Supreme Court of the Netherlands 11 July 2014 (ABN AMRO vs Berzona)
If a creditor wishes to have a debtor declared bankrupt in the Netherlands, Dutch law requires proof that the debtor has ceased paying his debts when they fall due. This test implies, according to long standing case law, that the debtor has at least two creditors, at least one of whom has a claim which is due and payable. On 11 July 2014 the Dutch Supreme Court delivered a judgment which not only clarifies this "bankruptcy test", but also contains important – and somewhat surprising – rules on the right of a bankruptcy trustee to default under existing executory contracts.
The Supreme Court held that it is not necessary that the claim of a second creditor be due and payable or be monetary in nature; nor is it necessary that the value of the claim has been definitively established. The claim must, however, be capable of being filed for verification so that the creditor can be paid from the bankruptcy liquidation proceeds (if any). The Supreme Court ruled that a future claim therefore cannot constitute the requisite claim of a second creditor to support a bankruptcy petition by a creditor, because there is no certainty that such a claim will actually materialise. Accordingly, it upheld the Amsterdam Court of Appeal's finding that the maintenance rights under the tenancy contracts were future claims and consequently could not be regarded as requisite claims of a second creditor.
As to the bankruptcy trustee's rights to default under existing executory contracts, the Supreme Court ruled that although a bankruptcy trustee generally has a right to breach contractual obligations under existing contracts, the trustee is not entitled to take any "positive" action in this regard such as evicting tenants from their properties or claiming back leased assets in general. Although this is good news for tenants, lessees and licensees, a number of questions remains unanswered.
In an earlier judgment (the so-called Nebula judgment) the Supreme Court seemed, in general terms, to permit the bankruptcy trustee to breach any kind of obligations under existing executory contracts, whether it concerns an obligation to perform or an obligation to tolerate the exercise by the counterparty of one or more rights (such as a right of quiet enjoyment). Where such a breach of contractual obligations would result in a claim by the counterparty, this claim can only be enforced by filing it for verification, enabling the counterparty to be paid from the liquidation proceeds, if any. However, the extent of this right to breach contractual obligations was not totally clear. On the basis of the Nebula judgment it became the prevailing view that the bankruptcy trustee (i) has the right to breach an obligation to provide quiet enjoyment to a tenant under a lease or an obligation to grant a licensee right to use a particular IP right under a license agreement, and (ii) consequently has the right to effectively terminate the rights of use of tenant, lessee or licensee.
However, in the Berzona judgment, the Supreme Court made it clear that the latter does not follow from the Nebulajudgment. The Supreme Court ruled that a bankruptcy trustee’s right to "passive" default applies only to contractual obligations that are fulfilled through performance by or at the expense of the estate, such as making a payment, granting a right or surrendering an asset. If the bankruptcy trustee does not regard the fulfilment of these obligations as being in the interest of the estate, he may “passively” default by desisting from performance. However, according to the Supreme Court, this does not mean that the trustee is entitled to any "active" right or action that is not explicitly granted by law or by contract, such as evicting tenants from their properties, reclaiming leased assets or acting against infringements of IP rights while the tenancy, lease or license agreements respectively have not yet been terminated (which would amount to an “active” default).
Contrary to what some have assumed based on the Nebula judgment, the right of a bankruptcy trustee to terminate a right of use apparently does not go so far as to entitle him to terminate a tenancy, lease or licensing agreement, evict tenants from their properties or claim back leased assets, unless this right is explicitly granted to him by law or by contract. Surprisingly enough, the Supreme Court now decided that the rule emanating from the Nebula judgment only applies in very specific cases where a beneficial owner has exercised his right to (sub-)lease the asset following the legal owner’s bankruptcy. In such cases the bankruptcy trustee does not have to tolerate the tenant’s right of use. Although the Supreme Court qualifies its decision as being a "clarification" of the Nebula judgment, one cannot deny that the Supreme Court has set out a new course with respect to a bankruptcy trustee's right to default under existing executory contracts.
This decision is good news for, amongst others, tenants and lessees. In principle, they need not be afraid of losing their right to use the property or leased assets as a result of the landlord’s or lessor’s bankruptcy (unless provided otherwise in the relevant contract). Therefore, a bankruptcy trustee will not be able to evict tenants from their properties or claim back leased assets on the basis that he does not need to honour the debtor's obligations under the leasecontract.
The Berzona judgment is advantageous for licensees as well, although they still face a degree of uncertainty. The good news is that a Dutch bankruptcy trustee will probably no longer be able to terminate a right of use granted to the licensee before the licensor's bankruptcy (unless the bankruptcy trustee is granted a right to terminate under the licence agreement). In principle a bankruptcy trustee cannot deny a licensee the continuing use of the licensed IP-right. However, it appears that a bankruptcy trustee will still be able to sell and transfer the IP-right to a third party, without transferring the licensing right. Assuming that a licence agreement contains an obligation for the licensor to transfer the licensees rights when it transfers the licensed IP-rights to a third party, a bankruptcy trustee would "passively" default under the licence agreement if the trustee would decide to transfer the licensed IP right free and clear of the license. After all, as a general rule, he would be entitled to do this. This might be different for the licensees who have registered their licences, as registration gives the relevant licence statutory effect against third parties. This, however, is another debate: one that has not yet been resolved in case law.