Actio Pauliana

The principle that agreements must be kept (pacta sunt servanda) is not always respected – it often happens that debtors fail to meet their obligations and creditors are forced to pursue their rights in court. However, even the most favourable judgment will become a Pyrrhic victory if it cannot be enforced because the debtor may, before, during or even after obtaining a final judgment, become insolvent by disposing of his assets. The actio pauliana is an institution that is supposed to limit the risk of harming creditors. 

An actio pauliana is an action against a person who has acquired property from a debtor, e.g. a buyer of real estate. If the creditor is unable to satisfy a claim from the debtor due to ineffective enforcement, they can bring an action against the buyer of the real estate and obtain satisfaction from the property that the debtor has disposed of (e.g. enforce against the property that the debtor has sold). A judgment in actio pauliana proceedings opens up the possibility to extend enforcement to property that no longer belongs to the debtor.

The prerequisites for filing an actio pauliana are proof of the claim (preferably by an official document, in particular a court judgment, although this is not an exclusive means of proof) and of the insolvency of the debtor, which is most likely to be confirmed by the bailiff’s decision to discontinue enforcement, though this prerequisite can also be demonstrated otherwise. In addition, it must be proven in court that the debtor, when disposing of the assets, was aware of the prejudice that the act caused to the interests of the creditor, i.e. they could have assumed that the transaction would undermine the ability to pay the debt. Furthermore, it must also be shown that the beneficiary could have realised that the transaction would lead to the debtor’s insolvency.

Most often, the disposal of assets involves close relatives or entities connected by business relations. For this reason, the regulations provide the creditor with a presumption that the third-party beneficiary was aware that the debtor’s act would be prejudicial to the creditor. The creditor may also use similar advantages if the debtor disposes of an asset on the basis of a donation agreement.

An actio pauliana may be brought within five years of the act that led to the debtor’s insolvency; it may be brought not only against the direct buyer of the asset, but also against any subsequent buyers. A condition for the action to be effective, however, is that all the prerequisites specified in the regulations are met in relation to the defendant.

Before or upon filing an actio pauliana, it is worth trying to seek an injunction until the end of the proceedings. In the injunction order, the court may prohibit the defendant (the beneficiary) from disposing of the property, which will improve the creditor’s chances of being satisfied from the property.

An actio pauliana is a creditor’s last resort in trying to get paid – despite a complicated formula for applying this mechanism – and it is worth considering using it against disloyal business partners.