Privileged nature of tax debts on the basis of article 37 of the Act on Continuity of Enterprises continues to be a hot topic…

Article 37 of the Act on Continuity of Enterprises states that "claims against the debtor related to services provided by its co-contractor during a judicial reorganization are to be qualified as privileged claims in a subsequent bankruptcy". Both the doctrine and case law are divided as to how this article should be interpreted, in particular whether or not only a direct co-contractor of the debtor can invoke the privileged nature of its claim. This discussion is particularly relevant with regard to claims for advance business tax, VAT claims and other tax debts.

In a decision of 16 May 2014, the French chamber of the Court of Cassation ruled that the claim by the tax authorities for advance business tax in respect of performances during a judicial reorganization qualifies as a privileged claim in a later bankruptcy. According to the Court of Cassation, it is not necessary for the creditor to be a co-contractor of the debtor, as long as the claim is linked to performances that were conducted during the judicial reorganization. The Court of Cassation thus appeared to side with the minority opinion that the lack of a specific contract does not prevent a creditor from having a privileged claim.

However, on 27 March 2015, the Dutch chamber of the Court of Cassation decided exactly the opposite in two separate but similar decisions. Here, the Court of Cassation ruled that article 37 should be interpreted restrictively and that only creditors that have a direct contractual link with the debtor can be considered as privileged creditors. As the tax authorities have no contract with the company, their claims cannot be considered privileged. Although much can be said in favour of tax authorities not having a privileged claim in a bankruptcy as they do not provide services that contribute to the continuity of the company's business, it is unfortunate that the Court of Cassation emphasized the lack of a contract instead of using economic arguments.

These contradictory decisions by the Court of Cassation also impact creditors that seek compensation on an extra-contractual basis for services or goods used by the company in difficulty (e.g. an owner of machines who seeks compensation for the use of these machines without title by the company in difficulty). Unfortunately, as long as article 37 keeps on referring to a “co-contractor” instead of linking the privileged nature of the claim to the question of whether or not the underlying object of the claim was beneficiary to the continuity of the company, the uncertainty will remain.