptcy of the vof if a Wsnp application is filed by the partners.[11] One court pronounces the bankruptcy of the vof and its partners despite a Wsnp application if the interests of third parties outweigh the interest of the partners in applying the debt restructuring scheme.[12] Other courts rule that the handling of the application cannot wait for the decision on a Wsnp application.[13] Finally, there are courts which rule that a Wsnp application does not have to suspend the handling of the application for bankruptcy of the vof, while the partners do not also (first) go bankrupt immediately.[14] It can be concluded from both studies that there is no unambiguous line to be observed within the case law with respect to the manner of handling concurrent applications, and that courts sometimes act contra-legem.
The fact that courts deal with said concurrence issues in their own ways does not take away from the fact that in practice, things seem to work just fine. Nevertheless, there are some objections to this. Because the courts handle Wsnp applications differently, legal inequality is created for partners who submit a Wsnp application. This legal inequality subsequently also results in legal uncertainty. After all, not every application for admission to the Wsnp is given priority over the bankruptcy application in the manner prescribed by Sections 3 and 3a of the FW. As a result, some partners see their application for admission to the Wsnp dismissed. They may then find themselves in an unnecessary state of bankruptcy, which is precisely what the Wsnp is intended to prevent.
Not only for the partners but also for creditors, the lack of legal unity creates legal uncertainty. After all, there are also courts that suspend the application for bankruptcy of the vof, if a Wsnp application is submitted by the partners. Consideration of the application for bankruptcy of the vof and its partners can then be postponed for a considerable time, for example because one or more annexes to the Wsnp petition are missing. The court can suspend the bankruptcy petition and grant the applicant another period of at most one month to provide this information, which encourages abuse. The partner then submits an incomplete Wsnp petition, knowing that a period may be granted to complete the information, during which time no decision can be made on the bankruptcy petition of the vof and its partners.[15] As a result, creditors remain uncertain for longer than necessary regarding the vof's bankruptcy petition. Suspension of the vof's bankruptcy petition is also unnecessary in our opinion. Despite the fact that the vof has no legal personality, the vof does have separate assets. On that basis we believe, contrary to Noordam,[16] that the vof can be declared bankrupt separately from the partners.
As mentioned above, one of the objectives of the Wsnp is to reduce bankruptcies of natural persons. In view of the foregoing, we believe we may conclude that this principle was insufficiently observed in case law, at least until February 6, 2015.[17] However, as a result of the judgment of February 6, 2015, courts should now be able to draw a single line: vof bankrupt, partners not bankrupt under certain circumstances. Moreover, courts and courts of appeal will then no longer act contra-legem. Below, we discuss this judgment and then consider whether the passing of this judgment can put an end to the concurrence problem and whether courts can therefore actually draw a single line.
Bepro requested the court to declare the vof VDV Totaalbouw ("VDV") and its (co-)partner X bankrupt. Thereupon X requested the application of the Wsnp. However, X did not appear at the hearing and, moreover, had not submitted all the required documents with his request. As a result of the absence of those documents, X subsequently withdrew the Wsnp application. Subsequently, VDV and X were again summoned to a bankruptcy hearing. Shortly before that hearing, X again submitted a Wsnp request. Again the required attachments were missing. Thereupon VDV and X were eventually declared bankrupt.
X then lodged an opposition against the judgments declaring VDV's and his own bankruptcy. This opposition was declared unfounded by the district court, after which X lodged an appeal, requesting that the bankruptcy of himself be annulled and that he still be admitted to the Wsnp. The court of appeal upheld the court's decision, because the decision to declare the vof bankrupt automatically means that the partner is also declared bankrupt, according to the court of appeal.
X then complains that this judgment is wrong in law. The final judgment declaring VDV bankrupt would not necessarily entail the bankruptcy of the partners. The Supreme Court went along with X's argument and ruled as follows.
