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Problems when the lessor invokes a bank guarantee for vacancy losses due to bankruptcy of lessee

vrijdag 17 maart 2017

The Supreme Court recently passed an interesting ruling that provides more clarity about to what extent a bank can have recourse against the insolvent estate if it has paid an amount for vacancy losses within the framework of a bank guarantee.

In order to make sense of the ruling for non-lawyers, I will first give a brief explanation about two subjects that are relevant to this case.

Regulation about terminating the lease in the event of bankruptcy

Section 39 of the Bankruptcy Act [Faillissementswet] stipulates that if the bankrupt party is a lessee, both the receiver and the lessor can terminate the lease. They have to observe a notice period of three months. As from the bankruptcy date, the rent becomes part of the bankruptcy estate.

A bankruptcy estate has the highest priority in terms of payment in a bankruptcy case, but there may be mutual ranking differences in a bankruptcy estate. Payment to preferential creditors cannot be made until the entire bankruptcy estate can be paid. Ordinary creditors are paid once all preferential creditors can be paid. In short, a creditor of an insolvent company is in a much better position than a preferential or ordinary creditor.

A lot of leases contain clauses that stipulate that the lessee must pay the lessor compensation in the event of early termination of the lease, for instance in the case of bankruptcy. In a previous ruling of the Supreme Court (Romania), it was made clear that such an obligation to pay compensation cannot constitute a claim against the insolvent company and that it cannot be submitted as a(n) (ordinary) claim for verification purposes during the bankruptcy process either. As such, it has no effect against the insolvent estate at all. It may, for that matter, be that a bankrupt still has to pay the compensation after the bankruptcy date.

Unjust enrichment

Unjust enrichment was also discussed in the ruling in question. The tenet occurs when someone unjustly enriches himself at the expense of someone else. We can assume that enrichment is unjust when there is no just reason for it. To the extent reasonable, the person who has been unjustly enriched has to pay compensation to the aggrieved party.

The ruling of 17 February 2017

Summarising, the following facts led to the ruling. A lessor and a lessee had entered into a lease. A considerable bank guarantee had been furnished at the ABN AMRO Bank in favour of the lessor, to the extent of 12 months’ rent (€881,933). This meant that when a certain fact was to occur, the bank had to pay the lessor as if it were its own obligation. Along with the bank guarantee, a counter-guarantee had been issued in favour of ABN AMRO. An amount had been paid into a frozen bank account held by the lessee at ABN AMRO, which amount the bank was able to recover if the bank guarantee is used.

The lease included a clause that stipulated that the lessor was obliged to compensate the lessor, as his own debt, all damage that would arise as a result of early termination of the lease (i.e. vacancy losses) in the event of bankruptcy.

You’ve guessed it: the lessee went bankrupt. The appointed receiver cancelled the lease subject to a three-month notice period. The lessor invoked the bank guarantee which was paid out, also in terms of compensation for vacancy losses. The bank then sought recovery from the amount in the frozen bank account. This was done by means of a set-off on the basis of the counter-guarantee.

The receiver did not agree and started proceedings against the lessor, claiming that the amount received by the lessor for vacancy losses should be paid to the estate. He argued that the lessor was not entitled to claim the amount under the bank guarantee, as the transaction allegedly violated the purport and nature of Section 39 of the Bankruptcy Act. The Amsterdam Court of Justice agreed with the receiver’s point of view and allowed the claim on the basis of unjust enrichment.

The case was subsequently submitted to the Supreme Court. The Supreme Court initially repeated the basic principle that termination by the receiver pursuant to the Bankruptcy Act is a valid termination. That meant there was no obligation to pay compensation at the expense of the estate. However, the Supreme Court also indicated that if a third party (ABN AMRO in this case) guaranteed fulfilment of a claim, the guarantee issued would not change as a result of the bankruptcy, unless stipulated otherwise.

The Supreme Court continued:

“Any recourse action against the bankrupt lessee ensuing from the fulfilment of the guarantee for the third party cannot be exercised towards the bankruptcy estate of the lessee. It does not matter how recourse against the estate is sought; given the above consideration regarding the deliberation that forms the basis of Section 39 of the Bankruptcy Act, the nature of the claim precludes that it is charged to the estate. If allowed under the conditions of the guarantee, the guarantor can derive a defence from this towards the lessor.”

So from this, we can deduce that the bank should not have used the deposit to get compensation for anything it had paid the lessor for vacancy losses.

However, the bank was not a party to the proceedings and the Supreme Court had to assess if the lessor was unjustly enriched. The Supreme Court ruled that this was not the case. After all, the bank guarantee issued for the lessor would have remained valid after the bankruptcy date. The fact that the bank then wrongfully sought recourse against the estate (namely, the amount regarding the counter-guarantee) - something which the curator did not obstruct - does not detract from that.

Conclusion

Banks are advised to check if there is no ‘gap’ between what they may have to pay pursuant to bank guarantees that have been issued and what they may seek recourse against in a bankruptcy case on the basis of a counter-guarantee. Receivers have to be aware of the fact that they need to intervene if a counter guarantee is claimed with regard to vacancy losses.

Information

If you have any questions and/or comments about this contribution, please contact Peter de Graaf.

Peter de Graaf

insolvencies and reorganisation

+31 (0)10 209 27 52
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