The Court of Appeal of Arnhem-Leeuwarden recently heard a case in which the question arose whether a garnishee (the person against whom the garnishment had been levied) should not itself be ordered to pay the claim for which the garnishment had been levied, given the summary nature of the garnishment declaration. The third-party garnishee was a legal entity without employees that had declared that it owed nothing to the garnishee, who did work for the company (DGA and director).

What was at stake here?

This case involved a garnishment by a municipality.

The municipality had imposed several distress orders on Mr A and Ms B. Administrative proceedings had been conducted in this respect, after which the municipality had taken recovery decisions and issued writs of execution. The municipality claimed forfeited penalty payments. These remained unpaid.

Mr A and Ms B were sole shareholders and directors of a BV. A garnishee order was issued by the municipality against that company, after which that company declared that it owed nothing to Mr A and Ms B. Subsequently, another garnishee order was placed by the municipality under the company, after which the company stated that no salary was paid to Mr A and Ms B and that the funds these parties withdrew for living expenses were registered as loans.

According to the municipality, the latter declaration was so summary that it should be equated to a failure to declare. The court followed the municipality in this and ruled that the statement did not meet the requirements of sections 476a Rv and 476b of the Code of Judicial Procedure (Rv). The third-party garnishee was ordered to pay the municipality €98,000, plus interest and costs.

The third-party garnishee subsequently appealed

Judgment of the Court of Appeal

The court of appeal upheld the court's judgment.

The court had already considered that a third party under garnishment must make a declaration of the claims affected by the garnishment. This statement must be reasoned and must relate to claims that already exist or will arise from a legal relationship that already existed at the time of the attachment. As far as possible, the declaration must be accompanied by ‘supporting documents’. If no declaration is made, the third party may be involved in a declaration procedure and may be ordered to pay the amount for which attachment has been levied ‘as if he were a debtor’ (article 477a Rv, paragraph 1). This is also possible if, in the circumstances, a statement that has been made can be equated with a complete failure to make a statement.

On appeal, the company argued that - contrary to what the court had assumed - it had made a statement that met the requirements of the law: Mr A and Ms B were not employees of it, and as directors they did not receive any remuneration. In consultation with the tax adviser, it had therefore been determined that no payroll tax was payable from February 2020 either. Moreover, there were no payment obligations to Mr A and Ms B in private.

The court noted that this did not raise a defence that had not already been weighed by the court and found to be too light on good grounds. For clarity, the court once again listed the circumstances that led to the conclusion that the statement that had been made was so deficient that it had to be equated in its effects with not making a statement:

• The company's statement was not reasoned, even after requesting further substantiation.
• The company had not used the model form referred to in Section 475 Rv and had virtually failed to provide the short statement it did make - despite requests to do so and assurances given at the court hearing - with documentary evidence (not sufficiently ‘substantiated by documents’). There was reason to do so for the following reasons:
  • Mr A and Ms B were the only ones within the company engaged in the management, marketing and leasing of real estate. They were also DGAs and for that reason could be deemed to receive reasonable remuneration - both under section 479a Rv and under the customary wage scheme in section 12a of the Wage Tax Act. It had not been made clear why that would not apply to them.
  • Apparently, wage tax returns were still being filed until shortly after the attachment. That called for documents that might indicate 0 returns or refunds. These were missing.
  • The funds withdrawn for Mr A and Ms B's living expenses would have been registered as loans. Reference was made to the relevant agreement, but that too was missing.
  • The company could also have provided annual or other accounting records to support the statement - draft or otherwise.
  • An available notarial deed dated 20 March 2019 showed a loan of €372,000 from Ms A to the company. That deed referred to the relevant, private money loan agreement. However, that document was missing. Without an explanation, it was not plausible that no interest was due for this loan.
    .

Conclusion

A creditor can place a garnishment on, for example, movable property or claims with a third party. This third party is obliged to issue a statement of what it owes to the debtor. If the declaration is not issued or is insufficiently substantiated, the garnishee may be held liable for the debtor's entire debt. Providing an understated or incorrect declaration can be equated to failing to make a declaration and can therefore have very far-reaching consequences. Incidentally, to get the third-party garnishee convicted, the creditor still needs to file a claim with the court.

If you have any questions or need advice on seizure or foreclosure proceedings, please contact one of our lawyers without obligation. We will be happy to assist you!