Pursuant to Art. 18 CoC, each of the partners is jointly and severally liable for obligations of the vof. Given that provision, the bankruptcy of the partners will usually be inevitable, but that is not necessarily the case. After all, a partner, unlike the vof, may himself have sufficient (private) assets to satisfy both the creditors of the vof and his private creditors. In addition, the claims against the vof and the partners must be regarded as separate claims, so that a partner can raise personally due defenses against those claim(s). A Wsnp application filed by a partner could also already result in the partner not being declared bankrupt and the vof being declared bankrupt. Therefore, according to the Supreme Court, it is not necessary that the bankruptcy of the partners always and without further ado arises as a result of the bankruptcy of the vof.
The Supreme Court also refers to case law of the European Court of Justice,[18] which states that the court must determine separately with respect to each debtor whether it has international jurisdiction to open insolvency proceedings. Even with this, the old rule - that the bankruptcy of the vof automatically implies that of its partners - was incompatible. Moreover, this old rule was at odds with art. 6 ECHR, according to the Supreme Court. Its final verdict is:
"On the basis of the foregoing, the Supreme Court reverses the previously discussed rule that the bankruptcy of a general partnership always and necessarily results in the bankruptcy of the partners."[19
Finally, the Supreme Court points out that in practice, if a creditor wishes to obtain the bankruptcy not only of the general partnership but also of the partners, he must request this in his petition with respect to each of the partners separately. The court must then examine whether the conditions for declaring bankruptcy have also been met with respect to the partners separately.
The extent to which the separate processing of applications does or does not provide a better guarantee of compliance with the principles of the Wsnp is discussed below.
In our opinion, the February 6 ruling has both advantages and disadvantages. We will discuss these in the following paragraphs, after which we will use these advantages and disadvantages to reach the conclusion of this article.
After almost one hundred years, the main rule that the bankruptcy of the vof automatically results in that of the partners has changed. A major advantage of this, we believe, is that with the delivery of this judgment, an end can come to the fact that courts treat the concurrence of a request for bankruptcy of the vof and a Wsnp application by a partner differently. After all, with the February 6, 2015 judgment in hand, courts should now, in the event of concurrence, treat the application for a declaration of bankruptcy and the application for admission to the Wsnp as two (or more) separate applications, which should put an end to the contra-legem handling by courts and courts of appeal. An important plus point is that this better safeguards the premise of the Wsnp - bankruptcies of natural persons should be prevented as much as possible. Moreover, we see no reason not to go down the path taken by the Supreme Court with this judgment, since - as we discuss below - it has only limited disadvantages.
Another advantage relates to legal certainty. Previously, creditors of the vof could remain uncertain for a considerable time if the handling of the request for bankruptcy of the vof was postponed until a decision had been made on the Wsnp request of (one of the) partners. That application could then be postponed for quite some time. The Attorney-at-law-General describes - correctly - that this regulation lends itself to abuse,[20] which we also saw in the judgment of February 6, 2015. X submitted a Wsnp application there twice, where the application was incomplete both times. It can be argued that the handling of the bankruptcy of the vof took unnecessarily long because X delayed that handling. Under current case law, abuse, by making a Wsnp request in order to try to delay the processing of a vof's bankruptcy petition, can be reduced. Courts must, as mentioned earlier, handle the applications separately, so that the processing of the vof's bankruptcy application is not delayed until a Wsnp application is decided. Moreover, the fact that the handling of the bankruptcy petition now no longer needs to be postponed is in line with the urgent handling of the bankruptcy petition prescribed by Article 4, paragraph 1 Fw.
Even under the old case law, a partner could have sufficient financial resources to pay the claims of the general partnership (for which he is jointly and severally liable), but failed to do so and was subsequently declared bankrupt in his private capacity as well. One might ask why that partner would not then have already paid those debts prior to the bankruptcy of the vof. After all, that would have avoided the bankruptcy filing. One of the reasons for the partner not to do so anyway could be that that partner could invoke a defense to which he is personally entitled (e.g., a counterclaim) against the claim of one of the creditors.[21] For that reason, the claims against the vof and the partners should be regarded as separate claims, according to the Supreme Court in its February 6, 2015 ruling.[22] We concur with this view. In our opinion, it goes too far that the refusal to pay by the individual partner - directly and without further investigation whether the partner is in the condition of having ceased to pay - should also result in the bankruptcy of the partner itself. However, it is to be expected that, as a rule, the partner in question will not succeed in demonstrating that he has sufficient private assets or means of defense to pay the debts of the general partnership, we believe, because otherwise the partner in question would probably not have filed for bankruptcy. In this respect, separate treatment of the bankruptcy petitions of the general partnership and the partners will usually offer little relief to the partners concerned. However, we believe, from the point of view of legal certainty, that the partners in question should be given this opportunity and therefore we favor separate treatment. Thus, it is not in all circumstances that because the general partnership is bankrupt, the bankruptcy of the partners is inevitable. On that front, the Supreme Court ruling can be seen as an improvement.
