Vol 12 (2015) - Issue 6

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Dutch Supreme Court Has Rendered a Ground-Breaking Decision on Partnership Bankruptcies

Introduction
A general partnership under Dutch law (vennootschap onder firma) is a partnership in which the partners conduct a business under a joint name. Each partner in a general partnership is jointly and severally liable for the liabilities of the general partnership. In Dutch case law it has long been held that, as a result of the joint and several liability of each partner, the bankruptcy of a Dutch general partnership automatically entails the bankruptcy of all partners. In a decision that breaks explicitly with this case law, the Dutch Supreme Court found on 6 February 2015 that the bankruptcy of a Dutch general partnership does no longer automatically trigger the bankruptcy of its individual partners.
A creditor of the general partnership petitioned for the bankruptcy of both the general partnership and one of the partners. Subsequently, this partner repeatedly filed incomplete petitions in order to open debt rescheduling proceedings for himself (schuldsanering). This delayed the processing of the petitions for bankruptcy, as according to section 3a of the Dutch Bankruptcy Act (DBA) in such a situation the petition for debt rescheduling proceedings has to be dealt with first. However, this did not prevent the district court from declaring both the general partnership and the partner bankrupt. The partner appealed against both bankruptcy orders. Firstly, the court of appeal held that on the basis of section 3a DBA the district court should not have decided on the petition for the bankruptcy of the individual partner, as, after all, at that time his second petition for the opening of debt rescheduling proceedings was still pending. However, the court of appeal considered that in spite of this error by the district court it would not overturn its judgment. The reason was that, according to long-standing Supreme Court case law, the declaration of bankruptcy of the general partnership, which had become irrevocable, automatically triggered the bankruptcy of its individual partners. Hence the court of appeal considered that the individual partner would have no interest in having the district court’s judgment quashed with respect to himself only. Because the bankruptcy judgment with respect to the partnership had become irrevocable, the bankruptcy was unavoidable. Subsequently, the partner appealed to the Supreme Court, which then departed from its previous case law.

Judgment of the Supreme Court
Firstly, the Supreme Court considers that a general partnership has no corporate personality. A general partnership established under Dutch law is based on an agreement between two or more partners. On the basis of this contract, the partners jointly and permanently operate a business under a common name. The assets of the general partnership are separate from those of the individual partners. In spite of the absence of corporate personality, both in social and economic life and according to various statutory provisions (among which section 4 paragraph 3 DBA), the general partnership is treated as a party with legal personality that can participate independently in legal transactions.
Each of the partners is jointly and severally liable for the liabilities of the general partnership, which implies that they are also personally bound to these obligations. The general partnership’s creditors can therefore seek recovery from the private assets of the partners. In addition, the same creditors can seek recovery on the separate assets of the general partnership with priority over the private creditors of the partners. Although the partnership has no corporate personality, it can be declared bankrupt.
Subsequently, the Supreme Court puts forward five arguments why the bankruptcy of a Dutch general partnership does no longer automatically trigger the bankruptcy of its individual partners.