THE BOTTOM LINE
- Creditors’ Rights Strengthened: A creditor can reasonably reject a settlement offer if the debtor fails to prove they are maximizing their repayment capacity. Simply presenting current income is not enough if greater earning potential exists.
- Debtors Must Demonstrate Maximum Effort: When proposing a debt settlement, the burden is on the debtor to show they have exhausted all reasonable options to increase funds for creditors, such as seeking full-time employment.
- Due Diligence is Key: This ruling underscores the importance for creditors to question settlement proposals that seem to be based on sub-optimal financial efforts. A significant creditor’s refusal will be upheld if the debtor’s proposal is not transparent and fully substantiated.
THE DETAILS
This case revolved around a debtor who sought a court order to force a dissenting creditor, ABN AMRO, to accept a debt settlement plan under the Dutch Bankruptcy Act. The debtor had proposed a “forecast” settlement to seven creditors, offering to pay unsecured creditors only 6.49% of their total claim. While six creditors accepted, ABN AMRO, which held a significant 17.8% of the total debt, refused, prompting the debtor to seek a “compulsory composition” from the court.
ABN AMRO‘s refusal was based on a simple but powerful argument: the proposal was not sufficiently documented to prove it was the best the debtor could do. The bank highlighted that the debtor was only working part-time and had not provided a satisfactory explanation for why they were not seeking full-time employment to increase their repayment capacity. The creditor argued that without this crucial information, it was impossible to determine if the offer was a good-faith effort or merely a low-ball proposal based on convenience.
The District Court of Rotterdam sided squarely with the creditor. The judge affirmed that while debtors can seek to compel agreement, a creditor’s refusal is reasonable if the debtor’s efforts appear lacking. The court found it “insufficiently plausible” that the offer, based on part-time income, represented the debtor’s maximum ability to pay. The debtor had failed to provide evidence of actively applying for full-time jobs or otherwise proving that working more was not an option. The court concluded that the creditor’s interest in a full and transparent recovery effort outweighed the debtor’s interest in obtaining a discharge on minimal terms.
SOURCE: Rechtbank Rotterdam
