8.3 Only a uniform approach in Dutch law

Within a legal system, one would expect a uniform approach to be taken in relying mainly on either objective or subjective criteria. Such a uniform approach is taken in Dutch law. Under Dutch law, transaction avoidance always requires the fulfilment of subjective criteria. Even legal acts for which the debtor receives no consideration (e.g. gifts) can only be avoided if the debtor knew that the act would prejudice creditors. Although Dutch law has adopted this uniform approach, the actio pauliana in Dutch law is notoriously difficult to grasp. What the fundamental differences are between obligatory (verplichte) and voluntary (onverplichte) legal acts; the issue of which subjective elements are decisive in which case; and how these subjective criteria should be interpreted and applied in specific cases all of these cause the actio pauliana in Dutch law to be highly enigmatic. The chapter on Dutch law provides thirteen recommendations for improvement.

German law and English law have not adopted uniform approaches. Under English law, the avoidability of preferences (s. 239, IA) depends entirely on the state of mind of the debtor. A preference can only be avoided if the debtor was influenced by a desire to prefer. Section 238 of the IA, which safeguards the integrity of the estate (avoidability of transactions at an undervalue1), does not impose a subjective requirement on the side of debtor, and the state of mind of the counterparty is also irrelevant. The avoidance of legal acts upsetting the principle of equal sharing between creditors of the same rank (the paritas creditorum or pari passu distribution) thereby relies on subjective criteria, whereas the avoidance of legal acts compromising the integrity of the estate relies primarily on objective criteria.

Surprisingly, under German law the approach is completely the opposite of English law. Avoidance of legal acts compromising the integrity of the estate is almost completely dependent on subjective criteria. Intent (Vorsatz) to prejudice its creditors is required on the part of the debtor, along with the counterparty's knowledge of this intent (section 133 InsO). Protection of the paritas creditorum (pari passu distribution) on the other hand, does not attach any importance to the state of mind of the debtor, as far as the provisions dealing specifically with preferences are concerned (section 130 InsO (congruent performances) and 131 InsO (incongruent performances)). If the incongruent performance took place in the month prior to the request to open the insolvency proceedings, the state of mind of the creditor is irrelevant as well. The same applies to incongruent performances in the three months prior to the request if the debtor was already insolvent. The avoidance of legal acts upsetting the principle of equal sharing between creditors of the same rank (the paritas creditorum or pari passu distribution) therefore relies mainly on objective criteria, whereas the avoidance of legal acts compromising the integrity of the estate relies primarily on subjective criteria.

As to the third category, the outcome of a comparison of German law, English law and Dutch law is even more surprising. Within the framework of transaction avoidance in insolvency, German law has elaborate rules in place dealing with both shareholder loans and shareholder guarantees. These rules are entirely objective and provide first of all for the subordination of shareholder loans2 in insolvency and the unenforceability of security interests securing these loans. Furthermore, payments made on these loans in the year prior to the request can also be avoided. To the extent that payments are made on third party loans for which the shareholder acted as a guarantor, the rule is also entirely objective. Payments made on third party loans guaranteed by the shareholder result in a claim by the estate on the shareholder for the amount guaranteed.

In Dutch law there are no rules regarding these issues, including for shareholder loans or for shareholder guarantees. The argument has been made that Dutch law is flawed in this respect and that (i) shareholder loans should be subordinated in insolvency, (ii) that there should be a separate regime for payments made on these loans prior to insolvency and (iii) that shareholders cannot invoke security rights against the company's creditors. As to guarantees provided by shareholders to specific creditors of the company, a proposal has been made to introduce a rule similar to the German rule.

Finally, with regard to English law, although the Cork committee held the opinion that English law is flawed because it does not have a rule on the subordination of shareholder loans,3 English law has remained immune to critique and still provides no rules on subordination of shareholder loans. English law does, however, have a rule dealing with the specific dynamics of guarantees provided by a shareholder to a creditor. Unlike the German objective rule, the English rule only pro-vides the trustee with a direct claim on the shareholder if the company was influenced by a desire to prefer its shareholder by making the payment to the creditor.