The trustee may not requisition a vessel owned by the insolvent party

Last week, the Amsterdam Court handed down a striking judgement. The Court ruled that a trustee was not allowed to requisition a vessel, even though the insolvent party was the owner of the vessel at the time of the bankruptcy declaration. This is an unusual ruling, because an owner can normally determine what happens to their property. Lawyer and trustee Marleen Jonckers explains below how the Court came to this decision.

Background

Shipcar Yachts (SCY) sold motor yachts. On 18 April 2019, an affiliated party (CTH) sold a vessel to X. After X had paid the purchase price in three instalments, the keys were handed over to her.

More than two years later, SCY and CTH were declared bankrupt. The trustee noted that the vessel was registered in the name of SCY in the public registers. According to the trustee, ownership of the vessel had therefore never been transferred to X. The trustee asked X to hand over the keys and registration certificate of the vessel, but X refused.

How does the transfer of a vessel work?

Because this vessel was registered, it is registered property (just like land or a home). A transfer of registered property requires transfer by notarial deed, which must be registered in the public registers. That did not happen in this case. So the trustee was right that X had never become the owner of the vessel. An appeal to third-party protection also failed for X, because the shortcoming did not lie in the power of disposal but in the absence of a valid transfer.

Nevertheless, the trustee was not allowed to requisition the vessel

The basic principle is that an owner (and therefore also their trustee) may reclaim their property from anyone who holds it without entitlement (re-vindication, Section 5:2 of the Dutch Civil Code). Nevertheless, the Court ruled that the trustee of SCY was not allowed to claim the vessel. The Court’s reasoning can be summarised as follows:

1. the trustee does not have more rights than SCY and SCY would not have been able to claim the vessel if it had not been declared bankrupt; and
2. claiming the vessel (or transferring the vessel to a third party) would constitute an ’active breach of contract’ , which is not permitted (see, among others, HR Berzona).

This decision of the Court is remarkable, because the Court does not attach decisive significance to the property law status. According to the Court, the fact that the trustee is not allowed to actively breach the contract weighs more heavily than the property law claim of ownership.

Active and passive breach of contract by the trustee

Much has been written in legal literature about the question of if and when a trustee may breach a contract and what the consequences are. As a general rule, it is widely accepted that a trustee is not obliged to perform a duty to do something (for example, to deliver property)—the injured creditor can then submit their damage claim for verification—but a duty not to do something must not be breached by the trustee. If the trustee does so anyway, the creditor will have a claim against the estate.

This ruling illustrates that the distinction between passive and active breach of contract is not always clear, and that a difference in the consequences thereof is not always fair. What would have been the outcome if the procedure was different and cooperation in the delivery of the vessel had been demanded?

The consequences for the estate

The fact that the trustee was not allowed to requisition the vessel may make a difference for the estate. If the vessel could be sold by the trustee for a price higher than the damage suffered by X as a result of requisition, the estate would have an interest in requisition (especially if the transaction had taken place well before bankruptcy and the invocation of the actio pauliana would be difficult in connection with the required knowledge of prejudice).

The damage suffered by X is indeed an estate claim, but in such a situation the estate has an interest in collecting the difference between its claim and the proceeds of the sale.

Cassation?

The ruling raises questions. For example, the Court does not explain how the ruling relates to Article 35 of the Bankruptcy Act (Faillissementswet), which stipulates that delivery can no longer be validly made if it is not completed before the bankruptcy is declared. Nor does the Court provide reasons for its conclusion that SCY would not be able to claim the vessel if bankruptcy had not occurred. Presumably, this is because X did not hold the vessel ’without entitlement’ : after all, the vessel had been sold to her and the purchase price had been paid. Furthermore, the Court barely addresses the distinction between CTH (the seller) and SCY (the owner) in its ruling.

The ruling is also not entirely easy to follow from a procedural point of view. X had requested, among other things, a declaratory judgement that she is the owner of the vessel, or at least that the shortcomings cannot be attributed to her, that she is protected or that there is a forfeiture of rights. The Court’s ultimate ruling is that the trustee cannot claim the vessel from X as the rightful owner.

Based on the underlying facts, the Court’s ruling seems a fair outcome, but for legal practice it would be interesting to see whether the judgement, with this reasoning, is upheld on appeal to the Supreme Court.