We believe that this ruling contains a guarantee of legal certainty not only in Bankruptcy law. From the point of view of European law, this ruling also improves it. The Supreme Court ruled that the principle of declaring a partner bankrupt, without this also being requested with respect to him individually and without investigating whether he also privately is in the situation that he has ceased to pay, is at odds with the right to a fair trial of art. 6 ECHR.[23] We do not only think that the principle is at odds with art. 6 ECHR, but that under circumstances it is even contrary to art. 6 ECHR. After all, no investigation has taken place with respect to the individual partner as to whether he is in the condition of having ceased to pay. This, in our opinion, does not do justice to the "fair trial" as required by Art. 6 ECHR, because not all the procedural requirements for handling a bankruptcy petition are met.
The Supreme Court has thus "changed its mind"; the 1927 rule is no longer in place.[24] As of February 6, 2015, it is to be understood that the bankruptcy of the general partnership no longer automatically leads to the bankruptcy of the partners. Therefore, in case a creditor wishes to bring about the bankruptcy not only of the general partnership but also of the partners, he must explicitly request this in his petition with respect to each of them separately and substantiate that request. The court must then examine not only with respect to the vof, but also with respect to the partners whose bankruptcy has been requested, whether the conditions for bankruptcy have been met. However, as a rule, we thus believe, this only makes sense if that partner knows how to demonstrate that he has sufficient financial resources to be able to satisfy the outstanding claim of the applicant, and thus demonstrates that he is not in the condition of having ceased to pay, or if that partner has a defense personally attributable to him that he can invoke against the creditors' claims. This was confirmed shortly after the judgment was handed down by the Rotterdam District Court,[25] which ruled that the partner in question will have to prove that he has sufficient private assets at his disposal to pay the vof's debts. As Huizink wrote in 2004, "Joint and several liability or affiliation for the debts of another can eventually lead to being dragged into devolution, but as a rule only after one is otherwise in a state of ceasing to pay."[26]
Consideration has also been given to petitions that had already been filed at the time the judgment was rendered: the applicant has the option of supplementing his petition[27] so that it then also relates to the declaration of bankruptcy of one or more partners. In doing so, the court must observe the principle of hearing and giving the partner or partners the opportunity to present separate defenses. Any objections that may arise therefore concern mainly objections of a practical nature which, we believe, will not lead to major problems in practice.
If not Huizink, who questions whether the Supreme Court's handling on Feb. 6, 2015, was necessary:"The Supreme Court's ruling suggests clarity, but upon further reflection only leads to confusion."[28] After all, shouldn't it be assumed that a bankruptcy of a general partnership means that the general partnership has been dissolved? And what does the ruling mean for suspension of payments of a general partnership? Huizink himself correctly points out that asking these kinds of questions is easier than answering them. He believes that, before the passing of this judgment, the practice has always saved itself and hence the question of necessity of dealing with it. Viewed purely from the perspective of the Wsnp, that necessity, we discussed in the above, was indeed there.
Finally, according to the Supreme Court, in view of Art. 18 CoC and the desirability that the bankruptcies of the vof and of the partners be pronounced and settled at the same time as much as possible, it is advisable that these applications be made and handled together as much as possible. The preference for a joint petition and joint handling is understandable from a practical point of view. Why the bankruptcies of the vof and of the partners should be pronounced and settled at the same time as much as possible is less understandable. Again, while this can be followed from a practical point of view, does this comment not detract from the Supreme Court's direction? By noting that it is advisable to pronounce and settle simultaneously, courts are still given an opportunity to (continue to) adopt their own views. While the lack of unambiguity is undesirable for the Wsnp practice[29] and this ruling from the Wsnp practice can therefore only be welcomed.
