On 24 December 2021, the Supreme Court ruled on the question of whether statutory or contractual default interest on rent owed as an estate debt is an estate debt. The judgment is of great importance for practice, because in most corporate insolvencies there is a lease running on the business premises on the date of the bankruptcy. This results in estate debts concerning the rent owed for the period after the bankruptcy date. First, we will explain the concept of estate debts and then discuss the judgment.
What is meant by estate debts in bankruptcy?
Estate debts can be regarded as the costs of the bankruptcy. Only when the debts of the estate can be paid in full can payments be made to creditors with preferential rights. Only when the preferential creditors can be paid in full can distribution be made to creditors without preferential rights, i.e. the unsecured creditors. Incidentally, pledgees and mortgagees have a special position, but this will not be discussed further in this article.
When must an estate debt be paid?
Estate debts give rise to an immediate claim on the bankruptcy estate. However, settlement of an estate debt cannot always be enforced, because the trustee in bankruptcy may postpone payment if it is uncertain whether the estate debt can be fully settled. This depends on the available and expected financial resources, but also on any other existing and future estate debts and the applicable order of priority among the estate debts.
What are the grounds for the creation of estate debts?
In the important 2013 judgment Koot Beheer / Tideman q.q., the Supreme Court clarified when there are estate debts. These are only the debts that give rise to an immediate claim on the bankruptcy estate, either
– (i) pursuant to the law,
– (ii) because they have been contracted by the trustee in his capacity (in the sense that his will has been directed towards them),
– (iii) because they are the result of an action by the liquidator in contravention of an obligation or duty to be performed by him in his capacity.
Regulation on termination of lease in case of bankruptcy
Section 39 of the Bankruptcy Act provides that if the bankrupt is a tenant, both the trustee in bankruptcy and the lessor may terminate the lease prematurely. In short, a notice period of three months has to be observed. From the date of the bankruptcy, the rent will be a debt of the estate. This is therefore an example of the first category of estate debts referred to in the Koot Beheer / Tideman q.q. judgment: an immediate claim on the bankruptcy estate by virtue of the law.
Opinions of Subdistrict Court and Court of Appeal on interest as estate debt
A landlord claimed before the Subdistrict Court that the trustee should be ordered to pay the rent owed to the estate, plus interest. In addition, in appeal it was claimed that the Court of Appeal should rule that the interest on the rented estate debt should also be qualified as a claim against the estate (by way of a declaration for rights).
The Subdistrict Court and the Court of Appeal rejected the claims. The Court of Appeal assessed whether the interest on the leasehold estate debt fell under one of the categories mentioned in the Koot Beheer / Tideman q.q. judgment. In other words, according to the Court of Appeal, the law does not recognise the interest on the rental estate debt as a claim against the estate. Evidently, according to the Court of Appeal, the interest payment obligation, as such, does not qualify as an estate debt in the second category either.
Is the interest on the rent a debt of the estate as a result of an act of the trustee in breach of an obligation or duty to be fulfilled by him?
The Court of Appeal considered that for the question whether the interest on the estate rent should at any time be qualified as an estate debt of the third category, the situation of the estate should also be taken into account. The Court of Appeal reasoned as follows. In principle, it is not the fault of the trustee if the assets of the bankrupt turn out to be insufficient to (fully) pay estate debts such as the ones in question. The trustee in bankruptcy has to make do with the assets as he finds them. Insofar as the trustee in bankruptcy is unable to pay the debt in question, excluding interest, out of the estate with due observance of the legal precedence, he shall not be in default in his capacity as trustee. Therefore, to that extent, no interest shall be owed by him as a debt of the estate. The same applies in principle as long as it is uncertain whether he will be able to pay the debt in this way. The Court of Appeal is of the opinion that in the case at hand the trustees have not been in default.
Judgment of the Supreme Court: interest on estate rent debt is an estate debt
The landlord appealed to the Supreme Court and argued that the Court of Appeal had wrongly ruled that the landlord was not entitled to a claim against the estate in respect of interest on the leasehold debt.
The Supreme Court put first and foremost that the bankruptcy does not change existing reciprocal agreements. The rent has been owed to the estate since the date of the declaration of bankruptcy. The claim to payment of the rent, even where it has been treated as a debt of the estate, remains a claim by the landlord against the insolvent tenant under the tenancy agreement concluded between them. The question of whether default exists with regard to the claim to pay rent must be answered on the basis of the lease and the statutory provisions applicable to default, according to the Supreme Court.
Then comes the key consideration:
“If default exists with regard to the payment of a claim on the estate, and the creditor is entitled to compensation in the form of statutory (commercial) interest (Article 6:74 DCC in conjunction with Article 6:119 et seq. DCC), the nature of a claim on the estate as an immediate claim on the estate implies that the obligation to pay this interest associated with the estate claim must also be regarded as a debt of the estate.”
Even if the trustee is allowed to postpone payment, interest on estate debt is an estate debt
The Supreme Court considered that the purpose of the rules which may result in the trustee in bankruptcy sometimes being able to defer payment of an estate debt is to guarantee the equality of estate creditors, and any different ranking of their claims. According to the Supreme Court, these rules do not justify that the claim for compensation in the form of interest lapses if the claim is not paid or not paid on time.
Can contractual default interest on the estate rent also be regarded as a claim of the estate?
It is possible that parties to a lease agreement have agreed that instead of the statutory commercial interest a contractual default interest applies. The Supreme Court considered that the default interest on the rental estate debt should also be regarded as an estate debt. There is no reason to approach this differently than the statutory interest.
Looking for a lawyer in insolvency law in Rotterdam?
Should you wish to seek advice on insolvency law, such as on the rights of a landlord in the event of a tenant’s bankruptcy, estate debts and the ranking of creditors, please contact Peter de Graaf of LVH Advocaten.