In addition to the well-known business forms of private companies (B.V.) and sole proprietorships, there is also a general partnership (in Dutch vennootschap onder firma or V.O.F.) in which there are two or more partners. Recently, the Supreme Court of the Netherlands has made various rulings in which it has become increasingly clear how partners and general partnership relate to each other with regard to liability for debts and the independent character of a general partnership.
This is further elaborated below based on the rulings of the Supreme Court (Supreme Court 2 June 2017, Supreme Court 19 April 2019 and Supreme Court 20 March 2020).
Position of a general partnership in civil proceedings
The general partnership has no legal personality and therefore is not an independent bearer of subjective rights and obligations. However, it can take legal action in its own name. When a general partnership acts as plaintiff in its own name, it is therefore a right of action that belongs to the joint partners and that falls in the separated assets (Article 51 paragraph 2 DCCP).
Claims against or also claims from partners?
Earlier (preliminary ruling of the Supreme Court of 19 April 2019) the central question was whether the Employee Insurance Agency (UWV), which had taken over the wage claim in a bankruptcy on the basis of the wage guarantee scheme, could enforce preferential claims or claims on the estate in the debt rescheduling scheme of the partners of the general partnership. In short: are the preferred debts of the general partnership automatically the preferred debts of the partners? The answer was yes. An employment contract with the general partnership is also an employment contract with the joint partners. The joint partners are regarded as employers, so that the claims of the UWV remain preferential and estate claims.
To this end, the Supreme Court considered that a general partnership can take legal action in its own name and be declared bankrupt in its own name. It is settled case law of the Supreme Court that the assets of the partners intended for the company of the partnership have been separated, so that the bankruptcy of the partnership does not automatically entail the bankruptcy of the partners (Supreme Court 2 June 2017). The bankruptcy of a general partnership concerns the liquidation of that separate capital. However, the lack of legal personality means that the general partnership is not an independent bearer of subjective rights and obligations. When a partner acts on behalf of the general partnership, they act on behalf of the joint partners and they bind the joint partners. An agreement with the general partnership is therefore an agreement with the joint partners, in that capacity. In accordance with Article 18 CCA, each partner is jointly and severally liable for commitments of the partnership. Each partner is liable for the whole. A creditor can enforce their claim against the general partnership (the joint partners) as well as the partners individually. A creditor therefore has two options: to recover their claim from the general partnership and / or to recover their claim from the partners. The creditor can do this together, one after the other or completely separately.
The Supreme Court deduced from this that if litigation is conducted exclusively against a general partnership and an awarding judgment follows, it can only be enforced against the general partnership. This cannot be charged to the private assets of the partners. Only the general partnership is the party to the proceedings and not the partners. This also means that if only the general partnership is the party to the proceedings and the defendant wishes to submit a counterclaim (this was the case in the judgment of the Supreme Court on 20 March 2020), they can only do this against the general partnership. If the defendant wants to take the partners to court, they must start a separate procedure against the partners (which can be joined if necessary). The Supreme Court therefore did not deviate from the main rule in its judgment of 20 March 2020.
It is important for the partners to realise that they bind not only the company, but also all partners. In addition, a creditor of a general partnership must realise that they can only execute a judgment against a general partnership against the general partnership and not against the joint partners. The creditor must then summon the partners to court.
If you have a question about this subject, please do not hesitate to contact me.