Our conclusion is that the objective of the Wsnp - in terms of reducing bankruptcies of natural persons - is better safeguarded with the February 6, 2015 judgment than was previously the case. If the Supreme Court's new legal rule is correctly applied by the courts, it will most likely lead to the end of the conflation problem described earlier. After all, because the bankruptcy of the vof no longer automatically implies that of the partners, the possible two applications - the application for bankruptcy and the application for admission to the Wsnp - will have to be dealt with separately. On the one hand, this has the consequence that courts have to treat the Wsnp applications of partners as separate applications. The path to the Wsnp can then be shortened because a partner no longer first has to be declared bankrupt, in which case only the "Wsnp route" via Section 15b of the FW is available. This may end the uncertainty in which both creditors and partners may find themselves in the event of concurrence. On the other hand, we have discussed that the regulation of Section 3a Fw lends itself to abuse. As a result of the February 6, 2015 judgment, the partner's ability to postpone, delay if you will, processing of the bankruptcy petition by filing an (incomplete) Wsnp request may also come to an end. After all, all requests, whether for bankruptcy or Wsnp, can be processed separately from each other.
Whether it is correct that any objections will not lead to major problems in practice remains to be seen. In any case, with this judgment the Supreme Court has answered the call for greater clarity already made in the literature, and our expectation is that both courts and creditors will be able to cope with this new rule.
[1] Supreme Court, 14 April 19276 February 2015, ECLI:NL:HR:2015:251.
[2] Supreme Court, April 14, 1927, NJ 1927/725.
[3] Supreme Court, December 23, 1892, W. 6287 and note under Supreme Court Judgment, April 14, 1927, NJ 1927/725.
[4] Idem.
[5] Idem.
[6] A.J. Noordam, 'Schuldsanering (ex-)business owners', Deventer: Kluwer 2013, chapter 7, p. 310.
[7] Noordam 2013, chapter 7.
[8] Rb. Assen April 6, 1999, LJN AF0138.
[9] Rb. Utrecht July 3, 2003, no. 16226FT-RK 03.762 (unpublished).
[10] M.H.F. van Vugt & R.J. Verschoof, "Two beliefs on one pillow... confluence issues of bankruptcy and debt restructuring in the vof," FIP, 2014/134.
[11] Van Vugt & Verschoof 2014, p. 116.
[12] Van Vugt & Verschoof 2014, p. 117.
[13] Idem.
[14] Idem.
[15] While the application of Art. 7 Fw may somewhat eliminate the objection of a long delay in a decision on the bankruptcy petition, it still does not lead to the result intended by the creditor.
[16] Noordam believes that the bankruptcy of a vof cannot be viewed separately from the bankruptcy of the partners in private (Noordam 2013, pp. 309 and 314). However, in this same chapter he describes that it is also believed that a vof can be declared bankrupt separately from its partners.
[17] MoT, Parliamentary Papers II 1992/93, 22 969, no. 3, p. 6.
[18] Court of Justice, December 15, 2011, Case C-191-10, ECLI:EU:C:2011:838, NJ 2012/258
[19] R.o. 3.4.7.
[20] Conclusion Attorney-at-law-General, ECLI:NL:PHR:2014:2114, para. 2.8.
[21] See HR December 18, 1959, ECLI:NL:HR:1959:BG9455, NJ 1960/121 and HR December 13, 2002, ECLI:NL:HR:2002:AE9261, NJ 2004/212
[22] R.o. 3.4.4.
[23] R.o. 3.4.6.
[24] R.o. 3.4.4.
[25] Rb. Rotterdam, Feb. 24, 2015, ECLI:NL:RBROT:2015:3427.
[26] J.B. Huizink, "Partnerships and insolvency," TvI 2004/9.
[27] R.o. 3.4.9.
[28] J.B. Huizink, "Once again partnerships and bankruptcy," TvI 2015/28.
[29] Thus also Noordam and Van Vugt & Verschoof.
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