Actio pauliana: prejudice to lessor by defaulting lessee

In some cases a creditor who is prejudiced in his recovery possibilities by a legal act between his debtor and a third party, can annul this legal act. This is called “actio pauliana”. This annulment specifically takes place in (forthcoming) bankruptcies but can in principle take place at any time. Dutch contract lawyer Hidde Reitsma explains this based on a recent ruling.

Lessee enters into management agreement with director

In this case a lessee, who operated a health care institution, was seriously in arrears with the rent. Nevertheless the lessee entered into a management agreement with X, one of its directors. Under this agreement the lessee was obliged to pay a management fee of over €4000 a month. The lessor wanted to prevent this and annulled the management agreement extrajudicially, pursuant to article 3:45 of the Dutch Civil Code.

Actio pauliana: prejudice to creditors due to legal act of debtor

Article 3:45 of the Dutch Civil Code stipulates that a voluntary legal act conducted by the debtor can be annulled if the debtor knew or should have known that this would result in prejudicing one or more creditors in their recovery possibilities. If this concerns a multilateral legal act (such as an agreement) another requirement is that the party with whom the debtor conducted the act knew or should have known that this would prejudice creditors.

Lessor: entering into an additional payment obligation constitutes prejudice

The issue submitted to the court is whether the lessor, by entering into the management agreement, was prejudiced in his recovery possibilities and whether, at that time, the lessee and X were aware or should have been aware of such prejudice. In this context the lessor states that the lessee is in a woeful financial position. Taking on an additional obligation, such as that resulting from the management agreement, means that the lessor, as creditor, moves back even further in the queue, which is prejudicial.

Does the knowledge of the lessee and the director prejudice the lessor?

According to the lessor, the lessee was aware of this prejudice, because the lessee was already unable in January 2016 (the date of the management agreement) to comply with his payment obligations. X was also, in his capacity as director of the lessee, aware of these financial problems.

Lessee: no fraudulent act

The lessee contests that the management agreement was fraudulent. The lessee points out that the residential health care facility was only opened in November 2015, meaning that there were only start-up losses and bankruptcy is not an issue. The lessee also states that the lessor is not restricted in his recovery possibilities by the management agreement. This is a payment obligation with a corresponding commitment. Also, X already conducted work for the lessee prior to the conclusion of the management agreement and was also paid for this.

Court: criteria actio pauliana not fulfilled

The court in preliminary relief proceedings finds that the lessor has to make a plausible case that he was prejudiced in his recovery possibilities by the conclusion of the management agreement. The lessee submitted convincingly that there was no prejudice. The lessor inadequately refuted this. The lessor failed to prove prejudice.