The Actio Pauliana in case of almost bankruptcy

20th of June 2018

Almost every director/entrepreneur will try to avoid a bankruptcy. However sometimes things don’t work out as you wish and a bankruptcy becomes reality. In the last period just before the bankruptcy, the director/entrepreneur must have to operate with special care.

The reason here fore is that Dutch law knows the so called ‘Actio Pauliana’. In simple terms, you can say that the Actio Pauliana means that a director of the company makes a deal that is not good for all the company’s creditors. For example, the director pays the bills of the most important supplier of the company. If at that moment or due to this payment other creditors are not (fully) paid, you can speak of an Actio Pauliana. Another example is when the director sells a company’s good to a third party (say one off the main creditors) for a price that is below the market value.

In base you can say that there is an Actio Pauliana when the company’s director does a legal act as a result of which act one or more company’s creditors is disadvantaged. When that is the case, the bankruptcy trustee can undo the specific legal act (for example undoing the selling of the good that has been sold for a price under the market value). The third party with who the legal act has been done then can only hope to get back all of his money he paid. This is because his claim has no priority to the claims of all the other creditors. So only when all creditors receive (a part of) their claims, the third party will receive also (a part of) his claim.

However, there is also another problem. When a director does a legal act which can be considered as an Actio Pauliana, there is also a very big risk (if not a certainty) that the bankruptcy trustee can make a claim for the director’s liability. If that is the case, the director can be held responsible with all his (private) capital for the total shortness in the bankruptcy. This mostly lead also to the personal bankruptcy of the director.

As long as the possible claim for the Actio Pauliana has not been superannuated, the bankruptcy trustee can claim the Actio Pauliana. This period can be years before the bankruptcy depending of the kind of legal act. When the legal act took place in the last year before the actual bankruptcy, the director has to prove that there was in that case no Actio Pauliana. In practice, this proof position is very difficult. If the legal act has been done more than a year before the bankruptcy, the bankruptcy trustee has to prove the fact of an Actio Pauliana.
So when you are director of a company in the Netherlands that is in trouble, be very careful in the legal acts you than do and make sure you treat all your creditors equally. If you have questions, please contact one of our legal advisors.