Contractual expiry periods and bankruptcy
On April 1, 2021, an arbitral award was rendered between a contractor and a client. This is reason to take a closer look at bankruptcy and contractual expiry periods, contractual limitation, statutory expiry periods and statutory limitation. This turns out to have major consequences.
If a company has been declared bankrupt, it makes no sense for a creditor to start proceedings against the trustee or the bankrupt company to enforce payment of the outstanding claim. The route that must then be followed is to register the claim with the trustee. The trustee places the claim on the list of provisionally acknowledged claims (or disputes the claim). If payment is made from the bankruptcy, a verification meeting will be held. If the claim is acknowledged by the trustee in bankruptcy and the bankrupt company, the report of that meeting will have the same status as a judgment. It is an enforceable title. The bankrupt company can contest a claim substantively and substantiated, which ensures that there is no enforcement order. If the trustee disputes the claim, a claim validation procedure will be initiated, after which a payment may or may not be made.
No means to pay out
If there are no funds to pay out to creditors, the court will cancel the bankruptcy for lack of income. The outstanding claim is not verified (determined). After bankruptcy, a creditor can write to the bankrupt to make payment again. Please note that this is only possible in the event of bankruptcy of natural persons. A legal entity is liquidated and ceases to exist after bankruptcy.
What happens if a claim expires?
If a claim becomes time-barred during bankruptcy, or within 6 months after the bankruptcy has been lifted, then Art. 36 paragraph 1 of the Bankruptcy Act states that the limitation period continues until six months after bankruptcy. The creditor must stop the claim within those six months, by sending a letter of interruption or by filing a claim with the court. Art. 36 paragraph 2 Fw provides that this also applies to expiry periods commenced by operation of law. From “legally commenced expiry periods” are only statutory expiry periods. This article therefore does not refer to contractually agreed expiry periods. Between many parties, an expiry period is regularly included in the contracts, such as in construction or insurance agreements.
What happens if a contractual term expires during bankruptcy?
It is clear that Art. 36 Fw cannot be invoked, because that article does not relate to contractual expiry periods. The contractual expiry period may therefore come to an end during the debtor’s bankruptcy; there is no automatic renewal. One will therefore have to interrupt contractual expiry periods during the bankruptcy. Here comes another problem.
Expiration periods cannot be interrupted by means of an interruption letter. An ‘act of prosecution’ must therefore be instituted before the expiry of the term. That is starting a procedure. I indicated above that it is not possible to initiate bankruptcy proceedings to obtain a claim. However, in order to save the term of a contractual expiry, it is an obligation. In order to solve this, one could think of issuing a summons, so that at least the term is saved, but on a term of one year or longer. After the bankruptcy of the natural person, further legal action can then be taken.
It is unclear whether filing a claim with the bankruptcy trustee is also an act of prosecution. After all, if a verification meeting follows and the claim is not disputed, this will result in an enforceable title. But if it is not verified (which is the case in 95% of the cases) then there is no enforcement order and the expiry period has expired. That is way too risky.
Pay close attention to the contractual expiry period
In short, the contractual expiry period is a dangerous provision when it comes to bankruptcy. Be aware of this and make sure that it does not expire. In a recent decision of the Council of Arbitration for the Building Industry, the expiry period had ended during the bankruptcy, and the Council had to declare the claim inadmissible.
Do you need legal assistance with contractual expiry periods and bankruptcy? Please contact our Company & Insolvency law team.
Mechteld started her career as a lawyer in Rotterdam, where besides practicing maritime law, she became acquainted with insolvency law. In the “wet” shipping practice, she quickly learned to comprehend problems, seek out legal but also practical solutions and negotiate. This also proved very useful with insolvency law. In the meantime Mechteld specialised in insolvency law and regularly acts as a court appointed trustee. Mechteld’s other specialisations are corporate and contract law, particularly litigation and advising on corporate law matters as well as on contract law issues such as (management) liability.