Right of retention in bankruptcy

The right of retention is the power of a creditor to maintain ownership of a debtor’s property. Consider, for example, a body repair shop that repairs a car or a contractor delivering construction works. As long as invoices have not been paid, the creditor is entitled to suspend the handover. A customer who does not pay for services or products provided can be forced to pay under the right of retention. The right of retention in bankruptcy is retained, although a special arrangement is included in bankruptcy law for this.

Right of retention in bankruptcy

In the event of bankruptcy, the right of retention can be exercised by a creditor against the bankruptcy trustee. When dividing the estate and funds after bankruptcy, the bankruptcy trustee has various options when the right of retention is invoked in bankruptcy: • The bankruptcy trustee pays the outstanding invoice to the creditor. Practice shows that often, insufficient funds remain after bankruptcy proceedings, making it infeasible to pay outstanding invoices to creditors. • The second option offered to the bankruptcy trustee under bankruptcy law is to override the right of retention.

Overriding the right of retention in bankruptcy

The bankruptcy trustee can claim and sell goods from creditors, in other words, overriding the right of retention in the event of bankruptcy. Outstanding claims are paid with the proceeds of the sale. The right of retention in the ranking of creditors is classed higher than other unsecured creditors and even supersedes the right of pledge of, for example, the bank. However, this sounds better than it really is. When overriding the right of retention, the law stipulates that the activities of the bankruptcy trustee must be appropriately remunerated. Since a creditor with a right of retention automatically shares in the general costs of a bankruptcy and because he is only paid after the activities of the bankruptcy trustee have been settled, a creditor with a right of retention (retentor) is often left empty-handed.

Preference and the right of retention

The right of retention in bankruptcy sits high in the ranking of unsecured creditors and claims, but comes after claims against the estate and preferential claims. Preferred claims against the estate are the first claims to be paid. These are, for example, the salary costs of the bankruptcy trustee and the rent from the date of bankruptcy. Creditors with preferential claims are dealt with next. In the Netherlands, they are the Employee Insurance Agency, the tax authorities and employees who are owed wages after bankruptcy. Preferred creditors are followed by creditors with a right of retention and unsecured creditors.

Setting a reasonable period of time

Is a creditor invoking the right of retention in the event of bankruptcy? Then it is up to the bankruptcy trustee to determine whether and how claims will be dealt with. If the retentor believes that the bankruptcy trustee is taking too long, a creditor can set a reasonable term for the bankruptcy trustee to settle the claim or effect a sale. If the bankruptcy trustee does not comply with this requirement, the creditor has the right to sell the goods himself.

Retention of title in bankruptcy law

Goods can also have been delivered to customers under retention of title. This means that goods and products remain the legal property of the supplier until all invoices have been paid. This concerns a right of retention in bankruptcy under retention of title. Is a company going bankrupt and have claims for goods delivered not been paid or not been paid in full? In that case, the retention of title remains in effect under the bankruptcy law. A creditor can invoke retention of title by notifying the bankruptcy trustee. Practice shows that in many cases, this request is rejected by a bankruptcy trustee.

Retention of title in practice

If many of the goods that have been delivered are the same, e.g. bricks, it is sometimes impossible to prove which goods have been paid for and which have not. It may also be that goods that have not been paid for have already been processed and as such have therefore become part of another good. For example, a light switch that has been fitted in a private house. In such a case, the title-holder cannot recover his (unpaid) switch. Our specialists in bankruptcy law and insolvency law will explain your options and enter into legal battle with a bankruptcy trustee on your behalf. For more information surrounding the right of retention in bankruptcy, feel free to contact our experienced lawyers. We will advise you about claiming your goods and collecting outstanding claims in the event of bankruptcy, with a committed and personal approach.