No access to set-off with statute-barred claim in bankruptcy

Date 28 jun. 2010

 

The case in brief

A shipping company (hereinafter the “Shipping Company) was engaged in ferry services in the 1970’s and the 1980’s between Gedser and Travemünde and was paying dock charges to a Carrier (hereinafter the “Carrier”) who owned the harbour. In april 1987, the Shipping Company went bankrupt and the Carrier proved a claim against the debtor’s estate of DKK 3.9 million, among other claims. The claim was acknowledged as an ordinary claim in the estate in 1994 and the Carrier received a dividend of the claim in the same year.

 

In a judgment pronounced by the Danish Supreme Court in 2005, the court stated that the Carrier was to pay the Shipping Company DKK 10 million for wrongfully charged dock fees in the period from January 1985 until February 1987. Further, the Shipping Company had a statute-barred claim, also concerning wrongfully charged dock fees, for the period from June 1982 until January 1985, and, therefore, the bankruptcy estate wished to set-off the statute-barred claim against the Carrier’s ordinary claim of DKK 3.9 million. The bankruptcy estate’s set-off statement was sent in March 2002. The Carrier’s set-off statement was not put forward until 2005.

 

The carrier now had a non statute-barred claim against the bankruptcy estate constituting DKK 3.9 million, the estate had a claim against the carrier constituting DKK 10 million and, furthermore, the estate had a statute-barred claim against the carrier.

 

The problem and the legal foundation

In the present case, the question was whether the bankruptcy estate could use the statute-barred claim from before 1985 for set-off against the claim concerning the wrongfully charged dock fees constituting a dividend of approximately DKK 3.9 million.

 

In the Danish legal system, a number of conditions have to be met in order to use claims for set-off. As a starting point, the conditions also apply to bankruptcy, but the matter is regulated by the Danish Bankruptcy Act, Section 42, as far as set-off for a bankruptcy creditor is concerned.

 

A supplement to the conditions for set-off – both inside and outside bankruptcy – is, that an extended access to set-off applies, if the claims are connected, which, in legal terms, means that the claims derive from the same legal matters.

 

If a creditor is given access to use his claim for set-off in a bankruptcy estate, he may set off the whole claim and not only the dividend of the claim. The creditor’s access to set off in a bankruptcy estate is, thus, particularly important to the rest of the creditors because their dividend may be substatially reduced by the set-off.

 

On the other hand, it is also of radical importance to a creditor who has a counterclaim on the deptor, to be granted access to set-off, because, otherwise, he has to pay all of his debt to the estate while only receiving dividend of his claim.

 

The court’s verdict

In its remarks, The Bankruptcy Court stated that the claims were not to be considered connected as there wasn’t a sufficient connection between the Shipping Company’s claim concerning refund of the wronfully charged dock fees and the main claim regarding the Shipping Company’s use of the harbour. The Bankruptcy Court noted that the estate had displayed passivity resulting in forfeiture of rights by failing to maintain the claims during the trial in 2005.

 

The Bankruptcy Court declined the estate’s set-off for this reason.

 

The Eastern Highcourt of Denmark upheld the judgment of the Bankruptcy Court, and so did the Danish Supreme Court in February 2010.

 

The Danish Supreme Court did not take a stand on whether the claims were connected or not, but based its decision on the fact that, in a situation in which the parties have equal, non statute-barred claims against each other, a bankruptcy estate may not, by being the first to present a set-off statement, decide what the outcome of the settlement between the parties shall be, among other things, which claims shall be covered by a set-off. On the other hand, the Shipping Company was entitled to make up its non statute-barred claim in the non statute-barred claim of the bankruptcy estate.

 

Consequences

The problem in the judgment is relevant where two parties have more than two claims between them. In situations where two parties only have two claims, no dispute will exist as to which claims should be used for set-off. In the current situation, where three claims in total existed between the parties, the judgment pinpoints that the access to make up a settlement by set-off does not depend on who presents a statement of set-off first, when the parties have equal, non statute-barred claims against each other. In the current situation, the parties had two equal claims and one statute-barred claim. Therefore, the verdict pinpoints that the access for a creditor to set-off is not limited by the estate of bankruptcy’s earlier statement of set-off. 

 

 

If you have questions regarding the above or require additional information on set-off or bankruptcy, please contact attorney Thomas Weitemeyer (twe@mwblaw.dk), junior associate Anders Kjær Dybdahl Pedersen (akd@mwblaw.dk) or trainee Natalie Judit Pressler (njp@mwblaw.dk).

 

The above does not constitute legal counselling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions of considerations.