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No avoidance to reduction of overdraft facility before bank enforced floating charge

Judgment was entered in favour of a bank during avoidance proceedings. Holst, Advokater represented the bank during the proceedings

In December 2021, the Danish Supreme Court found that only in very special cases, avoidance may be made to a reduction of an overdraft facility, if the reduction is made by means of floating charge funds. Holst, represented the bank during the proceedings in December 2021.

In April 2023, the District Court in Herning decided in a similar case about avoiding the reduction made to an overdraft facility comprised by a floating charge.

The bankruptcy estate after a car dealer business, which had become subject to restructuring proceedings on 15 March 2021 and subsequently subject to bankruptcy proceedings on 9 April 2021 with reference date 11 March 2021, had initiated legal proceedings against the bank. The parties agreed that the overdraft facility of the business in the amount of DKK 2.4 million had been reduced by DKK 563,610.07 from 25 February 2021 until 11 March 2021. The parties also agreed that the bank only enforced its floating charge in the amount of DKK 2.4 million on 11 March 2021. During the proceedings, the bankruptcy estate claimed that the reduction should be avoided according to section 67 or section 74 of the Danish Bankruptcy Act, and that the bank should disclaim the enrichment and pay compensation.

The court began by stating that it was for the bankruptcy estate to prove that the bank had become enriched, or that the estate had sustained a loss. After the witness statements, the court then found that the business until 5 March 2021 had the right of disposal of the overdraft facility within the credit limit, and that the credit facility was shut down on this date for further withdrawals. During the period, payments had been made into the account of DKK 779.967,88 from various invoices, etc., DKK 75,944.20 from debit card payments and DKK 56,875.53 from insurances.

The court concluded that the bankruptcy estate had not proved that the payments made by means of invoices and debit cards did not to a reasonable extent constitute payments of outstanding debts comprised by the bank’s floating charge or payments in connection with the sale of goods that previously had been comprised by the charge. Nor had the bankruptcy estate substantiated that the payments from insurances were not covered by the floating charge. Therefore, the bankruptcy estate had not proved that the bank had become enriched by the reduction of the overdraft facility, including that the reduction was not secured under the floating charge, and hence judgment was entered in favour of the bank.

The judgment is in line with the principles of the judgment delivered by the Supreme Court in December 2021 that failing enforcement of a floating charge does not automatically entail avoidance of a reduction of an overdraft facility prior to bankruptcy proceedings.

Assistant attorney Marie Bayer Thode of Holst, Advokater represented the bank during the preparation of the case and during the final hearing.