Transfer of receivables that are difficult to collect

Recently, the Dutch Supreme Court ruled a judgment (HR 9 July 2021, ECLI:NL:HR:2021:1101) that may be relevant for parties who (periodically) sell and purchase receivables. We refer to our previous newsletter that may also be relevant for such parties as well as our previous newsletter on transfer of receivables in general.

Background

The judgment relates to the situation in which Vodafone Libertel B.V. (Vodafone) transferred receivables against consumers under agreements pursuant to which those consumers purchased telephone subscriptions whereby those consumers also were provided with a ‘free’ telephone. Vodafone transferred such receivables on a weekly basis to Hoist Finance AB (Hoist) against payment by Hoist of 50% of the nominal value of such receivables. Hoist was obliged to accept the transfer of those receivables, unless certain specific events as described in the agreement between Vodafone and Hoist occurred. If, after the transfer of the relevant receivables, it turns out that one of those events occurred, Hoist was entitled to re-transfer such receivables to Vodafone under the agreement. Hoist, a party that specializes in the acquisition of debts and in debt management (in particular in relation to consumers that are in arrears with payments), outsourced the debt collection in respect of the transferred receivables to a bailiff’s office.

With respect to the receivables that Vodafone transfers under the agreement, previous judgments of the Dutch Supreme Courts are relevant. The Dutch Supreme Court previously ruled (HR 13 June 2014, ECLI:NL:HR:2014:1385) that in respect of the agreements from which the receivables arise the laws and regulations regarding consumer credit and instalment buying (koop op afbetaling) are applicable. In that judgment, the Dutch Supreme Court also ruled that if such agreements violate any such laws and regulations, the consumer could annul (vernietigen) the agreement whereby the annulment or the consequence of having no legal effect will only relate to the part of the agreement that relates to the ‘free telephone’ (hence not the part that relates to the telephone subscription). In another judgment (HR 12 February 2016, ECLI:NL:HR:2016:236), the Dutch Supreme Court ruled that courts must apply the laws and regulations regarding instalment buying on its own motion (ambtshalve).

Hoist argues that the transferred receivable are nonexistent because the court (if need be on its own motion) could rule that the underlying consumer agreements have no legal effect and that therefore Vodafone defaults under the transfer agreement with Hoist (the Transfer Agreement). In addition, Hoist argues that the receivables are not in conformity with the requirements as laid down in the Transfer Agreement as the underlying consumer agreements could be annulled.

Considerations of the Dutch Supreme Court

In the judgment, the Dutch Supreme Court considers that Hoist’s complaint cannot result in cassation of the judgment by the court of appeal to the extent that complaint is based on the argument that the transferred receivables are nonexistent. The Dutch Supreme Court considers that Hoist in the first instance and in appeal insufficiently disputed that (i) in each case a receivable was transferred to Hoist that consisted of two parts, being (a) a part that relates to the costs of the telephone subscription and (b) a part that relates to the costs in relation to the telephone itself, (ii) the part of the underlying consumer agreement that relates to the telephone subscription remains in full force and effect (whereby it is considered that this may have an impact on the nominal value of the relevant receivable), and (iii) in relation to each underlying consumer agreement, in each case an existing receivable has been transferred, i.e. the receivable that relates to the costs of the telephone subscription.

The Dutch Supreme Court proceeds with addressing Hoist’s arguments in relation to the non-conformity of the transferred receivables. As noted above, Hoist argues that the receivables are not in conformity with the requirements under the Transfer Agreement and hence, in violation of section 7:17 of the Dutch Civil Code (DCC). Section 7:17 DCC states that (in this case) a subject of a sale and purchase is not in conformity with the requirements under an agreement if, taking into consideration the nature of the subject and the statements made in relation to that subject, the subject does not posses the characteristics that the purchaser is entitled to expect on the basis of the agreement. In that regard, all circumstances are relevant, whereby it will be particularly relevant what has been agreed by Vodafone and Hoist in the Transfer Agreement which should be established on the basis of (an interpretation of) that Transfer Agreement. In that regard, the fact that Vodafone and Hoist agreed upon specific events that indicate that the receivables are not in conformity with the Transfer Agreement within the meaning of section 7:17 DCC is particularly relevant. As noted above, the Transfer Agreement stated that Hoist was obliged to accept the transfer of those receivables, unless one or more of those specific events occurred. Those specific events related to situations in which collecting the receivables would prove to be difficult or impossible. The risk in relation to such receivables therefore remained with Vodafone. The situation at hand (i.e. consumer agreements that can be (partly) annulled and may remain without legal effect) was not provided for in the list of specific events as included in the Transfer Agreement. Consequently, the Dutch Supreme Courts considers that the court of appeal’s reasoning that the risk in relation to the transferred receivables therefore remains for the account of Hoist if that risk relates to events or circumstances not provided for in the Transfer Agreement does not result in an incorrect interpretation of the law and is also not incomprehensible.

The Dutch Supreme Court also addressed the argument of Hoist that Vodafone acted in violation of section 7:15 DCC by transferring receivables that were not free from any encumbrances and restrictions. The Dutch Supreme Court states that section 7:15 DCC does not relate to transferred receivables that prove to be difficult or impossible to collect as a result of the underlying agreement being (partly) void (nietig) or voidable (vernietigbaar). The Dutch Supreme Court upheld the ruling of the court of appeal that such a characteristic does not qualify as an encumbrance or restriction within the meaning of section 7:15 DCC.

Concluding remarks

Parties that are involved in receivable purchase transactions on the basis of transfer agreements should address and document the characteristics that should be met in respect of the receivables that are subject to such transactions. As appears from this judgment of the Dutch Supreme Court, listing those characteristics may be helpful. However, in that case, all the characteristics / events not provided for should be taken into account as well and the risk allocation in relation to such receivables should be documented as well.

If you are a party that is or will be involved in receivable purchase transactions or require advice in general, please feel free to contact Lucas Lustermans (l.lustermans@ploum.nl or +31619850096) or Joost Kool (j.kool@ploum.nl of +31610177339).