Settlement and good faith in bankruptcy

art. Section 6:127 of the Dutch Civil Code (BW) states that a debtor has a right of set-off if it has a performance of a claim that corresponds to its debt to the same counterparty and is authorized to pay the debt and to enforce advance payment.

In the event of bankruptcy, broader rules apply to settlement. Pursuant to Art. 53 Bankruptcy Code (Fw), a debtor and creditor of a bankrupt party may set off his debt against his claim if that debt and claim arose prior to the declaration of bankruptcy or arose out of actions carried out prior to the declaration of bankruptcy. Therefore, it is not necessary for a claim to be due and payable, or for claims to be compatible with each other.

The fact that a party may offset its debt to a bankrupt counterparty for its claim against that party naturally provides an advantage to the clearing party. He cannot be compelled to pay his debt to the trustee and wait to see if he will receive payment for his claim. The clearing party receives its claim against the other bankrupt party – within the limits of the joint amount – immediately through settlement, and this is the end of the matter. In short: Settlement is a practical legal concept.

Settlement is not always permitted in bankruptcy. According to Art. 54 attacking, a person who has taken possession of a debt or claim against a bankrupt counterparty prior to a bankruptcy order may not make a set-off if he did not act in good faith in taking over.

The question is when there is goodwill in the sense of art. 54 attackers. Whether there is good faith depends on the party’s knowledge of the state the bankrupt was in at the time the debt or claim was received. But is this a matter of self-science—the party? He knew That the counterparty was in a state that could be expected to bankrupt – or according to the objective knowledge – of the party Should know That the counterparty was in a position where bankruptcy could be expected?

in Arrest On August 25, 2023, the Supreme Court answered this question. The Supreme Court ruled that conformity with the article should be sought. 3:11 DCC, which states that a person’s good faith is lacking if he knows the facts or law to which his good faith ought to relate, but also if he ought to know them in the specific circumstances. So it comes to objective science.

So a person who, at the moment he assumes a debt or claim against a subsequent bankrupt, knows or ought to know that the subsequent bankrupt is in a state in which bankruptcy can be expected, is not acting in good faith within the scope of the subsequent bankrupt. meaning of art. 54 attackers.

In doing so, all circumstances of the case must be taken into account. For example, circumstances in which a bank is willing to continue financing or cooperate in a rescue attempt because it still sees survival opportunities for the customer. In general, we can assume that a bank that has reasonable grounds to believe that the bail-out has a real chance of success does not and should not know that the debtor is in a position where bankruptcy is expected.

With regard to good faith settlement in bankruptcy, it is not a matter of what the party knows about the situation of the counterparty, but what it should have known about the situation of the counterparty in the specific circumstances. Interested in learning how settlement applies in your specific situation? Do you have any questions or would like to discuss this topic? Then please contact Roger Faase.