High Court: Dismissal of appeal

The case concerned the voidability under section 67 of the Danish Bankruptcy Act, cf. section 75 of said Act, of two on-account payments of approx. DKK 2.1m made by a contractor to a subcontractor shortly before the former’s bankruptcy.

The provision in section 67(1), 2nd limb, of the Bankruptcy Act provides that payment of a debt effected ‘before the normal date for payment’ may be avoided if effected later than three months before the reference date and if the payment does not appear ‘ordinary’.

The District Court found that these payments had been made 10 and 3 days before the final due date, respectively, and that the contractor usually made payments to the subcontractor on or after the final due date. Finding also that the ‘normal date for payment’ was unlikely to mean anytime earlier than the final due date, the District Court found it would be for the subcontractor to prove that these payments had not been made before the normal date for payment. That burden of proof, the District Court found, had not been discharged.

Next, the District Court found that the subcontractor had also failed to demonstrate the existence of circumstances justifying the afore-mentioned early payments (the assessment of ordinariness). The subcontractor’s arguments of a ‘continuous commercial balance’ and of the payments being intended to ‘ensure the promotion and completion of the work” could not lead to a different outcome.

Lastly, the District Court found that the subcontractor had failed to demonstrate with ‘a significant degree of certainty” that the invoices in question would in any event have been paid on the final due date before the bankruptcy, i.a. with reference to the fact that at the time of bankruptcy the contractor had unpaid overdue debts of approximately DKK 59m. It is an argument payees often make citing Supreme Court judgment U 1999.1587 H for support. Said Supreme Court judgment, however, reflects a very restricted access to present evidence of an ‘alternative course of events’ in the case of a judgment reasoned on concrete facts. Indeed, as far as we can tell, there has been no example since then of that burden of proof having been discharged to the court’s satisfaction—and this case was no exception.

The District Court agreed with the bankruptcy estate that the payments, totalling approx. DKK 2.1m, were voidable and ordered that they be repaid to the estate, to be distributed equally among the creditors.

The subcontractor lodged an appeal against the District Court’s decision with the Eastern Division of the Danish High Court. The bankruptcy estate, in response, claimed dismissal of the appeal under section 368a of the Administration of Justice Act. The High Court may refuse to hear an appeal if there are no prospects of the High Court reaching another conclusion than the District Court and the appeal does not concern fundamental legal questions or where no other reasons exist in general in favour of hearing the case before the High Court.

Arguing against dismissal, the subcontractor produced new documents (invoices) and proposed new witnesses to testify on normal invoicing practices and on the works for which the invoices were issued.

The High Court found that there were no prospects of the High Court reaching another conclusion than the District Court and, finding no other reasons in favour of hearing the case, dismissed the appeal.

In the view of the bankruptcy estate, the judgment of the Eastern High Court is consistent with the intentions behind the objective rules of avoidance, i.a. that a production of new witnesses showed no prospects of achieving a different outcome.

The case was prepared and conducted in the District and High Courts by attorney Marie Bayer Thode and Holst, Advokater’s team of litigation specialists. If you have any questions about this case, please direct them to attorney Marie Bayer Thode.