On 13 March 2026, the Dutch Supreme Court rendered an important judgment about the scope of Section 54 of the Bankruptcy Act (“BA”). As soon as a bank knows or ought to know that its account holder is expected to go bankrupt, it can no longer set off any inbound payments against its own claims against the account holder. The same rule applies if those amounts are used immediately afterwards to make outgoing payments from the same account.
Section 54 BA
Section 54 (1) BA restricts the option of set-off if a person who, before the bankruptcy order, has assumed from a third party a debt owed to or a claim against the debtor of a third party, having acted not in good faith. No good faith exists if the person who wants effect a set-off knew or ought to know that the debtor was in such a condition that its bankruptcy was to be expected. That time is usually referred to as the ‘reference time’.
The case
After the reference time, the account holder made payments to third parties from its bank account, even though the balance on that account was negative. These payments could be carried out anyway, because room for credit had been freed after receipt of NOW benefits. Shortly afterwards, the bankruptcy followed. The trustee then requested the bank to transfer the NOW benefits to the bankruptcy account. The bank refused to do this, because it believed that the amount had been set off already against the payments that had been made.
This begged the question whether Section 54 FA also applies if amounts come in after the reference time, and the credit room thus opened is used immediately afterwards for outbound amounts.
Set-off in face of bankruptcy
When a debtor of the debtor pays to their bank account, the bank becomes the debtor of the account holder as a result of crediting. The account holder then no longer has a claim against the payer, but against the bank. If the account is in the red, the bank can in principle set off an inbound payment against its own claim against the account holder.[1]
This is different if the bank knew or ought to know at that time that the bankruptcy was to be expected. In that case, Section 54 BA precludes a set-off.
Judgments of the Court of Appeal and the Supreme Court
The Court of Appeal held that Section 54 (1) BA did not preclude a set-off of the debt that arises for the bank as a result of crediting of an inbound payment after the reference moment, against the claim the bank obtains after that because it is still performing payment orders.
The Supreme Court rejected that approach. After the reference time, the bank cannot set off any inbound payments anymore. There are no exceptions to this rule for cases in which those amounts are used immediately afterwards for outbound amounts. The fact that they were actually used for payment orders does not make the set-off permissible after all.
From an economic perspective, the opinion of the Court of Appeal is understandable. The Court of Appeal appears to attach weight to the fact that the inbound amounts are immediately re-used for outbound payments. Based on that idea, there would be no conflict with the principle of equality of creditors, while banks would be prejudiced from their central position in payment traffic if the opinion would be different.
However, this approach does not hold water legally. It accepts an exception to Section 54 BA that is not supported by Dutch law. It cannot be understood either why the later use of the credit room would be decisive to the question as to whether setting off was allowed in the first place. With this judgment the Supreme Court has drawn a harsh, but legally pure line.
Meaning for practice
For trustees, this judgment confirms that inbound payments can also accrue to the estate in bankruptcy if those payments were used to make outbound payments shortly after that time. For banks, this judgment emphasizes that they must be extremely reticent from the reference time onwards when processing payment traffic on accounts with a negative balance. Vigilance is called for.
[1] According to established case law of the Dutch Supreme Court, crediting is the takeover of a debt by the bank (see HR Loeffen qq / MHB).
