In general, the following options are available under Dutch law to a creditor to collect a money claim:
a. Obtaining a title to enforcement through interlocutory (summary) proceedings, or through ordinary proceedings; and/or
b. Effecting a conservatory arrest; or
c. Filing a petition for bankruptcy.
Attachment in execution implies that one or more of the debtors’ assets are sold up on behalf of one or more of its creditors. In order to levy execution, the creditor requires a title to enforcement (i.e. a judgment containing the permission to levy execution).
The Dutch Civil Code also provides for a means of conservatory arrest (provisional attachment), by which the creditor can attach (i.e. block/freeze) property of the debtor in anticipation of a judgment; no title to enforcement is required to initiate this attachment. It should be noted, however, that the creditor still requires a title to enforcement in order to sell up the property attached.
Both movable and immovable assets may be seized for the enforcement of a judgment or attachment; the same applies to claims or goods of the debtor against or under third parties, including bank balances.
Judgment rendered by a Dutch Court provides a title to enforcement. Foreign judgments do not provide a title to enforcement. An exequatur or judicial leave must be obtained from a Dutch Court in accordance with the provisions of international treaties/agreements, before any executor measure can be taken on a foreign judgment. An exequatur (which in general will be easily obtained) will be refused by the Dutch Court (or judicial authorities), in case it holds the proceedings – as they were conducted abroad – to be contrary to Dutch notions of fair trial.
2 Interlocutory proceedings (also referred to as summary proceedings)
Interlocutory proceedings should be considered in case the debtor has no reasonable/well-founded grounds to contest the creditor’s claim. In interlocutory proceedings the creditor brings an action for “provisional relief” before the President of the District court.
The proceedings (i.e. the public hearing) take place at a date and time determined by the President after having prima facie examined the plaintiff’s writ of summons. The defendant is summoned by way of the writ. During the hearing the plaintiff pleads its case, the defendant pleads the defense, and witnesses called by either party are heard as far as the President considers their testimony to be relevant. The President hears all parties, takes notice of the evidence presented and renders judgment within one to three weeks.
From this judgment an appeal may be taken to the Appeal Court; and from the decision of the Appeal Court review may be sought in the Dutch Supreme Court. Furthermore, the party losing the interlocutory proceedings may take the issue that was litigated to the ordinary Court of first instance, the losing party, however, has the duty to observe the interlocutory judgment. However, if the case is subsequently taken to the ordinary Court and the decision of this Court would be contrary to the President’s judgment in interlocutory proceedings, the opponent is liable to pay damages inflicted on the debtor in case he has levied attachment in the meantime.
3 Ordinary proceedings
Ordinary proceedings (on the merits of the case) normally take longer than one year to conclude. The duration is mainly determined by the number of stays of proceedings granted between each procedural act (i.e. pleadings, written statements, etc.). In general, ordinary proceedings are not be considered as an appropriate instrument for straightforward debt collection.
4 Conservatory arrest
As set out above in 1.3, a creditor not having a title to enforcement may nevertheless attach the assets of its debtor (before judgment) by way of conservatory arrest. The general rules for proceedings relating to conservatory arrest are stipulated in the Dutch Code of Civil Proceedings. The conservatory arrest effectuates that the debtor (for the duration of the arrest) no longer has the authority to contract with respect to the attached assets (i.e. to sell and/or encumber the attached assets). The attached assets are blocked/frozen, without the debtor losing factual and legal possession of these assets (i.e. the right to make use of the attached assets).
There are a few general principles that apply to all types of conservatory arrest. Leave of the President of the District Court is required to authorize the creditor to effect a conservatory arrest. This leave is obtained through a concise petition to be filed by a qualified solicitor.
The creditor must demonstrate that the claim is prima facie a valid one. In general, it suffices for the creditor to state (supported by evidence, e.g. invoices) that it has a payable claim against the debtor. The creditor is in general not required to provide security beforehand in respect of costs/damages which might be inflicted on the debtor as a consequence of the attachment. However, if the creditor is a foreign entity, the President may (at his discretion) decide otherwise.
As mentioned above in 4.1, conservatory arrest will not effectuate that the debtor looses possession of the attached assets. In case of conservatory arrest, the assets can merely be factually abstracted from the debtor’s possession in case the creditor (i.e. its solicitor) petitions specifically for judicial deposit, which shall only be awarded by the President of the District Court in case the creditor satisfactorily demonstrates that a well-funded fear for embezzlement exists (i.e. the fear that the debtor will fraudulently conceal/replace its assets).
5 Lifting the arrest in interlocutory proceedings
It is important to note that the debtor has a possibility (in interlocutory proceedings) to request the President of the District Court to order the lifting of the conservatory arrest. The President will in principle order lifting of the arrest in case the debtor provides appropriate security, i.e. a guarantee by a first class bank. The President shall also lift the arrest in case – after having heard the parties – he finds the claim to be invalid or the arrest unnecessary or disproportional. It should be noted, however, that these are interlocutory proceedings in which the President merely renders a provisional judgment.
Appeal is open against the judgment of the President in interlocutory proceedings. However, as a judgment ordering the lifting of arrest results in immediate lifting, it is in most cases hardly expedient to appeal as it will certainly take several weeks up to a few months before the Appeal Court renders its judgment.
Please note that under Dutch law a creditor who wrongfully attaches, is liable for damages and costs inflicted by the attachment. The party whose assets were wrongfully attached, however, has to make reasonable efforts to limit damages, for instance by demanding lifting of arrest in interlocutory proceedings.
Please be advised that the conservatory arrest lapses – within the term set by the President of the Court (which normally is 14 and maximum 28 days) – unless either interlocutory or ordinary proceedings with regard to the claim secured by the conservatory arrest have been initiated (i.e. a writ of summons is issued and served) within the aforesaid term.
6 Conservatory arrest/garnishment under a third party
As set out above, a creditor not having a title of execution may nevertheless attach assets of the debtor by way of conservatory arrest. The debtor may also garnish the debtor’s assets under and/or claims against third parties, including the debtor’s bank balances.
With regard to the garnishment of claims against third parties, it should be noted that from the moment the garnishment is levied the garnishee (i.e. garnished third party) can no longer discharge itself from its payment obligations by making payment to the debtor, not even in case the debtor’s claim exceeds the amount for which garnishment was levied. Garnishment may also be used to reach chattels which the third party holds for the debtor. Future claims of the debtor are not subject to garnishment, except in case they are directly originating from obligations already existing at the time of garnishment. This implies that garnishment of a bank account merely includes the funds available at the time of the garnishment, excluding the funds being transferred to the account at a later date.
Garnishment as a means of enforcement requires a Dutch title to enforcement (in case of a foreign title to enforcement, an exequatur from a Dutch court is to be obtained, see above 1.5) if the garnishee is domiciled or has its residence in The Netherlands.
A petition in bankruptcy is often used in The Netherlands as a means to get uncooperative debtors to pay their due. Dutch law does not distinguish between bankruptcy proceedings taken against merchants or non-merchants. Insolvency can only be declared by judicial decision.
A petition in bankruptcy by which such a decision is requested may be filed by any creditor (i.e. its solicitor), regardless of whether the creditor has obtained a title to enforcement. The mere prerequisite is that the debtor has reached the position of insolvency – i.e. the debtor leaves unpaid two or more creditors having payable claims – whereas the creditor filing the petition must show similarly the validity of its claim.
If you have questions about debt collecting, please do not hesitate to contact me or one of my colleagues at PHAROS Advocaten.
Yvonne Rosina (06-13 132 411)