The bankruptcy of a general partnership (‘VOF’) does not automatically mean the bankruptcy of its partners

For many decades the rule had to be adhered to that the bankruptcy of a general partnership (vennootschap onder firma: ‘VOF’) also meant the bankruptcy of the individual partners (Supreme Court 14 April 1927, NJ 1927, page 725).

However, in a ruling of 6 February 2015 the Supreme Court made a U-turn and held that there is no (or no longer) any justification for this connection (ECLI:NL:HR:2015:251). The Supreme Court has justified its new position as follows:

A VOF has no corporate personality. It is a legal relationship created by an agreement serving to carry on a business under a joint name and in long-term cooperation. The VOF does have separated assets (separated from the partners’ assets).
Despite the absence of corporate personality the VOF is considered in society at large and at various places in law (Section 51 of the Code of Civil Procedure, Section 4 subsection 3 of the Bankruptcy Act) as a separate legal subject that can take part in transactions independently, this being in line with the fact that the VOF has separate assets.
Pursuant to Section 18 WvK each of the partners is jointly and severally liable for the obligations of the VOF and this means that these obligations also rest on them personally. The creditors of the VOF can therefore recover their claims from the private assets of the partners. In addition, the creditors of the VOF can recover their claims from the separate assets of the VOF with priority over the private creditors of the partners.
The foregoing partly explains that a VOF, although it has no corporate personality, can be declared bankrupt as such. With regard to the position of the partners in that bankruptcy, the Bankruptcy Act (Faillissementswet: ‘Fw’) only provides that the notification of a bankruptcy order of a VOF should also include the name and domicile of the partners (Section 4 subsection 3 of the Fw). It should not be inferred from this that a bankruptcy of the VOF always and automatically involves the bankruptcy of the partners.
The circumstance that a VOF does not fulfill its obligations can justify the opinion that it is in a position in which it has ceased to pay its debts. If it is declared bankrupt on that ground, considering Section 18 WvK the bankruptcy of the partners will usually be unavoidable, but this should not necessarily be the case.
For instance a partner, contrary to the VOF itself, can have sufficient (private) assets to pay the creditors of the VOF as well as his private creditors; even if he does not pay certain claims, it does not necessarily mean that he is in the position that he has stopped paying his debts. Moreover, it is important that in connection with the fact that the VOF has separate assets, the claims on the VOF and on the partners must be considered as separate (concurrent) claims which can be brought and recovered independently of each other. In this connection it is possible that a partner can put up a defense attributable to him personally (for instance a counterclaim) against the claim of the applicant of the bankruptcy or of other creditors (cf. Supreme Court 18 December 1959, ECLI:NL:HR:1959:BG9455, NJ 1960/121 and Supreme Court 13 December 2002, ECLI:NL:HR:2002:AE9261, NJ 2004/212).
With a view to all this it is not necessary that, as entailed in the case law referred to above in 3.3, the bankruptcy of the partners always and automatically occurs as a result of the bankruptcy of the VOF.
In addition, the introduction as of 1 December 1998 of the debt rescheduling system for natural persons has the consequence that the rule meant above is no longer appropriate. After all, the application of the debt rescheduling system is open to natural persons with business debts (cf. for instance Parliamentary Documents II 1992-1993, 22 969, no. 3, p. 22-24 and 29-30, and no. 6, p. 27-29). This means that partners (natural persons) who submitted an application under this debt rescheduling system for natural persons should not automatically be declared bankrupt if the bankruptcy of the VOF has been pronounced.
Moreover, it is relevant that it is incorporated in the ruling of the ECJ of 15 December 2011, case C-191/10, ECLI:EU:C:2011:838, NJ 2012/258 (Rastelli), points 25-29 that the court has to determine with regard to each debtor separately whether it has international jurisdiction pursuant to Art. 3 paragraph 1 or Art. 3 paragraph 2 of the Insolvency Regulation ((EC) Regulation no. 1346/2000 on insolvency proceedings) to open up insolvency proceedings. The rule of the case law referred to above in 3.3 is incompatible with this if the partnership is established in the Netherlands and the partners live in another Member State or other Member States. So to that extent too this rule is not (or no longer) appropriate.
Finally, it is at odds with the principles on which Art. 6 ECHR is based to declare a partner privately bankrupt without this also having been applied for with regard to him separately and without it having been examined whether he is also privately in a position that he has stopped paying his debts.
Pursuant to the foregoing the Supreme Court has reconsidered the rule meant above in 3.3 that the bankruptcy of a VOF always and automatically results in the bankruptcy of the partners.
With a view to the considerations above, a creditor, if he not only wants to bring about the bankruptcy of the VOF but also that of the partners, must request this in his petition with regard to each of them separately and the court must examine whether the conditions for a bankruptcy order have also been met with regard to the partners separately. For that matter, with reference to Section 18 WvK and the desirability that the bankruptcies of the VOF and of the partners are pronounced and dealt with as much as possible at the same time, it is recommended that these petitions are submitted and dealt with jointly as much as possible.
Insofar as in an action the bankruptcy of the VOF (only) has been applied for and the names and domiciles of the partners are stated in the petition (in accordance with Section 4 subsection 3 Fw), the applicant has the option – in first instance – to supplement his petition in the sense that it also relates to a bankruptcy order of the partners. In this connection the court must observe the principle of hearing both sides and offer the partners the opportunity to put forward a separate defense.
The foregoing can involve the VOF being declared bankrupt and not (one of) the partners. In that connection the court has the option not to decide on the separate bankruptcy petitions at the same time, for instance in a case where a partner in response to the bankruptcy petition has submitted a request for application of the debt rescheduling system (in which case the hearing of the bankruptcy petition will be suspended with regard to him pursuant to Section 3a subsection 2 Fw).

In the Netherlands the VOF is still being discussed because the Partnerships Act (Wet personenvennootschappen) did not make it there. The National Ordinance on Partnerships did reach the finish line in Curaçao (1 January 2012) and in St. Maarten (1 April 2014). For that matter, an essential element of the first bill was deleted: the possibility to opt for a partnership with corporate personality.

There are two main variants in Curaçao and St. Maarten: the public partnership and the silent partnership. The public partnership is a partnership (i) for carrying on a profession or business or performing professional or business acts, which (ii) partnership acts externally in a way which is clearly recognizable by third parties (iii) under a name used by it as such (Section 7:801 subsection 1 of the Civil Code).

A partnership is a silent partnership if it is not a public partnership (Section 7:801 subsection 2 of the Civil Code). In order to be a public partnership all three criteria must be met. A partnership not participating in transactions (with third parties) is a silent partnership. A partnership in which no profession or business is carried on is a silent partnership. For that matter, the distinction between profession and business, of which a lot has been written in the past, is no longer relevant.

Apart from one or more ordinary partners a limited partnership also has one or more silent partners. If the respective partner only contributes his work he cannot be called a silent partner. He will (also) have to contribute money or the enjoyment of goods. In addition, in order to be able to be a silent partner, he must be excluded from the power to perform legal acts at the expense of the partnership (Section 7:836 subsection 2 of the Civil Code).

It also applies in Curacao and St. Maarten, just as with regard to the VOF in Aruba and the BES Islands, that there is not or no longer a link: so the bankruptcy of the partnership does not entail at the same time the bankruptcy of the partners. It will have to be considered with regard to each partner separately whether the conditions for a bankruptcy order have been met.

Karel Frielink
(Attorney / Partner)

16 april 2015


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