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Clawback: chasing assets

13/12/2019

 

This article reflects on some of the options offered under Belgian law by the actio pauliana, commonly referred to in English as the 'clawback' rules (for further details please see "Reservation of title: legal guidelines and practical tips" and "Administrator liability in bankruptcy framework").

 

Background

Outside bankruptcy, Belgian law provides for a (general) actio pauliana (Article 1167 of the Civil Code).

If a creditor can prove that they are disadvantaged by a legal act which their debtor has fraudulently committed (after the creditor's claim arose) and in which the third party to the legal act was acting in bad faith or obtained an asset free-of-charge, then the legal act in question can be declared unopposable to the (aggrieved) creditor.

The typical example is a company-debtor that, shortly before its creditor's enforcement measures come into effect, quickly impoverishes the company's assets by transferring important assets (either for free or at a low price) to subsidiaries, or directors or business managers.

Extreme cases involve full asset-stripping.

The aggrieved creditor can try to obtain payment by invoking directors' liability.

However, in such cases, the (aggrieved) creditor will also be able to claim that the legal acts in question are declared unopposable to them so that they will be able to execute the disposed assets as if they still belonged to the assets of their direct debtor (ie, the company).

Only if the third-party acquirer acted in good faith and paid a (correct) remuneration for the acquired asset will the acquirer be protected.

Among other things, the creditor can, after having obtained court permission to do so, attach the disposed assets directly with the third party.

 

To read the rest of the article on the ILO website, click here.

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