Staying afloat in the transport sector
When transport companies go bankrupt they tend to drag other transport companies along in their wake. What might be the most useful and effective legal remedy for transport companies to avert this danger?
If one sector is suffering heavily as a result of the economic crisis it is the transport sector. A relatively large number of bankruptcies have occurred in the transport sector. What is particularly striking in this respect is the fact that quite a lot of reputable companies have perished, often companies with a long history and tradition.
When transport companies go bankrupt they tend to drag other transport companies along in their wake. What might contribute to this is the fact that some transport companies are commissioned to carry goods for other transport companies. When one goes bankrupt the other is left with unpaid bills. In that way one company’s bankruptcy has heavy consequences for the other company’s revenue. In the light of these problems, what might be the most useful and effective legal remedy for transport companies to avert this danger?
One legal tool that can be deployed is retention (art. 3:290 Dutch Civil Code). The right to retention is elaborated both in Book 8 of the Dutch Civil Code and in the General Transport Conditions (AVC) which are widely used in the transport sector. Retention, as it is laid down in the Dutch Civil Code and the AVC, provides the creditor with the right to suspend his legal obligation to return the goods that he is currently carrying on the commission of the debtor until the debtor fulfills his side of the agreement. Invocation of the right to retention enables a transporter to temporarily hold on to the goods which he is transporting for the debtor, thereby pressuring the debtor to pay what is legally due. In that way the right to retention can be a useful resource to stay afloat in these economically harsh times that have been especially cruel to the transport sector.
However the right to retention can only be invoked in order to temporarily suspend one’s obligation to return the transported goods. In itself it does not enable a transporter to sell the goods at a public auction. This requires him to first go to court to request judicial authorisation for precautionary seizure of the goods. If the debtor still fails to uphold his side of the bargain a lawsuit is required in order to seek legal enforcement (typically by way of a writ of execution). This enables the creditor to have the goods auctioned by a bailiff, as is laid down in art. 462 Dutch Code of Civil Procedure.
One major advantage of the invocation of the right to retention becomes obvious once one’s debtor goes bankrupt. In that case the creditor keeps his right to retention, as is laid down in art. 60 of the Dutch Bankruptcy Code. His right to retention is a privileged one and as such, antecedes any unsecured claims that are filed by other debtors. This allows the creditor to avoid most adverse effects of the debtor’s bankruptcy. In that way transport companies are in fact equipped with a powerful legal tool with which they can avoid being sucked into their debtor’s bankruptcy. This can be of quite some consolation in these economically harsh times.